The solar industry has entered a phase in which project success depends on far more than equipment selection and installation expertise. As compliance requirements, domestic content rules, and incentive qualifications grow increasingly interconnected, installers must navigate an expanding set of considerations that influence everything from procurement decisions to project economics.

Tax incentives remain a primary growth driver, but compliance is no longer purely a financial or regulatory matter. It has become integral to supply chain planning, inventory management, and overall business strategy. The Inflation Reduction Act of 2022 originally expanded and extended these incentives, fueling a wave of U.S. solar manufacturing investment — including new panel factories from companies such as First Solar and Qcells — and driving rapid deployment growth. The One Big Beautiful Bill Act (OBBBA) has since tightened the compliance landscape around those same incentives, meaning installers who proactively adapt to evolving requirements will be better positioned to mitigate risk, maintain project timelines, and capitalize on future opportunities.

New Legislative Requirements Under the OBBBA

The OBBBA introduced foreign entities of concern (FEOC) compliance requirements that must be met to qualify for the underlying 30% base tax credit for systems with a maximum net output under 1 MWAC. The OBBBA also eliminated the residential tax credit for cash and loan purchases. For any system to qualify for tax credits, all equipment must be FEOC-compliant. Separately, meeting domestic content requirements is necessary to obtain the 10% domestic content bonus adder, which requires a specified percentage of U.S.-made components — including panels, inverters, and racking.

Verification of FEOC compliance is mandatory. Manufacturers are now obtaining third-party prohibited foreign entity (PFE) letters to certify adherence to applicable sourcing and manufacturing requirements. Adding to the complexity, the allowable percentage of content from prohibited countries decreases each year, making compliance progressively more difficult. This ratcheting structure means that equipment qualifying one year may not qualify the next, raising the stakes for inventory planning.

Supply Chain Pressures and Market Bifurcation

Many widely available solar panels and system components do not meet the domestic content threshold, leaving installers caught between incentive eligibility and product availability. This has created growing strain on project planning, as contractors must balance stranded inventory, constrained sourcing options, and difficult trade-offs among cost, compliance, and timelines. Layered on top of domestic content rules, ongoing U.S. tariff regimes — including Section 201 safeguard tariffs and antidumping/countervailing duties on imported cells and modules — further complicate procurement decisions and influence which products are both affordable and compliant.

Navigating this environment demands a fundamental shift in approach. It is no longer sufficient to focus solely on securing panels; installers must understand how every component in a system contributes to compliance and how the right supply chain and industry partnerships can help bridge the gap.

With a limited pool of qualifying manufacturers, two distinct markets are slowly emerging: one for tax credit-qualifying, compliant equipment and another for lower-cost, non-qualifying, non-compliant equipment.

Despite the complexity, several manufacturers can meet both domestic content and FEOC requirements. Partnering with them can help installers avoid scenarios where inventory is later found to be non-compliant. Such situations create significant operational headaches — the material's value drops, requiring price adjustments to remain competitive, since non-compliant material can still be sold but without tax credits. Furthermore, if a third-party owner (TPO) or installer uses non-compliant equipment, the IRS can reclaim tax credits years later, making due diligence and approved vendor lists critical tools for risk reduction. Strong relationships with distributors that can secure compliant inventory and assure manufacturer compliance provide another layer of protection.

Residential Segment Contraction and the Rise of TPO

The residential solar segment is down compared to 2024, with the decline most pronounced among small- and medium-sized installers reliant on cash and loan deals. The elimination of the residential tax credit for those purchase types under the OBBBA has compounded the pressure on this segment. In tandem with this contraction, TPO projects with large installers have increased. Under the TPO financing model, a third party owns the solar system and typically claims eligible tax incentives.

While TPO projects are less affected by the downturn, geographic variability persists. Some states lack TPO options due to low solar adoption or utility rates, making cash and loan deals the only viable path. In these cases, market strategies must be tailored to local conditions.

The new regulatory environment has also introduced financial products such as prepaid power purchase agreements (PPAs) that can make projects more economical. Under a PPA, a third-party owner claims the Section 48E clean electricity investment tax credit, provided under IRS code for investments in qualified clean electricity facilities and energy storage technology. This tax credit can amount to 30% or more of the investment's value.

While tax credits for solar projects are winding down, batteries remain eligible for tax credits through 2030. Even if solar credits expire earlier, batteries represent a significant portion of project costs, making energy storage a continued area of opportunity. The standalone storage ITC, introduced under the IRA, remains available and positions storage as an increasingly central component of residential and commercial solar offerings.

Proactive Compliance as a Business Strategy

As compliance requirements become more deeply tied to project economics and equipment sourcing, installers should take a proactive approach to managing risk. Compliance considerations must be part of project planning from the outset rather than addressed during procurement. Understanding eligibility requirements early can help avoid costly redesigns, delays, or equipment substitutions later in the project lifecycle.

Equipment decisions can no longer be based solely on price and availability. Installers should factor in incentive eligibility, sourcing requirements, and possible regulatory changes when evaluating products and suppliers. Maintaining accurate records and supporting documentation can streamline project reviews and support eligibility for applicable incentives and credits. Establishing clear documentation processes early reduces administrative challenges down the line.

Given the pace of regulatory and legislative change, installers should work closely with qualified legal and tax professionals to understand how evolving requirements may affect project eligibility and financial outcomes. Policy changes at both the federal and state levels, combined with the impact of tariffs, have made future-proofing solar investments highly complex. Staying informed and engaged in policy discussions remains the best defense.

For organizations that can adapt, there is still a clear path forward — but it demands sharper insight and stronger partnerships with manufacturers, distributors, and key industry organizations.

Sean Grasby is a business leader with over 20 years of experience driving growth and strategic innovation across industries. He currently serves as Senior VP and GM of U.S. Construction at Wesco Energy Solutions. He was previously President of EECOL Electric, where he guided the organization's strategic direction for five years.