U.S. Solar Sector Faces Policy Headwinds as Key Players Pursue Strategic Growth
U.S. Solar Sector Navigates Policy Headwinds and Trade Challenges
The U.S. solar industry witnessed a notable contraction in the second quarter of 2025, with overall installations declining amidst a complex landscape of evolving federal policies and persistent trade challenges. This downturn, however, has been met with strategic maneuvering from prominent firms within the sector, including Sunrun Inc. (RUN), Shoals Technologies Group (SHLS), and Tigo Energy Inc. (TYGO), which are actively pursuing alternative growth avenues to offset domestic pressures.
Deterioration in Q2 2025 Installation Rates
Total U.S. solar capacity installations in Q2 2025 reached 7.5 gigawatts direct current (GWdc), marking a 24% decrease compared to the same period in 2024 and a 28% reduction from Q1 2025. This decline was broadly distributed across market segments, with utility-scale installations falling by 28% year-over-year to 5.7 GWdc, and the residential segment experiencing a 9% year-over-year decline with 1,064 megawatts direct current (MWdc) installed. The community solar segment saw the most significant contraction, plummeting by 52% year-over-year to 174 MWdc as programs in key state markets reached capacity. In contrast, the commercial solar segment demonstrated resilience, recording a 27% year-over-year growth to 585 MWdc, largely supported by a robust pipeline of NEM 2.0 installations in California.
Policy Shifts and Escalating Costs Weigh on Domestic Growth
A primary driver of the industry's recent performance has been the introduction of the One Big Beautiful Bill Act (OBBBA) in July 2025. This legislation significantly altered the policy framework by curtailing access to federal tax credits, specifically terminating Section 48E and 45Y tax credits for the solar industry after 2027 and Section 25D tax credits (for residential solar) after 2025. The OBBBA also introduced new Foreign Entities of Concern (FEOC) requirements, which Wood Mackenzie analysis suggests could impact approximately half of the operational solar manufacturing capacity in the coming quarters.
Simultaneously, the industry has grappled with escalating costs due to trade actions. Tariffs implemented in April 2025 by the Trump administration introduced a 10% baseline, further compounded by Anti-Dumping/Countervailing Duty (AD/CVD) cases on solar cells and modules. These measures resulted in a 13% year-over-year increase in module costs across distributed generation segments. Furthermore, EPC (engineering, procurement, and construction) overhead costs, alongside permitting and logistics, surged by an average of 30% year-over-year, significantly compressing profit margins for developers. The U.S. Department of Commerce's August 2025 initiation of AD/CVD investigations on solar imports from India, Indonesia, and Laos introduces further uncertainty, with potential tariff risks of up to 64% for Indian exporters and cash deposits for U.S. importers reaching up to 190% on solar modules.
Individual Firms Demonstrate Strategic Agility Amidst Sectoral Pressures
Despite the challenging domestic environment, certain companies have showcased strategic resilience and growth. Sunrun Inc. (RUN), a leading residential solar provider, announced its fifteenth securitization since 2015 in September 2025. The company successfully raised over $1.5 billion in non-recourse debt financing in Q3 2025 alone, demonstrating robust capital market access. Analysts project Sunrun's 2025 revenues to improve by 11.2% from the prior year, reflecting its ability to navigate financing complexities.
Shoals Technologies Group (SHLS), a manufacturer of solar balance of systems products, is expanding its international footprint. In August 2025, the company commenced the Maryvale Solar and Energy Storage Project in Australia, a substantial 243 MW solar and 172 MW battery storage system. This project significantly bolsters Shoals' global presence, with a long-term earnings growth rate projected at 24%.
Tigo Energy Inc. (TYGO), an intelligent solar and energy storage solutions provider, achieved a key international milestone in September 2025 with the certification of its EI Residential solution in Slovakia. This compliance approval opens doors for broader adoption in European residential solar markets, contributing to a substantial 91.9% improvement projected for its 2025 sales.
Broader Market Performance and Long-Term Outlook
The broader Zacks Solar industry has underperformed significantly, declining by 22.5% over the past year. This contrasts sharply with the Oils-Energy sector, which rose 4.5%, and the Zacks S&P 500 composite, which surged 18.8% over the same period. This divergence underscores the specific headwinds impacting the solar sector.
Despite short-term challenges, long-term projections for solar energy remain robust. The U.S. Energy Information Administration (EIA) anticipates solar power will account for over half of new U.S. electricity generation in 2025. Indeed, solar photovoltaic (PV) represented 56% of new electricity-generating capacity added to the U.S. grid in the first half of 2025. However, deployment forecasts have been revised downwards, with the base case for total solar deployments from 2025-2030 now at 246 GWdc, a 4% reduction from pre-OBBBA outlooks, and a pessimistic low-case scenario predicting an 18% reduction to 202 GWdc.
Expert Perspectives and Future Considerations
Industry analysts and organizations emphasize the critical impact of policy uncertainty. The Solar Energy Industries Association (SEIA) attributes the Q2 downturn to a combination of unfavorable federal policies and trade challenges. The ongoing AD/CVD investigations, with the U.S. International Trade Commission (ITC) expected to issue its preliminary injury determination in September 2025 and final duties by April 2026, pose further risks of supply chain disruptions and increased project costs.
Looking ahead, the U.S. solar industry will continue to contend with policy volatility and cost pressures. Key factors to monitor include the resolution of AD/CVD cases, potential revisions to federal energy policies, and the industry's ability to diversify supply chains and financing models. While demand for renewable energy persists, the immediate future necessitates adaptability and strategic innovation from market participants to navigate the complex regulatory and economic landscape. The performance of companies like Sunrun, Shoals Technologies, and Tigo Energy in securing financing and expanding internationally will serve as a bellwether for the broader industry's long-term resilience and growth trajectory.
