China Dominates Global Solar Panel Market But Now Faces Setbacks

Jakarta, CNBC Indonesia – China’s solar panel industry has long been recognised as a global powerhouse. The country produces over 80% of the world’s solar panels and has been a key driver of the global renewable energy surge.

However, this dominant position does not guarantee industry stability. While the US-Iran conflict has shaken energy markets and heightened the importance of alternative energy, China’s solar sector is now facing significant pressure.

According to The Economist, Chinese solar panel exports did rise following the attacks. Yet this increase has been insufficient to shield Chinese solar firms from three major issues: declining domestic demand, oversupply of panels, and growing protectionism in foreign markets.

The timing is particularly poor. Since 2024, many Chinese solar companies have incurred losses due to intense price wars, with some already going bankrupt.

After years of rapid growth, an industry once dubbed the “world’s solar panel factory” is now under severe strain.

China’s Domestic Market Starts to Saturate

The first problem stems from within. China has long been the largest market for solar panels. However, rapid installation of solar panels has overwhelmed the national power grid.

Across China, solar panels are now ubiquitous on rooftops, hillsides, and desert regions. The issue is that solar power is only generated when the sun shines; supply drops at night but can surge excessively during the day.

China has traditionally relied on coal-fired power plants, which can be switched on or off as needed, unlike solar energy’s inflexibility.

As a result, a portion of generated solar power cannot be absorbed by the grid. In January and February, approximately 9% of China’s solar energy was curtailed, up from 6% in the same period last year.

This situation makes further expansion of solar capacity harder to justify. According to The Economist, China’s new solar capacity in 2026 is expected to drop sharply compared to 2025.

Industry groups estimate that solar panel installations in China this year could fall by 24% to 43% compared to 2025. If true, BloombergNEF predicts global solar panel demand will decline for the first time in two decades in 2026.

To accommodate more solar energy, China needs significant investment in energy storage batteries and transmission infrastructure to store excess power or redirect it to areas in need.

However, building batteries, upgrading grids, and creating more flexible market systems takes time. Thus, even if solar installations rebound next year, growth is unlikely to match previous rates.

Overproduction and Plummeting Prices

The second issue is oversupply. Massive investments in recent years have given Chinese solar firms production capacity exceeding 1,000 gigawatts (GW) annually.

This far exceeds the global solar panel installations projected for 2025, which are around 600 GW. According to Jenny Chase of BloombergNEF, this capacity may exceed the global market’s long-term absorption ability.

Simply put, too many factories are producing the same product. Solar panels are relatively undifferentiated between manufacturers, and innovations by one firm are quickly copied by competitors.

As a result, companies race to expand production to capture market share. But when supply grows much faster than demand, prices drop and profit margins erode.

A similar situation occurred in 2018, when solar industry revenues plummeted before recovering as demand caught up with supply. However, this round of pressure is deemed more severe due to both cyclical factors and a saturated domestic market.

Several manufacturers called for “self-discipline” to reduce excess capacity. Last year, some firms attempted to set production quotas and minimum panel prices, but the agreement proved difficult to enforce.

Weeks after the deal was struck, companies were accused of breaching it. In January, Chinese officials even expressed concerns that coordination could turn into cartel-like practices.

The Chinese government is also reducing support. Previously, the solar industry received substantial aid, from cheap land to interest-free loans. Now, these subsidies are being withdrawn.

Since June last year, new solar projects must sell electricity at market prices instead of guaranteed government tariffs. The March export surge was partly due to firms accelerating shipments before a 1 April deadline, when export tax rebates ended.

In recent months, local Chinese governments have begun demanding solar companies return multi-million-yuan subsidies, with some regions opting to let weaker firms fail rather than continue supporting them.

Growing Trade Barriers

The third problem comes from abroad. While China’s cheap solar panels have made solar energy more affordable, this success has triggered protectionist responses from many countries.

Western nations and several Chinese neighbours, including India, are taking steps to curb China’s dominance in solar products. Since 2022, the US has imposed strict import restrictions on solar panels.