My crystal ball is unusually cloudy going into 2025. Although perceived demand for solar, storage and electrification is at an all-time high, economic and political uncertainties cast a cloud over even the most attractive clean energy market segments. Nevertheless, with the strong business focus of the Trump administration, large-scale clean energy projects are more likely to thrive than small-scale residential projects.
Credit: Sunnova
1. No one knows what will happen with IRA tax credits and rebates.
If you’re considering solar, batteries, heat pumps, etc. in the future, keep in mind that these IRA incentives are only assured if your installation is completed by the end of 2025. If legislation is passed to change these credits, that new legislation will not take effect until Jan. 1, 2026. To play it safe, complete any electrification project you are considering well before Dec. 31, 2025. Consult with your accountant, since the IRS does occasionally audit renewable energy tax credit filing paperwork.
2. TPO system demand will increase if residential IRA incentives are reduced.
If residential clean energy tax credits (formerly the solar investment tax credit) are reduced or eliminated, there will be increased demand for third-party owned (TPO) systems (leases and PPAs, but not loans). Residential tax credits are in Section 25 of the tax code, whereas business credits are in Section 48. Historically there have been more lobbying efforts for business credits in Section 48, and that business-focus is likely to continue under the new administration.
3. Utilities throughout the United States will increasingly exercise their monopoly power to suppress or outright prohibit customer-sited solar and battery systems.
Net energy metering (NEM) has proven to be the most effective incentive for behind-the-meter solar and battery systems. But investor-owned utilities realize that NEM rates mean they lose out on building additional generation and transmission infrastructure — which reduces their profit growth. Based on California utilities’ two-pronged efforts to eliminate NEM — lobbying state government and lying about the customer benefits of NEM — other utilities around the country are using the exact same playbook to eliminate NEM and thereby maximize their profits. Meanwhile, Public Utilities Commissions remain asleep at the switch as reliability declines and customer electric rates skyrocket.
4. Electricity demand will increase more slowly than utilities predict.
Follow the money: Utilities get a 10% rate of return on all assets, and an even higher 12% rate of return on transmission assets. So it’s no surprise that utilities are highly motivated to increase their assets … and the best way to do that is exaggerate future electricity demand. There is no doubt that electricity demand will increase with EVs, heat pumps and AI data centers, but it is unlikely that these new technologies will be deployed as quickly as expected. In the interest of profits, utilities have systematically over-forecasted electricity demand, leading to excessive generating and transmission infrastructure investments.
5. The heat pump rebate process was broken even before it started.
Although well-intentioned, the IRA rebate process for heat pump HVAC and water heaters is confusing to both customers and contractors. To handle the additional paperwork and delays, contractors have to raise their prices, or just skip the heat pump upgrade and go for the quick sale by replacing that old methane furnace or hot water heater with new methane equipment. Simply switching to a straight 30% tax credit incentive for heat pumps — as with solar and storage — is the fastest way to accelerate heat pump installations.
6. Heat pumps combined with solar will shine in 2025.
Customers installing heat pumps eliminate their methane space and water heating bills, but their electric bill goes up. When heat pumps are powered by rooftop solar and storage, customer net utility bills go down – and even to zero when combined with an appropriately sized battery. As a result, the fastest growing markets for heat pump retrofits are those where rooftop solar and storage are already popular upgrades.
7. New UL 3741 solar rapid shutdown codes add price pressure to microinverter and optimizer component suppliers.
Although these module level power electronics (MLPE) devices provide better safety, efficiency and monitoring, their added electronics increase failure rates and future maintenance costs. Plus, their installation and configuration costs are higher. Use of mid-circuit interrupters (MCIs) instead of MLPE devices as defined in UL 1374 provides an alternative path to achieving code compliance — while at the same time reducing up-front system costs.
8. Battery system shortages will continue in 2025, but newcomers will be hard-pressed to meet this demand.
There is an abundance of lithium-ion battery cells and modules but a dearth of well-supported, code-compliant systems. It takes several years to develop integrated system hardware, develop the necessary software suite, get through the certification process, and create effective sales and support infrastructure. Relatively mature incumbent battery system suppliers have an advantage because they are much better equipped to ramp up production and accelerate their sales through distribution. When it comes to battery systems, reliable is better than powerful and cheap.
9. Battery systems with integrated inverters will become the standard.
Rooftop solar and batteries are becoming so interrelated that the demand for inverter-only and battery-only components will decline. Contractors want to install one box on the wall with one set of software, not two or three boxes requiring different software platforms. Equipment, labor and future support costs are all lower with integrated systems from established system providers.
10. “Grid defection” will enter the energy system lexicon.
As predicted by the Rocky Mountain Institute way back in 2014, there are two possible trajectories for the electricity grid. The first trajectory is an integrated grid with an aggressive build-out of inexpensive rooftop solar and storage, NEM payments based on distribution grid benefits, fair compensation to CERs (customer energy resources), and performance-based regulations. The second trajectory is grid defection with no NEM, high fixed charges, central generation requiring exorbitant transmission infrastructure, stranded assets and regulatory capture. Due to utility lobbying combined with incompetent utility regulation, policies are in place that lead us down the grid defection path — resulting in sky-high electric rates, more fossil fuel generation, poor customer service and record utility profits.
