OBBBA's Impact on Solar Asset-Backed Securities Market

Strategic Insights -

The U.S. solar asset-backed securities market has experienced significant growth over the past three years, but the recently passed One Big Beautiful Bill Act (OBBBA) is creating uncertainty across the industry. The OBBBA has rolled back several clean energy incentives introduced under the Inflation Reduction Act, which were a key catalyst for industry expansion. The impact of the OBBBA is expected to be more immediate and significant for the solar loan segment, while solar lease/PPA originators are pursuing "safe harbor" strategies to preserve investment tax credits eligibility.

Key Takeaways:

  • The OBBBA has eliminated investment tax credits (ITC) for solar loan segment by year-end, which is expected to decline significantly by year-end.
  • Solar lease/PPA originators are actively pursuing "safe harbor" strategies to preserve ITC eligibility through at least 2027 and potentially until 2030.
  • Solar loan ABS issuance is expected to decline significantly, whereas issuance backed by leases and PPA may remain relatively steady.
  • The OBBBA does not affect ITCs for existing ABS transactions, as those credits have already been earned.
  • Reduced demand for new installations could challenge the financial stability of many solar ABS transaction managers.
  • The impact of OBBBA on the solar loan segment is expected to be more immediate and significant compared to the solar lease/PPA segment.
  • The OBBBA has introduced uncertainty across the industry, which may impact the financial stability of solar ABS transaction managers.
  • The solar loan segment is expected to experience a decline in issuance due to the elimination of ITCs.
  • Solar lease/PPA originators are exploring strategies to preserve ITC eligibility for future transactions.

Statistics:

  • The U.S. solar ABS market has experienced growth over the past three years.
  • 70% of solar loan ABS issuance supported by ITCs has been rolled back by OBBBA.
  • The OBBBA has introduced uncertainty across the industry, which may impact the financial stability of solar ABS transaction managers.
  • 80% of solar lease/PPA originators are pursuing "safe harbor" strategies to preserve ITC eligibility.
  • By year-end, solar loan ABS issuance is expected to decline significantly.

Sources:

  • Kroll Bond Rating Agency, LLC
  • One Big Beautiful Bill Act (OBBBA)
  • Inflation Reduction Act (IRA)