Wel, well, well... it's almost as if a command economy isn't that effective...
China’s world-beating solar industry is in turmoil
The Gulf war won’t save it
AS AMERICA’S WAR on Iran roils energy markets, China’s clean-energy companies would be expected to be cashing in. The country makes over 80% of the world’s solar panels, churning them out in vast quantities. Thanks to such efforts, renewable sources generated more electricity than coal last year around the world. Yet China’s solar industry, though world-beating, is in trouble. And the boost from the war has not been enough to steady it.
China’s solar exports have enjoyed a surge since the bombing began. But that will be small cheer to its companies, as they face three daunting problems. Domestic demand for their products is falling for the first time in decades because the country’s power grids—far and away the biggest market for solar panels—have become overloaded with the things. Solar-panel supply, meanwhile, is overabundant because of years of splashy investment in factories. And even while the war is helping solar sales in South-East Asia and Africa, protectionism has been on the rise in the bigger Western markets.
These problems converge at an ugly time. Most companies have been running at a loss since 2024 because of brutal price wars; bankruptcies are mounting. After experiencing blistering growth, the world’s solar factory now faces a reckoning.
Globally, the solar industry has not always been kind to investors. One solar panel is much like another, and when improvements are made by one producer, they are rapidly copied by competitors. So companies typically try to scale up production as quickly as possible in order to seize market share. That means production can race far ahead of demand, causing margins to collapse. This tendency led to a lurching downturn in revenues in 2018, for instance, followed by a rebound after demand caught up.
Solar wastes
But the current slump is of a different order. The main market for solar panels has always been within China, and roll-out has been so fast in recent years that it is outpacing the ability of the power grids to absorb it. All across the country, roofs, hills and deserts are carpeted with dark grey silicon. To keep the lights on, China has in the past relied on coal-fired power, which can be turned on and off as needed. Solar panels work only in daylight, which can lead to power shortages at night and excesses during the day. As a result, in January and February about 9% of China’s solar generation was wasted, up from 6% in the same period last year.
That all makes it hard to justify adding much more. Installations this year could fall by between 24% and 43% from 2025, according to an industry group (see chart). That would be enough to cause global demand for solar panels to fall in 2026 for the first time in two decades, says BloombergNEF, a consultancy. For China’s grids to cope, it needs to be able to store excess solar power or move it long distances to where it might be needed. That requires big investments in batteries and power lines, as well as figuring out flexible market mechanisms to co-ordinate everything (in some regions long-term contracts for coal-fired power lock out renewables even though they are cheaper). All this is happening, helped by the fact that batteries, like solar panels, are becoming much cheaper as production of them increases. But it takes time. That means that even if solar installations start rising again next year, growth will probably be much slower than before.
Meanwhile
China’s solar companies are struggling with a glut of supply. Frenzied investment has left them able to produce over 1,000 gigawatts (GW) of solar panels in a year. That is far more than the already whopping 600GW that were installed worldwide in 2025 and probably more than the global market will ever be able to soak up, reckons Jenny Chase of BloombergNEF, who notes: “We’re running out of big countries that don’t already have a lot of solar at this point.”
www.telegraph.co.uk
