Federal Solar Power Tax Incentives Are Sunsetting. Enter Proptech.

The sunsetting of some federal solar power tax incentives by the end of 2025 is forcing many homeowners and businesses to rethink their energy-saving strategies.

The 30 percent residential solar tax credit will end after Dec. 31, while the commercial version will remain at 30 percent, but only for systems that begin construction by July 4, 2026 or are placed in service by the end of 2027.

Proptech companies are stepping into the crepuscule of solar tax incentives with preexisting alternative technologies that light the way to offset lost savings.

Even with the tax incentives loss, businesses can find energy savings with microgrid solutions that provide sustainable energy and resiliency, said Kirk Edelman, the CEO at Manhattan-based SolMicroGrid, a renewable energy company for the commercial and industrial sectors.

“What we do is provide our service on an energy-as-a-service basis,” said Edelman. “We don’t build a project for a site and get paid up front and hand title over to the owner of the property. Instead, we build it on the site, and then we own, operate and host it. The site basically gets an energy-as-a-service agreement with us, which is a fancy name for a power purchase agreement.”

The resulting system serves a finite area, Edelman said. “But the key is that it has the ability, when the grid is not available, to go into what we call ‘island mode’ and operate totally free from the grid power,” he added. “So it generates its own power on-site, and the host site can operate without any impact because they have that resiliency.”

The only downside to SolMicroGrid’s terms of agreement is that they tend to be longer in duration, Edelman said. “But it’s an asymmetric risk in some regards because it’s our money, and we’re owning and operating it over the life of that term agreement.”

SolMicroGrid focuses mostly on small- to mid-sized businesses, said Edelman, whose company targets various real estate sectors, including big-box retail, food services and automobile dealerships, with all Chick-fil-A sites in California an exclusive client.

Despite the solar tax incentives going away, Edelman is bullish on the future of solar power’s energy savings and microgrids.

“We’re used to it,” he said of the vacillations in federal solar incentives first instituted under the Carter administration. “I think there’s a lot of reasons why we would like to have these incentives at the federal level, but there’s a whole bunch of other reasons why our industry continues to prosper, and I’m sure we’ll power through this and probably come out stronger.”

For those folks despairing overfading federal support, Natalie Goodman, the founder and CEO at Houston-based IncentiFind, a searchable database of more than 500,000 green building incentives across the U.S. for commercial and residential real estate, believes there are many alternatives for energy savings.

“Our ideal customer is really any company serving real estate,” said Goodman. “Architects, general contractors, sustainability consultants like JLL and CBRE — those are really going to be the users of IncentiFind at scale. That doesn’t mean that we don’t have your everyday commercial property owners who have large real estate portfolios. We certainly have some of the largest multifamily, industrial and hotels.”

IncentiFind’s database is pretty straightforward, she said: Input an address, and discover incentives available for the property via all levels of government plus utility companies. “You click a button, and IncentiFind can go on and apply to incentives whenever you do an HVAC upgrade, or if you’re doing a complete ground-up development.”

Demand for IncentiFind’s services has increased as solar incentives are ending, particularly from service providers seeking alternative cost-saving measures, said Goodman.

“A lot of commercial real estate — either service providers or commercial real estate property owners — don’t realize that there’s so many incentives available from these state and local governments,” she said. “They’re going to come to IncentiFind to capture the maximum amount of incentives, whether they’re tax incentives, rebates — which are cash reimbursements — bill credits, fee waivers or expedited permitting. There’s so many incentives out there beyond just federal tax credits, and our users want to see all of those incentives and capture all the incentives that make sense for their project or their scope of work.”

Apart from solar, proptech companies are trying to offer other energy-saving efficiencies.

Take LuxWall, a Ypsilanti, Mich.-based company, whose vacuum-insulating glass directly addresses one of the largest efficiency gaps (literally) in buildings: windows. They account for 25 to 30 percent of heating and cooling energy use, said Scott Thomsen, the chairman and CEO at LuxWall.

“The best analogy is we’re a thermos bottle for buildings,” said Thomsen.“Our product is an R18 [a thermal resistance value measurement] insulation, which means when you go to Home Depot, Lowe’s or Menards and buy insulation, you see R13, R18, R21. We’re delivering the same insulation as wall insulation. If you buy the best window today at those same places, you get an R3 and a half to R4, so we’re improving the thermal resistance of windows by a factor of four to five times. That translates to anywhere from a 25 to 50 percent reduction in the energy draw on buildings.”

Such a reduction translates to a payback period of under 10 years, compared to the 20 to 30 years for traditional insulation, said Thomsen, whose company started production in 2024. LuxWall’s customers are about 80 percent commercial and 20 percent residential, he said.

As for LuxWall’s demand since incentives have begun to disappear, “We’re a newer company and we’re scaling, so we’re probably still seeing that initial demand or normal adoption surge,” he said. “But in the last, I’d say, 30 days, it has actually come up in three or four meetings with property owners, where before that it never came up.”

Despite the federal tax incentive cuts for solar, LuxWall has also seen increased interest in its product from utilities like Con Edison, Thomsen added.

“They have a LuxWall incentive now for our product,” he said. “I think we’re starting to see the utilities branching into the built environment — the building envelope — and I think a lot of that is driven by these changes to the incentives on renewables.

“The venture capital community is going to start probably putting more credence in technologies that don’t require incentives to be commercially viable. We’ve already seen that. As a company. we’re not out raising funds right now, but we are starting to see that.”

Better sealing buildings is another way to reduce energy costs in the wake of the federal solar tax incentives shutdown, according to Amit Gupta, the CEO at Aeroseal, a Bill Gates-backed proptech company focused on air-sealing technology for building ductwork and envelopes. Aeroseal’s technology uses pressurized air and sealant particles to fill leaks in areas that can’t be physically accessed.

“We like to call it ‘Fix-A-Flat’ for the buildings,” said Gupta. “We seal up leaks in air ducts in people’s homes or in large commercial buildings, which are a very large wastage of energy, as well as sealing the building envelope.”

The removal of federal tax credits has impacted demand slightly, but that’s offset by increased demand due to rising energy prices, Gupta said. Aeroseal’s services cost $1,600 to $3,000 for a 2,000-square-foot home, with a payback period of four to six years. Gupta said he believes energy efficiency will become more critical as solar incentives decline.

On the commercial buildings side of its business, Aeroseal has already seen the effect of the lost incentives.

“We were doing a lot of work with ESCOs — the energy services companies —  like McKinstry, Siemens, Affinity Building Solutions, Honeywell and Johnson Controls, and there is an impact on ESCOs as well,” said Gupta. “With the IRA [Inflation Reduction Act of 2022] gone, ESCOs are getting less projects now as the federal government has reduced their work. In general, there is a little bit of a slowdown in ESCO business. So, with the new policy change, that has also reduced a little bit of our business.

“I think our business would actually see a positive impact from the lack of solar incentives, and the reason is because energy prices will continue to rise, and that will create more demand and better ROI. I would guess that it will take at least a year for us to see the positive impact of that.”

Al Subbloie, the president and CEO at Budderfly, a Shelton, Conn.-based energy-as-a-service company for commercial real estate, said the general view of energy use is incorrect, whatever the incentives (or lack thereof).

“The world attacks the energy efficiency and optimization model the wrong way,” said Subbloie. “It’s generally fragmented, with each segment having to be justified on its own, which is why we have so much stress when someone removes an incentive — because the dependency on any one of those items might be the whole thing.”

Instead of that model, Budderfly’s approach to energy efficiency and optimization emphasizes a comprehensive portfolio of solutions to address HVAC, refrigeration, controls and automation, lighting and renewables, depending on the CRE sector.

So, for Budderfly, the end of solar tax incentives has had “zero impact” on growth, Subbloie said. “I created absolutely no dependency on [incentives] to begin with,” he added. 

His company started in 2017 and has achieved 50 percent annual growth rate to become a quarter-billion-dollar firm, he said

“I do think there has to be a shift in thinking from someone saying, ‘I’m doing a solar project’ to ‘I’m upgrading my entire energy infrastructure and facility,’” Subbloie said. “You’re trying to deliver a better total outcome, not delivering a fragment to deliver the outcome.”

Philip Russo can be reached at prusso@commercialobserver.com.