Solar Industry Faces Crisis From Overcapacity

China's solar manufacturing juggernaut, once a symbol of unstoppable growth, has hit a wall. Factories churned out panels at a breakneck pace, pushing the country's installed photovoltaic capacity past 1.1 terawatts by June 2025. But supply has outstripped demand by a staggering margin, with Chinese production capacity roughly double the global appetite of 420 gigawatts. The result? Panel prices plummeted to 8.7 cents per watt in July, a low not seen since 2011. Major players like Tongwei and Trina Solar are bleeding cash, reporting losses of 4.96 billion yuan ($693 million) and 2.92 billion yuan, respectively, for the first half of 2025. The industry's aggressive expansion, fueled by years of government subsidies and cheap financing, has backfired, leaving companies scrambling to survive.

The fallout has real-world consequences, including factories sitting idle, layoffs hitting tens of thousands, and local governments grappling with the economic ripple effects. In 2024 alone, the top five manufacturers shed 87,000 jobs, while over 40 smaller firms went bankrupt. Beijing is now stepping in, with the Ministry of Industry and Information Technology urging companies to shutter outdated production lines. Meanwhile, the China Photovoltaic Industry Association is pushing for smarter competition to end the cutthroat price wars that have gutted profits. But can the industry pull itself out of this tailspin?

Amid the chaos, some companies are betting on cutting-edge technology to stay afloat. The shift from older PERC cells to high-efficiency TOPCon and heterojunction (HJT) cells is gaining momentum. These advanced cells promise better energy yields and slightly higher prices, offering a glimmer of hope for margins. For example, LONGi's 10-gigawatt HJT pilot line targets 26% efficiency in mass production, while Trina's TOPCon modules have hit 25% in certifications. Even more futuristic, perovskite-silicon tandem cells, with efficiencies nearing 30%, are moving from lab to early production. Microquanta's 100-megawatt perovskite line is already shipping demo panels, signaling a potential game-changer.

Still, innovation comes with hurdles. Upgrading to next-generation lines requires massive investment, a tough sell when cash flow is tight. Polysilicon oversupply, with prices dipping below $7 per kilogram, continues to drag down the supply chain. And while TOPCon and HJT cells command a premium of 1 to 1.5 cents per watt, competitors are quickly catching up, narrowing the advantage. Engineers at firms like Jinko argue that these technologies can restore profitability, but others warn that the costs and risks of retooling could deepen the industry's woes if demand doesn't rebound.

Two recent cases highlight the volatile forces at play. In May 2025, China saw a record-breaking 93 gigawatts of solar installations, driven by a rush to beat expiring subsidies. Developers raced to connect projects to the grid, boosting demand temporarily. But when the policy window closed, installations plummeted 85% in June, exposing the fragility of subsidy-driven growth. This boom-and-bust cycle shows how policy shifts can jolt the market, leaving manufacturers and developers exposed when incentives vanish.

Meanwhile, in Sichuan, a planned 20-gigawatt wafer production project was halted in 2025 due to a funding freeze. Local officials, caught between supporting jobs and facing financial realities, pulled the plug as banks grew wary of lending to an oversaturated industry. This case underscores a broader tension: local governments rely on solar factories for jobs and tax revenue, but the central government is pushing for consolidation. These examples reveal a key lesson: aligning policy, financing, and market demand is critical to stabilizing the industry.

China's solar crisis extends beyond its borders. The flood of cheap panels has slashed costs for developers worldwide, driving down the levelized cost of electricity for solar projects. But it's a double-edged sword. Foreign competitors in the U.S., Europe, and India face intense pressure from low prices, with U.S. antidumping tariffs targeting Chinese-linked plants in Southeast Asia. The global market is also grappling with supply-chain risks, as China's dominance, especially in polysilicon from Xinjiang, raises geopolitical concerns. An MIT study warns that this concentration could destabilize the global energy transition if disruptions occur.

Looking ahead, analysts predict tough times before recovery. By 2026, 20 to 30% of China's wafer and cell lines may sit idle as companies consolidate or exit. Beijing's push for quality over volume could stabilize prices, with module costs expected to rebound slightly as capacity shrinks. International collaboration, like joint R&D on perovskite cells or recycling standards, could ease tensions and address environmental concerns, such as the growing pile of obsolete panels. For now, the industry faces a painful reckoning, but its ability to innovate and adapt may yet light the way forward.