US Residential Solar 2026: Decline, NEM 3.0, TPO

Last updated: November 2026

Many 2026 residential proposals still carry a line for a 30% federal credit that homeowners can no longer claim. The IRS states that the residential clean energy credit (Section 25D) is not available for property placed in service after December 31, 2025. That one change is reshaping how US residential solar is priced, financed and sold.

This guide covers where the market stands, what the sources actually report, how California’s NEM 3.0 and third-party ownership fit in, and what installers should change in their quoting. Every figure below is attributed to the source it came from.

Where the US Residential Solar Market Stands in 2026

The residential market is in a post-incentive reset: 2025 installs held roughly flat as buyers rushed to beat the credit deadline, and 2026 is forecast to fall sharply. The table collects the figures that could be checked against a published source.

Sources: SEIA / Wood Mackenzie US Solar Market Insight Q2 2026, Wood Mackenzie Q1 2026 release, Wood Mackenzie customer acquisition cost outlook, and EnergySage solar panel cost data, checked November 2026.

The 2026 forecast has been cut more than once. The SEIA and Wood Mackenzie reports have moved from an 18% decline (Q4 2025 report) to 19% (2025 Year in Review) and then 21% (Q2 2026 report).

What Changed on January 1, 2026: The End of the Homeowner Credit

The 30% Section 25D credit applied to qualified clean energy property installed from 2022 through December 31, 2025, per the IRS residential clean energy credit page. Cash and loan buyers get no federal credit on systems placed in service after that date.

The payback effect follows from simple arithmetic. Simple payback is net cost divided by annual savings. Take away a 30% credit and the net cost rises by a factor of 1 / 0.7, about 43%, so payback lengthens by the same proportion for the same system and the same savings.

As an illustration, not market data: an 8 kW system at the EnergySage average of about $2.60 per watt costs $20,800 before incentives. The old credit would have been worth $6,240. Without it, the homeowner carries the full $20,800.

Where the electricity rate is high, the economics can still work. Where the rate is low, customer-owned solar without the credit is harder to justify, and lease or PPA options carry more of the conversation.

State Incentives and What Replaces the Federal Credit

With no federal credit for customer-owned systems, state and utility incentives matter more. They change often, so verify the current rule on the program’s own page before quoting. The DSIRE database is a good place to start.

New York’s credit is the clearest example of a state program that offsets part of the lost federal credit, though at a $5,000 cap it replaces only part of it on a typical system. Source: NY Department of Taxation and Finance. For other states, check the state tax authority and the serving utility, since credits, caps and performance incentives vary and several have changed recently.

California After NEM 3.0

California’s net billing tariff, known as NEM 3.0, replaced NEM 2.0 for new solar customers in April 2023. pv magazine reports it cut export credits by approximately 75% to 80%, and cites industry data showing a 60% to 80% drop in California residential solar sales since it took effect and more than 17,000 jobs lost (pv magazine, March 2026).

The legal fight is over for now. The First District Court of Appeal upheld the tariff in March 2026 on remand from the California Supreme Court, and the Supreme Court declined to hear a further appeal in June 2026 (pv magazine USA). Any future change would have to come from the CPUC or the Legislature.

Under NEM 3.0, a system that exports most of its output earns little for it, so on-site use matters. That is why California sizing and proposals now center on solar plus storage and time-of-use rates rather than on kWh alone. Model those with a generation and financial tool that lets you set the tariff and battery assumptions explicitly, and check the output against the utility’s current rate schedule.

Third-Party Ownership (TPO): Leases and PPAs

Third-party ownership means a company owns the system and the homeowner pays through a lease or a power purchase agreement (PPA). The homeowner credit has ended, but an owner that is a business may claim the commercial credit, subject to begin-construction and placed-in-service deadlines. The begin-construction rules are in IRS Notice 2025-42. Confirm eligibility for any specific project with a tax adviser.

Wood Mackenzie lists TPO as one of the supports for a residential recovery, and its acquisition-cost analysis notes installers shifting toward TPO products and prepaid leases. The published sources do not give a TPO market share for 2026, so this guide does not state one.

The last row carries real risk. A lease or PPA runs for many years, and the warranty and service depend on the provider. Homeowners should ask who owns the asset, what happens if the provider fails, and what the transfer terms are when the home is sold.

Customer Acquisition Cost and Installer Economics

Wood Mackenzie forecasts residential customer acquisition cost (CAC) at $0.84 per watt in 2026, up 40% from $0.60 per watt in 2025, which it describes as a five-year low. It cites the end of the 25D credit pulling demand forward, a projected contraction in the market, rising marketing budgets, and expansion into batteries, EV chargers and roofing. It also points to margin pressure from dealer fees, purchased leads and commission-heavy sales, which favors vertically integrated installers.

For a typical 12 kW system, $0.24 per watt of extra CAC is about $2,900 of added cost per customer (12,000 W x $0.24). That arithmetic is ours; the CAC figures are Wood Mackenzie’s. See how to measure solar customer acquisition cost for a worked method.

What Installers Should Change

• Lead with the customer’s own numbers. Show payback without the federal credit, with and without a battery, using the customer’s utility rate.
• Offer ownership and TPO side by side. Let the customer see cash, loan and lease options in one proposal.
• Keep demand generation running. A smaller market rewards installers who stay visible, but track CAC per signed job, not per lead.
• Add services. Batteries and service work are the products Wood Mackenzie’s analysis points installers toward.

Homeowner motivation is also shifting. In a May 2026 opinion piece, the founder of a solar kit company argued that demand is moving from incentives to grid resilience and electrification (pv magazine USA opinion). It is an opinion, not survey data, but it matches the battery-pairing trend in the Wood Mackenzie figures.

Outlook: 2027 and Beyond

Wood Mackenzie expects residential solar growth to resume in 2027 and forecasts consistent growth between 2027 and 2031 (Wood Mackenzie, June 2026). It names rising retail electricity rates, safe-harbored project pipelines and TPO among the supports. Treat any specific growth percentage beyond that as an estimate, since the forecast has already been revised down several times in 2026.

How SurgePV Fits Into Post-Credit Quoting

SurgePV supports energy-yield modeling, financial modeling, shading analysis and proposal generation in one workflow, with results that depend on the source data and assumptions you enter. For post-credit residential quoting, that means you can change the incentive, tariff and financing inputs per project instead of carrying a stale default. Pricing is on the SurgePV pricing page. For more on the workflow, see solar proposal software and the residential solar page.

Conclusion

Three actions for a US residential solar business in 2026:

1. Remove the Section 25D credit from every default quote for customer-owned systems, and add a reviewed per-state incentive field.
2. Put cash, loan and TPO options side by side in every proposal, with an honest note on provider risk for leases and PPAs.
3. Track CAC per signed job and keep pipeline visible while the market is smaller, then prepare for the 2027 recovery Wood Mackenzie expects.

To see post-credit proposals built on your own projects, book a SurgePV demo. For wider market context, read the commercial solar market outlook for 2026.

Frequently Asked Questions

What are the biggest US residential solar market trends in 2026?

The biggest trends are a forecast 21% market decline, a shift toward third-party ownership (TPO), rising customer acquisition costs and growing battery pairing. Wood Mackenzie expects the residential market to contract 21% in 2026 after the Section 25D credit ended, forecasts residential customer acquisition cost at $0.84 per watt (up 40%), and reports a record 45% of Q1 2026 installs paired with storage.

Is residential solar still worth it in the US in 2026 without the federal tax credit?

It can be, but payback is longer and depends on your electricity rate, financing and state incentives. Removing a 30% credit raises the net cost by about 43% for the same system, so simple payback stretches by the same proportion. Homeowners in high-rate states and states with their own credits, such as New York’s 25% credit up to $5,000, are the best placed.

How did NEM 3.0 affect the California residential solar market?

NEM 3.0, California’s net billing tariff, cut export credits by roughly 75% to 80% compared with NEM 2.0, according to pv magazine. Industry data cited by pv magazine shows California residential solar sales down 60% to 80% since April 2023 and more than 17,000 jobs lost. The First District Court of Appeal upheld the tariff in March 2026, and the California Supreme Court declined further review in June 2026.

What is the average cost of residential solar per watt in the US in 2026?

EnergySage marketplace data shows about $2.60 per watt before incentives, or roughly $31,135 for a typical 12 kW system, with a range of $27,526 to $33,869. Arizona and Texas are listed at $2.25 per watt and Alabama at $3.75 per watt. EnergySage updates these figures regularly, so check its page before quoting.

What is third-party ownership (TPO) in residential solar, and why is it growing?

TPO means a company owns the system and the homeowner pays through a lease or a power purchase agreement (PPA). It is growing because the homeowner credit ended while an owner that is a business may still claim the commercial credit, within the deadlines in IRS Notice 2025-42. Wood Mackenzie lists TPO among the supports for a residential recovery and notes installers shifting toward TPO and prepaid leases.

How big is the US residential solar market in 2026?

SEIA and Wood Mackenzie report 4,647 MWdc of residential solar installed in 2025, down 2% from 2024, and 1,179 MWdc in Q1 2026, up 6% year over year. Wood Mackenzie expects the full 2026 market to fall 21% and forecasts consistent growth between 2027 and 2031.

What does the post-25D market mean for solar installers and sales teams?

It means paying more to win each customer and quoting more carefully. Wood Mackenzie forecasts residential customer acquisition cost rising from $0.60 to $0.84 per watt in 2026, and it says vertically integrated installers are better placed against dealer fees and purchased leads. Installers should show cash, loan and TPO options side by side and remove the 25D credit from every default quote.