The United States added 7.8 GW of new solar capacity in the first quarter of 2026, surpassing 6 million cumulative installations. Yet no additional solar module manufacturing capacity was added in Q1 2026, creating a sharp contrast with the build-out boom that characterized the previous three years and placing that divergence at the center of the domestic solar supply chain debate.
FEOC rules and trade cases freeze new factory commitments
No additional solar module manufacturing capacity was added in Q1 2026. Module manufacturing has grown tremendously in the last few years, and several new cell and wafer facilities are in development. However, the solar manufacturing industry remains gripped by uncertainty around foreign entity of concern (FEOC) requirements as well as ongoing trade cases that have stymied new development.
Those findings come from the U.S. Solar Market Insight Q2 2026 report, produced in collaboration between Wood Mackenzie and the Solar Energy Industries Association (SEIA).
FEOC rules, embedded in the One Big Beautiful Bill Act, impose foreign supply chain and ownership restrictions on taxpayers seeking certain tax credits, including investment and production tax credits. Projects beginning construction in 2026 or later must navigate a complex set of FEOC sourcing and payment rules, including demonstrating that an increasing share of components are sourced outside of China. The Treasury and IRS issued initial FEOC guidance in February 2026, and the IRS is expected to issue further guidance on a rolling basis; considerable uncertainty remains around meeting construction-start rules. That deadline pressure has left manufacturers reluctant to break ground on new facilities whose supply chains may not yet comply.
Top developers safe-harbored equipment for their project pipelines ahead of the year-end 2025 deadline, partially shielding them from FEOC exposure risk. Factories planning multi-year buildouts have no equivalent shield. The result is a freeze in announced capacity expansions at precisely the moment when electricity demand is accelerating.
Deployment surges while the factory floor idles
Solar alone accounted for 60% of all new electricity-generating capacity added to the grid in the first quarter. When combined with battery storage, the two technologies accounted for 91% of all new domestic capacity additions.
Contracts for utility-scale solar rose 15% year over year, fueled by tech companies securing power to meet growing AI-driven electricity demand.
The divergence between strong deployment and stalled manufacturing investment underscores a structural imbalance. Domestic module manufacturing has expanded substantially in recent years, according to SEIA, yet manufacturers face severe domestic cell shortages; the United States has minimal operating cell manufacturing capacity, forcing module producers to rely heavily on imported cells.
Trade policy, financing conditions, expiring tax credits, and permitting bottlenecks are converging to constrain what should be a period of rapid expansion. That convergence is visible in the five-year outlook: the new forecast reflects a doubling of the U.S. solar fleet in the next five years, but that cumulative figure masks a stagnation in annual additions.
Flat annual additions projected through 2031
“We are forecasting that U.S. solar additions will be flat over the next five years despite the need for more power supply in the U.S.,” said Michelle Davis, head of solar at Wood Mackenzie. The base case outlook calls for roughly flat annual solar additions between 2026 and 2031, resulting in a doubling of the U.S. solar fleet over the next five years, while market challenges constrain growth.
The residential solar market is expected to decline by 21% in 2026, adding further pressure to manufacturers whose business mix includes rooftop as well as utility customers. The community solar segment installed 247 megawatts nationwide in Q1 2026, a 4% decline compared to Q1 2025.
The battery storage side of the grid, by contrast, continues to accelerate. Grid-scale battery storage set a first-quarter record in 2026, adding 9.7 gigawatt-hours of new capacity, the strongest first quarter in the sector’s history.
Cell and wafer capacity remain the missing links
No additional solar module manufacturing capacity was added in Q1 2026, though module manufacturing has grown tremendously in the last few years and several new cell and wafer facilities are in development.
Cell manufacturing is widely regarded inside the industry as the hardest step to reshore because it requires the most precision equipment and process chemistry, much of which is currently concentrated in Asia.
The solar manufacturing industry remains gripped by uncertainty around FEOC requirements as well as ongoing trade cases that have stymied new development. Until those rules are clarified with enough lead time for capital planning, analysts and industry groups expect factory investment decisions to remain on hold.
That hesitation persists even as the panels those factories would produce are in mounting demand across every segment of the American grid.
The full Solar Market Insight Q2 2026 report, including state-level breakdowns and five-year scenario analysis, is available through SEIA’s research portal.
