You’re out of free articles.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
Sign In or Create an Account.
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Welcome to Heatmap
Thank you for registering with Heatmap. Climate change is one of the greatest challenges of our lives, a force reshaping our economy, our politics, and our culture. We hope to be your trusted, friendly, and insightful guide to that transformation. Please enjoy your free articles. You can check your profile here .
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Subscribe to get unlimited Access
Hey, you are out of free articles but you are only a few clicks away from full access. Subscribe below and take advantage of our introductory offer.
subscribe to get Unlimited access
Offer for a Heatmap News Unlimited Access subscription; please note that your subscription will renew automatically unless you cancel prior to renewal. Cancellation takes effect at the end of your current billing period. We will let you know in advance of any price changes. Taxes may apply. Offer terms are subject to change.
Create Your Account
Please Enter Your Password
Forgot your password?
Please enter the email address you use for your account so we can send you a link to reset your password:
Why Patagonia, REI, and just about every other gear retailer are going PFAS-free.
Hiking gear exists so that, when nature tries to kill you, it is a little less likely to succeed. Sometimes this gear’s life-saving function is obvious — a Nalgene to carry extra water so you don’t die of thirst, or a fist-sized first-aid kit so you don’t bleed to death — while other things you don’t necessarily purchase with the thought that they might one day save your life. Like, say, a small Swiss Army Knife. Or, in my case, a raincoat.
Last summer, on a casual day hike in Mount Rainier National Park, my family was overtaken by a storm that, quite literally, rose up out of nowhere. It had been a sunny, clear day when we left the parking lot; at four miles in, we were being lashed by hail and gale-force winds on an exposed alpine trail, with no trees or boulders nearby for shelter.
Then, one member of our hiking party tripped.
In the split second before she stood up and confirmed she could walk out on her own, my mind raced through what I had in my pack. Stupidly, I had nothing to assemble a makeshift shelter, no warmer layers. But I did have my blue waterproof rainshell. In weather as extreme as the storm off Rainier that day, keeping dry is essential; if we’d had to wait out the rain due to a broken ankle, we’d have become soaked and hypothermic long before help arrived. My raincoat, I realized during those terrifying seconds, could save my life.
But what made my raincoat so trustworthy that day on the mountain could also, in theory, kill me — or, more likely, kill or sicken any of the thousands of people who live downstream of the manufacturers that make waterproofing chemicals and the landfills where waterproof clothing is incinerated or interred. Outdoor apparel is typically ultraprocessed and treated using perfluoroalkyl and poly-fluoroalkyl substances, a class of water- and stain-resistant “forever chemicals” that are more commonly referred to as PFAS (pronounced “pee-fass”). After decades of work by environmental groups and health advocates, states and retailers are finally banning the sale of textiles that have been treated with the chemicals, which in the outdoor industry often manifest in the form of Gore-Tex membranes or “durable water repellent” treatments.
These bans are fast approaching: Beginning in 2025 — less than 12 months from now — California will forbid the sale of most PFAS-treated textiles; New York will restrict them in apparel; and Washington will regulate stain- and waterproofing treatments, with similar regulations pending or approved in a number of other states. Following pressure from activists, the nation’s largest outdoor retailer, REI, also announced last winter that it will ban PFAS in all the textile products and cookware sold in its stores starting fall 2024; Dick’s Sporting Goods will also eliminate PFAS from its brand-name clothing.
This will upend the outdoor apparel industry. Some of the best coats in the world — legendary gear like Arc’teryx’s Beta AR and the traditional construction of the Patagonia Torrentshell — use, or until recently used, PFAS in their waterproofing processes or in their jackets’ physical membranes. Though the bans frequently allow vague, temporary loopholes for gear intended for “extreme wet conditions” or “expeditions,” such exceptions will be closed off by the end of the 2020s. (Patagonia has “committed to making all membranes and water-repellent finishes without [PFAS] by 2025,” Gin Ando, a spokesperson for the company, told me; Arc’teryx spokesperson Amy May shared that the company is “committed to moving towards PFAS-free materials in its products.”)
Even if you aren’t buying expedition-level gear, your closet almost certainly contains PFAS. A 2022 study by Toxic-Free Future found the chemicals in nearly 75% of products labeled as waterproof or stain-resistant. Another study found that the concentration of fluorotelomer alcohols, which are used in the production of PFAS, was 30 times higher inside stores that sold outdoor clothing than in other workplaces.
Get one great climate story in your inbox every day:
The reason outdoor companies have historically loved PFAS so much is simple: The chemicals are unrivaled in their water repellency. PFAS are manufactured chains of fluorine-carbon bonds that are incredibly difficult to break (the precise number of carbons is also used in the naming process, which is why you’ll hear them called “C8” or “C6,” sometimes, as well). Because of this strong bond, other molecules slip off when they come into contact with the fluorine-carbon chain; you can observe this in a DIY test at home by dripping water onto a fabric and watching it roll off, leaving your garment perfectly dry.
It is also because of this bond that PFAS are so stubbornly persistent — in the environment, certainly, but also in us. An estimated 98% to 99% of people have traces of PFAS in their bodies. Researchers have found the molecules in breast milk, rainwater, and Antarctica’s snow. We inhale them in dust and drink them in our tap water, and because they look a little like a fatty acid to our bodies, they can cause health problems that we’re only beginning to grasp. So far, PFAS have been linked to kidney and testicular cancer, decreased fertility, elevated cholesterol, weight gain, thyroid disease, the pregnancy complication pre-eclampsia, increased risk of preterm birth and low birth weight, hormone interference, and reduced vaccine response in children.
Chemical companies and industry groups often argue that certain PFAS are demonstrably worse than others; the so-called “long-chain” molecules, for instance, are thought to have higher bioaccumulation and toxicity potential, and have mostly been replaced by “short-chain” molecules. But as Arlene Blum, a pioneering mountaineer and the founder of the Green Science Policy Institute, an environmental advocacy organization that opposes PFAS, told me, “in all the cases that we’ve studied,” forever chemicals have been found “to be harmful in one way or another,” whether they’re short or long.
From a health perspective, the good news is that activists are winning. While initial efforts to protect humans and the environment from PFAS in the mid-2000s resulted only in the voluntary phase-out of long-chain chemicals like PFOA and PFOS, the new laws target the entire class of thousands of compounds to prevent an ongoing game of whack-a-mole with chemical manufacturers. (A recent report by The Guardian found that the chemical industry spent $110 million in the last two U.S. election cycles trying to thwart or slow the various bans.) Public pressure campaigns mounted against ostensibly sustainability-minded companies like REI have prompted store-initiated PFAS bans that will also influence future gear sold in the United States. (REI was long a PFAS laggard, and was even hit in 2022 with a class-action lawsuit over allegedly marketing PFAS-containing clothes as “sustainable.” The company declined to comment for this story. Dick’s Sporting Goods did not respond to requests for comment.)
But as the days tick closer to the first PFAS bans coming into effect in stores this fall, outdoor apparel companies are still scrambling to redesign their clothing. Some alternatives to PFAS do exist — Blum swears by her PFAS-free Black Diamond jacket — though even the most ardent supporters of the forever chemical bans will admit the waterproofing alternatives haven’t 100% caught up yet.
“The main concern that most people have in the industry is the amount of work that it’s going to take to meet these guidelines,” Chris Steinkamp, the head of advocacy at the trade association Snowsports Industries America, told me. “Because PFAS is omnipresent. Unfortunately, they’re pretty much in everything.”
Many outdoor apparel companies genuinely want to comply with the coming bans, Karolína Brabcová, the campaign manager for toxic chemicals in consumer products at Arnika, a Czech environmental non-profit, told me. “It’s not such a matter of greenwashing here,” she said. “It’s more about the fact that you’ve got the chemical industry on one side and the downstream users joining the consumers on the other side. And the downstream users don’t know everywhere the PFAS are being used; it’s a business secret.”
In one case detailed by Bloomberg, the Swedish company Fjällräven had stopped using PFAS in its products, only to learn from a 2012 Greenpeace investigation that the chemicals were still present in its apparel. “A supplier using fluorochemistry on another company’s products was cross-contaminating Fjällräven’s,” the Bloomberg authors write, adding that “subsequent testing revealed” just having “products in stores near products from other companies that used the chemicals still resulted in low levels of contamination.”
It isn’t always the case, however, that clothing manufacturers are unwitting victims of chemical sloppiness. Some apparel companies have taken advantage of the alphabet soup of chemical names to look more sustainable than they are. “We’ve seen in recent years products labeled as ‘PFOA-free’ or ‘PFOS-free,’ which suggests that they do not contain the long-chain PFAS that have largely been phased out from production in the United States,” Blum warned me. “That’s really misleading because oftentimes it’s a signal a product likely contains other PFAS chemicals, which may be just as persistent and may also be quite toxic in production to disposal.”
The reason I could count on my raincoat to protect me in the mountains, though, was because, like most expedition-level gear, it is made of a membrane manufactured by Gore-Tex, with an additional DWR waterproofing finish that also contains PFAS. Gore-Tex is known in the outdoors industry for making the holy grail of performance fabrics: Its membranes are waterproof, durable, and breathable enough to exercise in, a challenging and impressive combination to nail. But to achieve this, the company has traditionally used the fluoropolymer PTFE, a notorious forever chemical you probably know by the trademarked name Teflon.
This technology — or rather, these chemicals — are incredibly and irresistibly good at what they do. “The terrible truth,” Wired wrote in its list of raincoat recommendations updated this past December, “is that if you’re going to be exposed [to inclement weather] for multiple hours, you are probably not going to be able to rely on a [PFAS]-free DWR to keep hypothermia at bay.”
When I reached out to Gore-Tex about its use of PFAS, company spokesperson Julie Evans told me via email that “there are important distinctions among materials associated with the term PFAS” and that the fluoropolymers Gore uses, such as PTFE, “are not the same as those substances that are bioavailable, mobile, and persistent.” She stressed that “not all PFAS are the same” and that PTFE and the other fluoropolymers in the Gore arsenal meet the standards of low concern, and are “extremely stable and do not degrade in the environment,” are “too large to be bioavailable,” and are “non-toxic [and] safe to use from an environmental and human perspective.” The National Resource Defense Council, by contrast, writes that PFAS polymers like PTFE, “when added as a coating or membrane to a raincoat or other product, can pose a toxic risk to wearers, just as other PFAS can.”
Some of the environmental health advocates I spoke with said Gore-Tex’s language was misleading. Mike Schade, the director of Toxic-Free Future’s Mind the Store program, which pressures retailers to avoid stocking items that use hazardous chemicals, told me that while it is “laudable that the company has phased some PFAS out of their products … what we’re concerned about is the entire class. We think it’s misleading to consumers and to the public to suggest that other PFAS are not of environmental concern.”
Blum, of the Green Science Policy Institute, admitted that while “probably your Gore-Tex jacket won’t hurt you” — there is limited evidence that PFAS will leech into your body just from wearing it — there’s a more significant issue at the heart of the PFAS debate. “When you go from the monomer to the polymer” in the chemical manufacturing process, she said, it “contaminates the drinking water in the area where it’s made.” The disposal process — and especially incineration, a common fate for discarded clothing — is another opportunity for PFAS to shed into the environment. People who live near landfills and chemical manufacturing plants in industrial hubs like Michigan and many cities in Bangladesh suffer from PFAS at disproportionate levels.
So then, where do we go from here? Hikers, skiers, mountaineers, fly-fishers — they all still need clothing to stay dry. “Our industry is committed to performance and making sure that the gear that people are sold can live up to the standards that athletes need,” Steinkamp said. “I know that is top of mind, and that’s what’s making [the transition] so hard.”
But it also might be the case that our gear is too waterproof. “When we think about the intended performance of outdoor gear, there’s a lot of expectation that your gear will keep you extremely dry,” Kaytlin Moeller, the regional sustainability manager at Fenix Outdoor North America, the parent company of outdoors brands like Fjällräven and Royal Robbins, told me. “But when we really start to look at it,” she added, “I think part of the question is: What is the level of functionality that is really necessary for the customer to have a positive experience outdoors and be prepared for their adventure?”
It’s probably less than you think; consumers frequently don Everest-level technologies to walk their dogs for 15 minutes in a drizzle. “As responsible creators of products, it’s our job to balance functionality with impact,” Moeller said. “And in terms of [PFAS], it just wasn’t worth the risk and the carcinogenic qualities to continue putting that treatment on our products when there are other innovative coatings and constructions that we can use.”
Those alternatives, like innovative fabric weavings and proprietary waxes, might not sound as high-tech as hydrophobic chemicals. Still, for the vast majority of regular people — and even most outdoor recreators — it’s likely more than enough to stay comfortably dry. “We’ve been going into the outdoors for hundreds and hundreds of years without these chemicals,” Schade pointed out. “We can do it again.”
Luckily for everything and everyone on the planet, new waterproofing products are getting better by the day. Gore-Tex has spent “the better part of the last decade” developing its new PFAS-free “ePE membrane,” Evans told me. Short for expanded polyethylene, ePE is fluorine-free (albeit, derived from fossil fuels) and has been adopted by Patagonia, Arc’teryx, and others in the outdoor industry as a PFAS-free alternative. Evans described it as feeling “a little lighter and softer” than old-school Gore-Tex, but “with all the same level of performance benefits” as the historic products.
Other companies, including Patagonia, have been transparent about their phase-out goals and the ongoing difficulties of the PFAS-free transition; Gin, the Patagonia spokesperson, told me that as of this fall, “92% of our materials by volume with water-repellent chemistries are made without” PFAS, and that the new waterproofing “stands up to the demands of our most technical items.” Deuter, Black Diamond, Outdoor Research, Jack Wolfskin, Mammut, Marmot, and prAna are among other outdoor brands that are working to remove PFAS from their gear.
“We have to work together, collaboratively, if we really want to eliminate them — to the point of the verbiage around being [PFAS]-free,” Moeller stressed. “No one can be [PFAS]-free ‘til everyone in the industry is, because of the risk of cross-contamination.”
Then there are the consumers who will need to adjust. I admit, in the weeks before beginning the reporting for this article, I bought myself another raincoat. It was on sale from one of my favorite outdoor brands, and I was attracted to its aggressively cheerful shade of Morton Salt-girl yellow, which I thought would also help me stand out in the case of a future emergency.
At the time, I hadn’t even thought to check what it was made of; what mattered to me was how, when I slipped it on, I became amphibious — like some kind of marine mammal, slick and impervious to the rain. Stepping out of my front door and into a downpour, I felt practically invincible.
Log in
To continue reading, log in to your account.
Create a Free Account
To unlock more free articles, please create a free account.
Rob and Jesse talk with John Henry Harris, the cofounder and CEO of Harbinger Motors.
You might not think that often about medium-duty trucks, but they’re all around you: ambulances, UPS and FedEx delivery trucks, school buses. And although they make up a relatively small share of vehicles on the road, they generate an outsized amount of carbon pollution. They’re also a surprisingly ripe target for electrification, because so many medium-duty trucks drive fewer than 150 miles a day.
On this week’s episode of Shift Key, Rob and Jesse talk with John Henry Harris, the cofounder and CEO of Harbinger Motors. Harbinger is a Los Angeles-based startup that sells electric and hybrid chassis for medium-duty vehicles, such as delivery vans, moving trucks, and ambulances.
Rob, John, and Jesse chat about why medium-duty trucking is unlike any other vehicle segment, how to design an electric truck to last 20 years, and how President Trump’s tariffs are already stalling out manufacturing firms. Shift Key is hosted by Jesse Jenkins, a professor of energy systems engineering at Princeton University, and Robinson Meyer, Heatmap’s executive editor.
Subscribe to “Shift Key” and find this episode on Apple Podcasts, Spotify, Amazon, YouTube, or wherever you get your podcasts.
You can also add the show’s RSS feed to your podcast app to follow us directly.
Here is an excerpt from our conversation:
Robinson Meyer: What is it like building a final assembly plant — a U.S. factory — in this moment?
John Harris: I would say lots of people talk about how excited they are about U.S. manufacturing, but that's very different than putting their money where their mouth is. Building a final assembly line, like we have — our team here is really good, that they made it feel not that hard. The challenge is the whole supply chain.
If we look at what we build here in-house at Harbinger, we have a final assembly line where we bolt parts together to make chassis. We also have two sub-component assembly lines where we take copper and make motors, and where we take cells and make batteries. All three of those lines work pretty well. We're pumping out chassis, and they roll out the door, and we sell them to people, which is great. But it’s all the stuff that goes into those, that's the most challenging. There's a lot of trade policy at certain hours of the day, on certain days of the week — depending on when we check — that is theoretically supposed to encourage us manufacturing.
But it's really not because of the volatility. It costs us an enormous amount to build the supply chain, to feed these lines. And when we have volatile trade policy, our reaction, and everyone else's reaction, is to just pause. It’s not to spend more money on U.S. manufacturing, because we were already doing that. We were spending a lot on U.S. manufacturing as part of our core approach to manufacturing.
The latest trade policy has caused us to spend less money on U.S. manufacturing — not more, because we're unclear on what is the demand environment going to be, what is the policy going to be next week? We were getting ready to make major investments to take certain manufacturing tasks in our supply chain out of China and move them to Mexico, for example. Now we’re not. We were getting ready to invest in certain kinds of automation to do things in house, and now we're waiting. So the volatility is dramatically shrinking investment in US manufacturing, including ours.
Meyer: And can you just explain, why did you make that decision to pause investment and how does trade policy affect that decision?
Harris: When we had 25% tariffs on China, if we take content out of China and move it to Mexico, we break even — if that. We might still end up underwater. That's because there's better automation in China. There's much higher labor productivity. And — this one is always shocking to people — there’s lower logistics costs. When we move stuff from Shenzhen to our factory, in many cases it costs us less than moving shipments from Monterey.
Mentioned:
CalStart’s data on medium-duty electric trucks deployed in the U.S.
Here’s the chart that John showed Rob and Jesse:
Courtesy of Harbinger
It draws on data from Bloomberg in China, the ICCT, and the Calstart ZET Dashboard in the United States.
Jesse’s case for EVs with gas tanks — which are called extended range electric vehicles
On xAI, residential solar, and domestic lithium
Current conditions: Indonesia has issued its highest alert level due to the ongoing eruption of Mount Lewotobi Laki-laki • 10 million people from Missouri to Michigan are at risk of large hail and damaging winds today • Tropical Storm Erick, the earliest “E” storm on record in the eastern Pacific Ocean, could potentially strengthen into a major hurricane before making landfall near Acapulco, Mexico, on Thursday.
The NAACP and the Southern Environmental Law Center said Tuesday that they intend to sue Elon Musk’s artificial intelligence company xAI over alleged Clean Air Act violations at its Memphis facility. Per the lawsuit, xAI failed to obtain the required permits for the use of the 26 gas turbines that power its supercomputer, and in doing so, the company also avoided equipping the turbines with technology that would have reduced emissions. “xAI’s turbines are collectively one of the largest, or potentially the largest, industrial source of nitrogen oxides in Shelby County,” the lawsuit claims.
The SELC has additionally said that residents who live near the xAI facility already face cancer risks four times above the national average, and opponents have argued that xAI’s lack of urgency in responding to community concerns about the pollution is a case of “environmental racism.” In a statement Tuesday, xAI responded to the threat of a lawsuit by claiming the “temporary power generation units are operating in compliance with all applicable laws,” and said it intends to equip the turbines with the necessary technology to reduce emissions going forward.
Shares of several residential solar companies plummeted Tuesday after the Senate Finance Committee declined to preserve related Inflation Reduction Act investment tax credits. As my colleague Matthew Zeitlin reported, Sunrun shares fell 40%, “bringing the company’s market cap down by almost $900 million to $1.3 billion,” after a brief jump at the end of last week “due to optimism that the Senate Finance bill might include friendlier language for its business model.”
That never materialized. Instead, the Finance Committee’s draft proposed terminating the residential clean energy tax credit for any systems, including residential solar, six months after the bill is signed, as well as the investment and production tax credits for residential solar. SolarEdge and Enphase also suffered from the news, with shares down 33% and 24%, respectively. You can read Matthew’s full analysis here.
Chevron announced Tuesday that it has acquired 125,000 net acres of the Smackover Formation in southwest Arkansas and northeast Texas to get into domestic lithium extraction. Chevron’s acquisition follows an earlier move by Exxon Mobil to do the same, with lithium representing a key resource for the transition from fossil fuels to renewable energy sources “that would allow the company to pivot if oil and gas demands wane in the coming decades,” Bloomberg writes.
“Establishing domestic and resilient lithium supply chains is essential not only to maintaining U.S. energy leadership but also to meeting the growing demand from customers,” Jeff Gustavson, the president of Chevron New Energies, said in a Tuesday press release. The Liberty Owl project, which was part of Chevron’s acquisition from TerraVolta Resources, is “expected to have an initial production capacity of at least 25,000 tonnes of lithium carbonate per year, which is enough lithium to power about 500,000 electric vehicles annually,” Houston Business Journal reports.
The Federal Emergency Management Agency prepared a memo titled “Abolishing FEMA” at the direction of Homeland Security Secretary Kristi Noem, describing how its functions can be “drastically reformed, transferred to another agency, or abolished in their entirety” as soon as the end of 2025. While only Congress can technically eliminate the agency, the March memo, obtained and reviewed by Bloomberg, describes potential changes like “eliminating long-term housing assistance for disaster survivors, halting enrollments in the National Flood Insurance Program, and providing smaller amounts of aid for fewer incidents — moves that by design would dramatically limit the federal government’s role in disaster response.”
In May, FEMA’s acting administrator, Cameron Hamilton, was fired one day after defending the existence of the department he’d been appointed to oversee when testifying before the House Appropriations subcommittee. An internal FEMA memo from the same month described the agency’s “critical functions” as being at “high risk” of failure due to “significant personnel losses in advance of the 2025 Hurricane Season.” President Trump has, on several occasions, expressed a desire to eliminate FEMA, as recommended by the Project 2025 playbook from the Heritage Foundation. The March “Abolishing FEMA” memo “just means you should not expect to see FEMA on the ground unless it’s 9/11, Katrina, Superstorm Sandy,” Carrie Speranza, the president of the U.S. council of the International Association of Emergency Managers, told Bloomberg.
The Spanish government on Tuesday released its report on the causes of the April 28 blackout that left much of the nation, as well as parts of Portugal, without power for more than 12 hours. Ecological Transition Minister Sara Aagesen, who heads Spain’s energy policy, told reporters that a voltage surge in the south of Spain had triggered a “chain reaction of disconnections” that led to the widespread power loss, and blamed the nation’s state-owned grid operator Red Eléctrica for “poor planning” and failing to have enough thermal power stations online to control the dynamic voltage, the Associated Press reports. Additionally, Aagesen said that utilities had preventively shut off some power plants when the disruptions started, which could have helped the system stay online. “We have a solid narrative of events and a verified explanation that allows us to reflect and to act as we surely will,” Aagesen went on, responding to criticisms that Spain’s renewable-heavy energy mix was to blame for the blackout. “We believe in the energy transition and we know it’s not an ideological question but one of this country’s principal vectors of growth when it comes to re-industrialisation opportunities.”
Metrograph
“It seems that with the current political climate, with the removal of any reference to climate change on U.S. government websites, with the gutting of environmental laws, and the recent devastating fires in Los Angeles, this trilogy of films is still urgently relevant.” —Filmmaker Jennifer Baichwal on the upcoming screenings of the Anthropocene trilogy, co-created with Nicholas de Pencier and photographer Edward Burtynsky between 2006 and 2018, at the Metrograph in New York City.
Shares in Sunrun, SolarEdge, and Enphase are collapsing on the Senate’s new mega-bill draft.
The residential solar rescue never happened. Shares in several residential solar companies plummeted Tuesday as the market reacted to the Senate Finance Committee’s reconciliation language, which maintains the House bill’s restriction on investment tax credits for residential solar installers and its scrapping of the tax credit for homeowners who buy their own systems.
The Solar Energy Industries Association, a solar trade group, criticized the Senate text, saying that it had only “modest improvements on several provisions” and would “pull the plug on homegrown solar energy and decimate the American manufacturing renaissance.”
Sunrun shares fell 40% Tuesday, bringing the company’s market cap down by almost $900 million to $1.3 billion, a comparable loss in value to what it sustained the day after the passage of the House reconciliation bill. The stock price had jumped up late last week due to optimism that the Senate Finance bill might include friendlier language for its business model.
Instead the Finance Committee proposal would terminate the residential clean energy tax credit for any systems, including residential solar, six months after the bill is signed. The text also zeroes out investment and production tax credits for residential solar when “the taxpayer rents or leases such property to a third party,” a common arrangement in the industry pioneered by Sunrun.
Sunrun’s third party ownership model well predates the Inflation Reduction Act and is about as old as the company itself, which was founded in 2007. The company had been claiming investment tax credits for solar before the IRA made them tech neutral. The company began securitizing solar deals in 2015 and in a 2016 securities filling, the company said that it had six deals where investors would be able to garner the lease payments and investment tax credits.
“Ain’t no sunshine for resi,” Jefferies analyst Julien Dumoulin-Smith wrote in a note to clients on Tuesday. “Overall, we view Senate's version as a negative” for Sunrun, as well as SolarEdge and Enphase, the residential solar equipment companies, whose shares are down by about 33% and 24% respectively.
“If this language is not adjusted before the bill passes the Senate floor,” Morgan Stanley analyst Andrew Perocco wrote in a note to clients, “we believe Sunrun, SolarEdge, and Enphase will trade towards our bear cases.”
Morgan Stanley had earlier estimated that cutting off home solar from tax credits would lead to a “85% contraction in residential solar volumes” due, in many cases, to solar products no longer resulting in savings on electricity bills.
That’s because the ability to lease solar equipment (or have homeowners sign power purchase agreements) and then claim tax credits sits at the core of the contemporary residential solar model.
“Our core solar service offerings are provided through our lease and power purchase agreements,” the company said in its 2024 annual report. “While customers have the option to purchase a solar energy system outright from us, most of our customers choose to buy solar as a service from us through our Customer Agreements without the significant upfront investment of purchasing a solar energy system.”
This means that to claim tax credits for the projects, they have to be investment tax credits, not home energy credits. These credits play a role in Sunrun’s extensive business raising money from investors to finance solar projects, which can then be partially monetized via tax credits.
Fund investors “can receive attractive after-tax returns from our investment funds due to their ability to utilize Commercial ITCs,” the company said in its report. The financing then “enables us to offer attractive pricing to our customers for the energy generated by the solar energy system on their homes.”
Without the ability to claim investment tax credits, Sunrun could be left having to charge higher prices to homeowners and face a higher cost of capital to raise money from investors.
“Last night’s draft text confirms the Senate intends to abruptly repeal tax credits available to homeowners who want to go solar – effectively increasing costs and limiting choice for countless Americans,” Chris Hopper, chief executive of Aurora Solar, said in an emailed statement.