Solar's Momentum At Mid-2026 Will Help It Overcome Snags

U.S. solar deployment is on pace in 2026 to remain the dominant source of generating capacity additions, accounting for more than half of all new U.S. capacity through the first quarter and currently projected to roughly match total 2025 levels.

Leading this expansion are key markets like Texas, the largest contributor to new capacity, followed by Florida, Ohio, Indiana and California, which remain at the top for solar development.

At the same time, the rapid build-out of energy storage is reinforcing solar's role on the grid, enabling greater reliability and dispatchability as penetration of renewable energy increases. In May, solar generated more U.S. electricity than coal for the first month on record, supplying 12.8% of the mix compared with coal's 12.2%. This momentum persists even amid ongoing changes and uncertainty in federal and state policy, which continue to shape project timelines, financing structures and overall market confidence.

Demand Drivers and Capital Flows

Unexpected supply disruptions and a renewed focus on energy security have shaped global energy markets in 2026, elevating both costs and domestic resource availability as headline considerations for policymakers, power generators and the public. These dynamics seem to favor solar development, given its advantages of supply predictability and quick scalability of generation sources.

At the same time, electricity demand is accelerating, in part from data center expansions but also driven by general economic growth and increased heating and cooling demands across the country. AI-related computing needs are creating new concentrated loads that require both near-term capacity additions and long-term planning. In response, developers and large energy users are increasingly prioritizing projects that can be deployed quickly, including solar paired with storage and behind-the-meter installations that can bypass some interconnection and transmission constraints.

As a result, solar and battery deployments "continue to dominate new generation deployments" in the U.S. and accounted for 91% of new capacity added in the first quarter of 2026, according to the Solar Energy Industries Association. These approaches offer greater certainty on timing and cost, making them especially attractive in a market where demand growth is immediate, but utility-scale infrastructure can take years to develop.

As of mid-2026, these trends are contributing to a growing concern that projected electricity demand may outpace the timing of new generation coming online, raising the prospect of a near-term supply-demand gap in certain regions. Electricity consumer concerns about affordability have grown in tandem, with many in the industry emphasizing the importance of solar and batteries in meeting demand and affordability needs.

The Policy and Legal Landscape

Federal and state policy developments continue to shape the trajectory of U.S. solar deployment in 2026, introducing both new constraints and opportunities.

At the federal level, recent guidance on clean energy tax credit eligibility is one of the most consequential developments this year. In particular, updated restrictions tied to foreign entity of concern rules and domestic content requirements have introduced new hurdles for project developers seeking to qualify for federal incentives. While these measures are intended to encourage the growth of domestic supply chains, they have also generated uncertainty in project planning and financing, prompting some developers to reassess timelines or eligibility.

In perhaps better news for solar developers and investors, a recent federal court decision restored, at least for now, the 5% safe harbor as a potential pathway for qualifying solar projects seeking clean energy tax credits under Sections 45Y and 48E.

On June 6, the U.S. District Court for the District of Columbia vacated IRS Notice 2025-42, which had eliminated the 5% safe harbor for most wind and solar projects in August 2025 and left the physical work test as the primary pathway to begin construction. The decision may provide additional flexibility for projects with significant procurement activity, equipment deposits, or other qualifying costs, but uncertainty remains because the government may appeal, seek a stay, or issue revised guidance.

At the state level, solar policy continues to develop unevenly, with some jurisdictions supporting new project deployment and others creating new uncertainty for developers and investors.

Ohio

Ohio lawmakers are considering S.B. 294, which would redefine "affordable, reliable, and clean" energy to exclude solar and wind resources from the state's definition of eligible generation sources in mandatory approvals before the Ohio Power Siting Board, while favoring natural gas and other fossil fuels. The bill would accomplish this by selectively expanding the definition of "clean" to include natural gas and any hydrocarbon that meets the U.S. Environmental Protection Agency's ambient air quality standards, while narrowing the definition of "reliable" to exclude renewable generation resources based on their intermittent nature and comparatively lower capacity factors.

The legislation has drawn significant criticism from solar industry stakeholders, who argue it is a de facto ban on renewable development and disfavors the most cost-effective and market-competitive generation resources available in Ohio. The bill is likely to face continued scrutiny as it advances through the legislative process.

North Carolina

In North Carolina, an April 23 pause on approvals of certain new solar projects reflects broader state-level reconsideration of clean energy policy following legislative changes to climate targets, including the elimination of a 2030 emissions reduction mandate.

The North Carolina Utilities Commission cited this rollback in concluding that it would be premature to proceed with new solar procurements before reassessing the state's long-term electricity generation plans. In particular, the commission indicated that further solar procurement should await completion of Duke Energy Corp.'s updated integrated resource plan, which will determine the state's future generation mix between renewables and conventional generation.

This pause has delayed projects and created uncertainty for developers and investors. The solar industry has responded with administrative challenges.

Virginia

Virginia has taken a different approach. Effective July 1, new legislation limits local governments' ability to impose blanket bans on utility-scale solar development and instead requires them to evaluate projects under uniform statewide criteria.

Virginia S.B. 347 was driven in part by the prevalence of local restrictions, with numerous counties having previously banned or significantly limited solar projects, as well as growing concerns about rising electricity demand and affordability pressures tied to data center expansion. While the law preserves local authority to approve or deny individual projects, it requires localities to provide documented justification for adverse decisions and increases transparency in siting outcomes. This framework intends to provide greater certainty for developers throughout Virginia.

Maryland

Recent developments in Maryland highlight the role litigation can play in shaping the state's clean energy market framework, particularly in Retail Energy Advancement League v. Brown, a challenge in the U.S. Court of Appeals for the Fourth Circuit to S.B. 1, the state's 2024 green power marketing law.

The statute imposes restrictions on how retail electricity suppliers may market products as clean, green or 100% renewable, requiring that such claims be supported by renewable energy credits that meet specific in-region criteria tied to Maryland's renewable portfolio standard.

On May 15, the Fourth Circuit issued a preliminary injunction blocking the law's central marketing restrictions on First Amendment grounds, finding that the restrictions were unlikely to withstand scrutiny and did not sufficiently advance the state's consumer protection rationale. The court remanded the law's disclosure requirements for further review.

Trade and Supply Chains

Recent shifts in trade policy and supply chain regulations have introduced both relief and new complexities for solar developers in 2026.

Most notably, the Section 201 safeguard tariffs on imported crystalline silicon photovoltaic cells and modules expired on Feb. 6, ending an eight-year effort to address low-cost imports that were found to injure U.S. manufacturers. The tariffs initially began at 30% and declined annually to approximately 14% in their final year, with a tariff-rate quota allowing limited duty-free cell imports to support domestic module assembly.

While their expiration removes a direct cost burden on imported panels, the practical impact has been more limited, given the widespread use of exemptions and the suppliers' ability to shift production to noncovered jurisdictions.

The expiration of the Section 201 tariffs has not resolved broader trade tensions in the solar sector. Domestic manufacturers continue to point to persistent dumping and circumvention concerns, particularly involving Chinese-headquartered companies relocating production to Southeast Asia, Africa and other regions to avoid existing tariffs.

These concerns have already led to a wave of antidumping and countervailing duty investigations and determinations involving imports from Cambodia, Vietnam, Thailand, Malaysia and, more recently, India, Indonesia and Laos.¹ As a result, even after the expiration of the Section 201 tariffs, the broader trade environment remains highly complex, with multiple overlapping tariff regimes continuing to influence sourcing decisions and project costs.

In parallel, federal incentive policy has shifted focus to targeted supply chain and ownership restrictions through the foreign entity of concern framework and related domestic content rules. Enacted through last year's One Big, Beautiful Bill Act and implemented through recent U.S. Department of the Treasury and IRS guidance, these provisions condition eligibility for key tax credits — including the technology-neutral investment tax credit under Section 48E, production tax credit under Section 45Y and advanced manufacturing credit under Section 45X — on the absence of material assistance from a prohibited foreign entity.

The foreign entity of concern rules are expansive in scope, covering entities owned, controlled or significantly influenced by certain foreign governments, most notably China, as well as those appearing on national security or sanctions-related lists. In practice, compliance requires a detailed, multistep analysis of the upstream supply chain. Treasury guidance introduces a material assistance cost ratio test to determine whether the share of inputs tied to prohibited entities exceeds applicable thresholds, with failure to meet the test potentially rendering a project ineligible for credits.

Permitting and Interconnection

At the federal level, permitting reform remains a bipartisan priority in concept but faces significant practical obstacles, particularly in the U.S. Senate. Negotiations over potential reforms, targeting processes under statutes such as the National Environmental Policy Act and related federal review regimes, have been repeatedly delayed by disagreements over scope, implementation, and executive branch policy direction.

A key point of contention has been the role of the U.S. Department of the Interior in processing solar and wind permits, with some senators emphasizing that there is little basis for legislation if agencies are failing to comply with court orders or to process permits already pending before them.

These concerns arise against the backdrop of ongoing litigation over federal permits.

On April 21, the U.S. District Court for the District of Massachusetts, in Renew Northeast v. Department of the Interior, issued a preliminary injunction blocking a series of Interior Department actions that had imposed heightened, centralized review requirements for solar and wind projects, which developers contended created a de facto permitting "blockade."² The challenged policies had shifted permitting authority to senior political leadership and added multiple layers of review across a broad array of routine approvals, contributing to delays across projects on both federal and private land.

Although the injunction could reopen portions of the development pipeline, its impact remains uncertain. The administration has signaled disagreement with the ruling and may continue to contest or reinterpret its obligations, leaving developers with limited visibility into permitting timelines and outcomes.

Even where projects clear permitting hurdles, interconnection remains a separate and growing constraint on development. Recently published Berkeley Lab data, updated in May and covering queue data through the end of 2025, found that more than 2,060 gigawatts of generation and storage capacity were actively seeking grid interconnection. The same update confirms that queue timelines remain a persistent barrier, with median timelines for completed projects increasing to more than four years in recent periods.

In parallel, the Federal Energy Regulatory Commission recently acted under Section 206 of the Federal Power Act to address large load interconnection. On June 18, FERC issued orders directing the six U.S. grid operators under FERC jurisdiction to defend current tariff structures for large load customers, in an effort toward "speeding the integration of large energy users" and to "ensure that consumers nationwide continue to enjoy reliable, affordable power." In its orders, FERC addressed transmission, costs, behind-the-meter generation, and generation location and co-location.

FERC's orders recognize the need to bring new generation and transmission on in an orderly and rapid manner to address increasing demand and modernize energy infrastructure across the country.

What to Watch Next

Looking to the second half of 2026, trends in data center expansion, industrial reshoring, summer cooling needs and broader electrification should continue to drive electricity demand higher and favor generation resources that can be deployed quickly and economically. As a result, solar and battery storage are expected to remain central components of new capacity additions, even as developers continue to face challenges tied to interconnection, permitting and supply chain requirements.

At the same time, divergence may persist in state-level policies toward renewables, widening the gap between states that facilitate solar development and those that create barriers. States like Virginia have moved toward more standardized frameworks to reduce local friction and provide greater certainty for developers, while others, including Ohio and North Carolina, are taking steps to slow or temporarily halt project development. This uneven policy landscape reinforces the importance of identifying friendly markets and tracking policy trajectories and legal rulings closely.

The November midterm elections also could represent an inflection point for the solar sector.

The composition of the next Congress may influence future legislative efforts related to permitting reform, domestic manufacturing incentives and clean energy programs. The election's outcome may also shape the tone and direction of federal agency action in areas such as leasing on federal lands, environmental review and implementation of supply chain-related requirements. Even in the absence of major statutory changes, shifts in agency priorities or administrative interpretations could affect the landscape and timelines for solar development.

©2026. Published in Law360, Online, July 17, 2026, by LexisNexis Group. Reproduced with permission. All rights reserved.

¹ See, e.g., Final Affirmative Determinations in the Antidumping and Countervailing Duty Investigations of Crystalline Photovoltaic Cells Whether or Not Assembled into Modules from Cambodia, Malaysia, Thailand, and the Socialist Republic of Vietnam; see also Preliminary Determinations in the Countervailing Duty Investigations of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules, from India, Indonesia, and the Lao People's Democratic Republic at https://www.trade.gov/final-affirmative-determinations-antidumping-and-countervailing-duty-investigations-crystalline.

² Renew Ne. v. U.S. Dep't of Interior, No. 25-cv-13961, 2026 WL 1078282 (D. Mass. Apr. 21, 2026).