Solar sector embracing third-party possession as 25D tax incentive approaches expiration

Third-party solar installations enable providers to secure the 48E investment tax credit and subsequently transfer the financial benefits to homeowners.

, and Administrator

2025 September 13 . 11:30 AM

2 min read

Solar sector seeks third-party ownership models as 25D tax credit phase-out approaches

Solar sector embracing third-party possession as 25D tax incentive approaches expiration

In the face of the Trump administration's rollback of the Inflation Reduction Act, solar providers like Georgia BRIGHT are adapting and navigating within the guidelines set by the OBBBA. The latest initiative from Georgia BRIGHT, named Safe Harbor as a Service, aims to continue bringing low-cost solar to state residents.

Director Alicia Brown announced this new venture on Tuesday, promising to maintain the affordability of solar energy for Georgia residents. Other solar providers are also adapting, with companies such as Sunrun, First Solar, and Brookfield Renewable Partners leading the way in the Third Party Ownership (TPO) model for solar projects.

Third-party solar financing comes in two forms: leasing agreements and power purchase agreements (PPA). In the lease model, a customer signs a contract with an installer/developer and pays for the use of a solar system over a specified period of time. On the other hand, in the PPA model, the solar energy system offsets the customer's electric utility bill, and the developer sells the power generated to the customer at a fixed rate, typically lower than the local utility.

The 25D residential solar tax credit will sunset at the end of this year, but projects that commence construction sooner can be placed in service anytime before Dec. 31, 2029, and still qualify for the 48E credit. The 48E investment tax credit is available for solar projects that commence construction after July 4, 2023, and are placed in service by the end of 2027.

Third-party ownership accounts for about 45% of residential solar installations in the U.S., and it's expected to grow significantly in the coming years. Investment bank Jeffries expects residential-focused solar company Sunrun to benefit in 2026 as the expiration of 25D provides an assist for third-party ownerships, with market consultants estimating TPOs will grow 25% in 2026 compared to this year.

However, the future trajectory of the residential solar market is uncertain. Wood Mackenzie Principal Analyst Zoe Gaston stated in an August piece that the market's direction is unclear due to the ongoing changes in policy and regulations. Additionally, the new foreign entity of concern restrictions do not apply to the 25D credit but will apply to TPO systems hoping to qualify for the Section 48E credit.

Despite these challenges, solar installation companies like SolShine Energy Alternatives are emphasising the need for careful consideration when working with third-party ownership providers due to the domestic content requirements. The recent guidance from the Treasury for "safe harboring" the tax credits under current rules allows projects to lock in tax credit eligibility for up to 2029 without triggering foreign entity of concern restrictions.

For homeowners looking to benefit from the Inflation Reduction Act credits through third-party ownership structures, it's important to consider the ongoing changes in policy and regulations, and to work with reputable providers who can navigate these complexities effectively.