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With the enactment of the One Big Beautiful Bill (OBBB) Act, many in the investment community have sounded the death knell on solar power investment. Yet, much like Mark Twain famously remarked that the report of his death was an exaggeration, renewable energy is not on life support. In fact, you could argue the exact opposite — investment in the right type of solar projects just became an even hotter near-term prospect.
The OBBB Act ended Federal Investment Tax Credits (ITCs) for solar development. However, the details regarding the key dates for this phase-out are crucial. Developers who move quickly can continue to qualify for the 30% (up to 60%) tax credit as long as projects begin construction by July 4, 2026, or are placed in service by the end of 2027.
Given the tight timelines, those who want to capitalize on this limited-time opportunity must focus on two important elements: projects that can break ground in months, not years, and that have access to an adequate source of funding.
On the first point, we see the greatest opportunity in a subset of distributed generation projects called “community solar,” which are mid-sized developments falling somewhere between residential rooftop solar and utility-scale projects in size. Even before the passage of the OBBB Act, community solar offered a clear value proposition via shorter development timelines. These commercial-scale projects also operate at higher margins, as projects can sell energy back to the grid at retail rather than wholesale prices, offering a large boost in project valuations, even before accounting for ITCs.
Secondly, since distributed generation projects are smaller in scope, they are often overlooked by the large institutional players. In this challenging environment, with the immediate ripple effects of OBBB causing many investors to prematurely exit the solar market, smaller developers are in jeopardy of losing funding. This is unfortunate because, with the right resources, these projects can both qualify for the full tax credits and provide investors with a healthy return in roughly 12 to 18 months. Having a fund that is equipped to deploy quickly to rescue these projects is a win-win for developers, investors, power consumers, and the environment.
Low Costs and Fast Startup Times a Plus
Though solar is now a boogeyman in the culture wars, the truth is that it is both among the cheapest forms of energy (even without subsidies) and one of the fastest segments of the energy industry to bring additional capacity onto the grid. For these reasons, we believe that even after the expiration of ITCs, solar and wind will continue to be an important component of the American energy supply.
Once federal ITCs expire, developers will not bear the burden alone; the impact will be spread across the entire energy ecosystem. With demand for solar panels likely to fall in the future, suppliers of solar panels will have little choice but to lower their prices. At the same time, we expect energy prices to increase, so retail customers will have to pay more for electricity. These changes will positively impact margins for developers and investors in solar projects. Ultimately, all the industry players will bear a part of the burden from subsidies lost, leaving an industry that is perhaps diminished, yet still very viable.
Of course, states have a role to play, too. With the federal government abandoning the arena, individual states are likely to help fill the vacuum. Today, 30 states and Washington, D.C., have specific Renewable Portfolio Standards, and 15 of those have specific solar carve outs. States with these standards directly encourage renewable, and more specifically, solar-energy development through Renewable Energy Credits, which are performance payments based on how much energy their renewable systems generate. Many states also offer rebates on solar panel installation to reduce upfront costs.
While ITCs for solar and wind are set to expire by 2027, the OBBB has a carve-out for energy storage, which will phase out in 2032. So, after 2027, smart developers, working with a well-funded capital partner, can ensure that projects maximize federal tax credits and incorporate energy storage to deliver maximum value.
Energy independence and security is about having a range of solutions, not being beholden to a single source. Investment in renewable energy, such as solar and wind, will not cease, as an all-of-the-above strategy is integral to our continued success on the world stage.
With Washington, D.C., abandoning its role as a leader in the clean-energy revolution, states and businesses will pick up the mantle over time. They are well aware that energy fuels American innovation and the forward march of progress. Once the ITCs have sunset, we still believe solar has a key role to play, and in the near term the opportunity for community solar development is undeniable.
Max Jackson is managing director at Ballast Rock Asset Management, a premier alternatives asset manager specializing in real estate, renewable energy, and growth private equity investments.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
