Cheap solar changed the world – will China’s reset change it again?

In the global race toward decarbonisation, solar power has long been the poster child of progress – cheap, scalable and increasingly efficient. At the heart of that success is China, which supplies 80% of the world’s photovoltaic components¹. But behind the scenes, the country’s solar sector is undergoing a strategic reset.

Photovoltaic technology, which converts sunlight directly into electricity using semiconductor materials, has enabled rapid deployment of solar energy worldwide. But after a decade of relentless expansion and shrinking margins, Beijing is shifting course. A coordinated anti-involution campaign² is now curbing destructive competition, consolidating upstream manufacturing and aligning project economics with grid realities.

“A coordinated anti-involution campaign is now curbing destructive competition, consolidating upstream manufacturing and aligning project economics with grid realities.”

This shift marks a transition from volume-driven growth to quality-led development, with implications for global supply chains, pricing dynamics and investment risk across the solar value chain.

From cost deflation to structural stress

China’s dominance in solar manufacturing has long been a deflationary force in global energy markets. Between 2020 and 2024, module prices fell by over 50%, driven by aggressive capacity expansion and intense competition. Polysilicon prices collapsed from RMB120/kg (~US$17/kg) to ~RMB40/kg (~US$6/kg) over the same period. These declines were driven not by incremental efficiency gains, but by aggressive capacity expansion and intensifying competition across the value chain. By the end of 2024, China’s annual solar manufacturing capacity had exceeded 1 terawatt, nearly double global demand.

The financial fallout has been severe: in Q1 2025, 31 listed solar firms posted a combined RMB12.6 billion (~US$1.7 billion) net loss³. Utilisation rates declined sharply and credit conditions tightened, leaving smaller players exposed to refinancing risk. This is no longer a cyclical correction. It is a structural crisis rooted in overcapacity and margin compression.

“This is no longer a cyclical correction. It is a structural crisis rooted in overcapacity and margin compression.”

What makes this moment different is the speed and scale of imbalance. Installed capacity doubled in just two years, while grid and storage infrastructure failed to keep pace. Without a corresponding expansion in transmission and dispatchable storage, new installations risk becoming stranded assets.

Domestic bottlenecks: Grid and storage constraints

The primary constraint on China’s solar sector is no longer production, but absorption. Grid infrastructure and energy storage have failed to keep pace with generation growth. In early 2024, curtailment rates are rising, and solar utilisation fell below 95% for the first time since 2021⁴ .

Storage, once expected to relieve grid pressure, has underperformed. Despite mandates requiring 10-20% storage pairing for new projects, developers opted for low-cost, short-life batteries⁵. As of 2024, China reported 73.76 gigawatts (GW) and 168GW-hours of installed storage, but average utilisation hovered near 30%⁶.

Without a step-change in transmission and usable storage, the risk of stranded solar assets will continue to grow.

External headwinds: Trade barriers and market fragmentation

China’s export model is also under pressure. The US has tightened anti-dumping and countervailing duty enforcement, targeting modules routed through Southeast Asia. Europe is pursuing self-sufficiency under the Net Zero Industry Act. India is doubling down on import restrictions and domestic incentives.

In 2024, China’s solar export value declined 33.9% year-on-year⁷. Global buyers are increasingly pricing in policy-adjusted internal rate of return – factoring in tariffs, local content rules, grid charges and financing – rather than relying on headline module costs.

“Global buyers are increasingly pricing in policy-adjusted internal rate of return – factoring in tariffs, local content rules, grid charges and financing – rather than relying on headline module costs.”

As overseas markets narrow and domestic absorption stalls, China’s solar sector is transitioning from a volume-led model to one shaped by policy, quality and integration.

Anti-involution in action

Beijing’s response is a two-pronged policy pivot aimed at reshaping the solar sector from both ends of the value chain.

1. Upstream consolidation and energy standards

Polysilicon is the first target. Market signals point to a one-third capacity cut, with highcost, low-efficiency producers pushed out. GCL’s HKD5.4 billion (~US$695 million) equity raise is likely the first step in a broader industry shakeout. More significantly, China’s Ministry of Industry and Information Technology is proposing new national energy standards for polysilicon – the raw material used to make solar cells. New thresholds, as low as 41 kilowatt-hour per kilogram, are far stricter than current norms, and inspections of 40+ producers are underway. Few currently meet the proposed standards.

The policy forces a choice: invest in efficiency or exit. It also nudges production toward hydro-powered regions like Sichuan and Yunnan, improving both cost and carbon footprint. Electricity makes up over 40% of polysilicon costs⁸ . Today, much of it comes from coal-heavy grids. Higher efficiency reduces both emissions and unit costs.  

“The policy forces a choice: invest in efficiency or exit.”

2. Downstream marketisation: Document 136

Issued in February 2025, it ends fixed-price guarantees for new wind, solar and storage projects commissioned after 1 June. From that date, developers must sell power at market rates, with no protection from price swings or curtailment losses. The result: a rush in early 2025 to get projects approved under the old rules.

The short-term impact is a rush to lock in legacy terms and a slowdown in new approvals. But the long-term effect is deeper reform. China’s new target of 180GW of energy storage by 2027 (up from 100GW mid-2025) exposes the limits of past growth: many earlier systems were cheap, short-lived and rarely used.

Document 136 changes that. By expanding time-of-use pricing and ancillary service markets, it gives storage and flexible grid-connected projects a real revenue stream for the first time. That rewards performance over scale and shifts competition from megawatts built to megawatts delivered.

A new competitive landscape

China’s solar industry has long been defined by its technological leadership, deep vertical integration and a cost base significantly lower than that of global peers. But the global market is evolving. Buyers and policymakers are placing greater emphasis on supply chain resilience, domestic job creation and credible ESG standards. In response, many countries are introducing tariffs and rules that favour local manufacturing.

Meanwhile, technology cycles are accelerating. Today’s dominant technology, known as TOPCon, is already being challenged by newer innovations like back-contact cells, heterojunction cells and perovskites. These advances offer better performance but also make today’s equipment obsolete more quickly. In 2024, Chinese solar giant LONGi lost RMB 6.1 billion (~US$859 million) after its assets lost value – a clear sign of how quickly innovation can turn into financial risk.

For investors, the edge is no longer just about cheap hardware. Success now depends on navigating policy complexity, managing stranded asset risk and delivering solutions that align with grid realities and sustainability goals. As China tightens supply and raises standards, the solar value chain is being reshaped, and with it, the rules of global engagement.

¹IEA, ‘Solar PV Global Supply Chains’, (iea.org), July 2022.
²Introduced in China around 2021, the anti-involution policy emerged from concerns over “involution” – a term describing wasteful, zero-sum competition that erodes efficiency and profitability. Initially targeting education and technology, it now extends to industries like solar to curb redundant capacity, foster innovation and align growth with sustainability and systemic needs.
³Copper Plate Second Generation 1912, ‘As of the first half of 2025, centralised photovoltaic power stations in Fujian, China have suffered losses exceeding 18 billion yuan. From Gansu in the west to Hubei in central China, the profitability of power stations has significantly declined’, (xueqiu.com), September 2025.
⁴China Energy Net, ‘In February, the national photovoltaic power generation utilisation rate was 93.4%, falling below 95% for the first time’, (china5e.com), April 2024.
⁵China National Radio, ‘With the mandatory energy storage policy coming to an end, what is the future of new energy storage technologies?’, (finance.cnr.cn), April 2024.
⁶Lu Qixiu, ‘The utilisation rate of electrochemical energy storage in China has significantly improved’, (paper.people.com.cn),  April 2025.
⁷Sohu, ‘China's photovoltaic market – a pessimistic 2024 and an unpredictable 2025’, (sohu.com), February 2025.
⁸IEA, ‘Solar PV Global Supply Chains’, (iea.org), July 2022.