Residential solar and energy storage markets are expected to face a downturn in 2026, but prepaid lease models and potential investments from data center developers could help soften the impact, according to industry analysts and Enphase Energy executives.
Highly leveraged solar installers focused on customer-owned systems may struggle as federal tax incentives for those installations expire at the end of 2025. However, independent home energy contractors are likely to adapt more quickly than many expect, said Marco Krapels, chief marketing officer at Enphase Energy.
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Prepaid leases, in particular, could emerge as a stabilizing force for the sector by lowering upfront costs for homeowners while creating new sales tools for installers.
“What customers ultimately want is a lower monthly payment compared to their utility payment,” Krapels said.
Industry forecasts suggest a notable contraction ahead. Jefferies projects the U.S. residential solar market could shrink by 30% in 2026, while Wood Mackenzie anticipates a 6% decline in energy storage installations. Enphase CEO Badri Kothandaraman has previously estimated a 20% contraction in residential solar demand next year.
Despite the anticipated slowdown, analysts expect third-party-owned (TPO) systems — including leases and subscription models — to make up a growing share of installations. Jefferies predicts TPO adoption will increase by 25% in 2026, continuing a trend that has already seen nearly half of new residential systems owned by third parties rather than homeowners.
Under the recently passed One Big Beautiful Bill Act, TPO systems remain eligible for the Section 48E investment tax credit longer than customer-owned installations, providing a significant advantage for companies that retain ownership of residential systems. That incentive structure has helped boost solar leasing providers such as Sunrun, whose stock has surged since the legislation was enacted.
Krapels said Enphase is working closely with TPO financing partners to roll out new offerings in key markets, including California. One upcoming product will combine features of a prepaid lease with a pathway to customer ownership.
“It begins as a ‘prepaid lease’ similar to competing home energy lease offers, but the customer repays the upfront system cost with a loan and gains ownership of the system in year five,” Krapels explained.
Unlike traditional leases, the product includes no escalator clause, meaning customer payments remain flat throughout the contract term — a feature designed to protect homeowners from rising utility rates.
“We’re celebrating our 20th anniversary in 2026 and we’ve had [installers] with us since the beginning,” Krapels said. “At the end of the day, homes are being electrified and the skill sets they have gained over the years apply not only to solar.”
Beyond residential customers, data center operators and technology companies could play a growing role in supporting distributed energy deployment. As grid capacity becomes increasingly constrained, some developers may subsidize residential solar and storage systems to free up electricity for large-scale facilities.
“This is a way to get the community involved… to get excited about the data center because they’re getting paid,” Krapels said.
A recent report by Rewiring America estimates that subsidizing 30% of residential solar and storage costs could unlock nearly 100 gigawatts of available grid capacity nationwide — roughly offsetting the expiration of the 25D tax credit for customer-owned systems.
While near-term headwinds remain, industry leaders say the transition toward third-party ownership, grid services participation, and diversified electrification offerings may ultimately leave the residential energy sector more resilient and adaptable in the years ahead.
Originally reported by Brian Martucci in Utility Dive.
