China’s Solar Industry Faces A Negative Cycle of Lower Prices And Overcapacity

China’s solar industry is facing a deeper structural challenge: falling electricity prices and declining PV product prices are increasingly reinforcing each other, turning what was once healthy cost reduction into intense price competition.

From Cost Reduction to Price Pressure

Lowering the cost of solar power has always been a key goal of technological progress. Advances in cell efficiency, manufacturing processes, scale and supply-chain management have helped reduce system costs and make solar power increasingly competitive.

However, as the industry moved toward subsidy-free and market-based development, lower electricity prices began putting greater pressure on project returns. To maintain target investment returns, developers increasingly demanded lower upfront system costs, passing the pressure back to manufacturers.

This created a reverse transmission: lower power prices drive lower system costs, which push down module, cell, wafer and polysilicon prices.

Overcapacity Amplifies the Problem

The rapid expansion of production capacity around 2021 further intensified the pressure. High polysilicon prices and strong industry profits attracted large amounts of capital, leading companies across the supply chain to expand aggressively.

As new capacity came online, supply increasingly exceeded end-market demand. Companies began competing not only through technology and efficiency, but also through lower prices to maintain utilization, cash flow and market share.

As a result, technological cost reduction gradually evolved into price-driven competition, squeezing industry margins.

Breaking the Negative Cycle

The industry’s challenge is no longer simply about making solar power cheaper. Sustainable development requires price reductions to be supported by real efficiency gains and new value creation.

A healthier market would see supply and demand return to balance, most manufacturers regain reasonable profitability, and companies compete through technology, quality, financing capabilities and specialized solutions rather than simply offering the lowest price.

The next stage of solar competition should therefore focus on effective competition rather than endless price cuts.

Low prices are not the problem. Low prices without new value creation are.