Enphase Energy Looks to Third-Party Financing to Boost Business Amid Expected Residential Solar Market Contraction

Enphase Energy CEO Badri Kothandaraman expects "pull-forward" business from solar and battery installers due to the impending expiration of the 25D federal tax credit. He predicts the industry will shift towards leasing arrangements and power purchase agreements, with a focus on boosting battery attachment rates and reducing costs. Kothandaraman forecasts a 20% drop in the residential solar market from 2025 to 2026, with some analysts predicting a 30% contraction. Enphase is enhancing its digital platform to support the transition to third-party ownership.

Title: Enphase Energy Prepares for Post-25D Tax Credit Era

Enphase Energy CEO Badri Kothandaraman expects a "pull-forward" in business from solar and battery installers due to the impending expiration of the 25D federal tax credit at the end of the year. The company is preparing for a significant shift in the industry towards leasing arrangements and power purchase agreements (PPAs), with a focus on boosting battery attachment rates and reducing costs. Kothandaraman forecasts a 20% drop in the residential solar market from 2025 to 2026, while some analysts predict a 30% contraction. Enphase is enhancing its digital platform to support the transition to third-party ownership (TPO) models.

Enphase Energy's second-quarter earnings call revealed that while installers are not rushing to stock up on equipment ahead of the 25D tax credit expiration, the company anticipates increased buying activity later in the year. Kothandaraman noted that the industry must evolve rapidly towards leasing and PPA arrangements to survive the contraction in the residential distributed energy market next year [1].

The tax and spending law signed by President Trump on July 4, 2021, ends the 30% investment tax credit for customer-owned residential solar and battery systems placed in service after December 31, 2021. Third-party financed systems, also known as TPO systems, are covered by a different investment tax credit that applies to utility-scale solar, wind, and other clean energy systems. TPO installers have until the middle of 2026 to make "safe harbor" equipment purchases [1].

Enphase is enhancing its digital platform, Solargraf, to expand TPO partner integrations and make it easier for resellers to transition to the TPO model. The company is also focusing on custom rate structures and improved dealership management features to help TPO businesses generate leads and close deals, potentially trimming customer acquisition costs by as much as $1/watt [1].

Enphase is counting on improved technology and operational efficiencies to blunt the impact of looming federal policy changes. The company began shipping its fourth-generation Enphase Energy System last quarter, which includes a 30% more energy-dense battery and a "combiner" that integrates solar panels, electric vehicle chargers, and load control into a unified home energy management system. This system is expected to reduce installation costs and make it easier for customers to participate in virtual power plant (VPP) programs [1].

Despite beating second-quarter earnings expectations, Enphase stock fell over 5% after-hours on Tuesday and another 14% in regular trading Wednesday. The market's negative reaction reflects concerns about near-term margin pressure and structural challenges facing the residential solar industry. However, Enphase is positioning itself strategically for the transition with strong progress in product innovation and a focus on driving down installation costs [2].

Enphase's installed base of 4.9 million homes globally represents a key asset for the upgrade and battery attachment market, especially as utility rates rise and grid instability increases. The company's AC-coupled architecture offers advantages for retrofits, enabling customers to add batteries and EV chargers without requiring the replacement of existing equipment. Enphase's strategy includes expanding access to lease financing for long-tail installers through TPO partnerships, driving down installation costs with next-generation products, and reducing customer acquisition costs through enhanced lead generation services [2].

While the 20% market contraction in 2026 presents challenges, Enphase's diversified product portfolio, international expansion, and focus on driving down installation costs position it to maintain market leadership through the transition.

References:
[1] https://www.utilitydive.com/news/enphase-energy-looks-to-third-party-financing-to-boost-business/753931/
[2] https://www.tikr.com/blog/enphase-energy-stock-slumps-over-5-as-q3-forecasts-disappoint-wall-street