2026 Global Photovoltaic Industry Outlook: From Capacity Clearing to High-Quality Equilibrium

Date: March 2026
Source: Based on United Credit Ratings (Lianhe Ratings) Industry Analysis
Sector: Renewable Energy / Photovoltaics (PV)
Analyst Note: Institutional Research Desk

Executive Summary

The year 2025 marked a pivotal inflection point for the global photovoltaic (PV) industry, transitioning from a phase of aggressive "scale expansion" to one focused on "quality and efficiency." Facing headwinds such as slowing global installation growth, structural overcapacity, irrational price declines, and widespread losses across the supply chain, the manufacturing sector has undergone accelerated elimination of backward capacity and technological iteration. This transformation was driven by the dual resonance of policy regulation and market clearing mechanisms.

Looking ahead to 2026, we anticipate that while global installation demand will remain resilient, the industry’s fundamental logic is shifting. The substantive rebalancing of supply and demand, coupled with the deepening construction of new power systems and a profound reshaping of global trade patterns, signals the commencement of a high-quality development stage characterized by industrial agglomeration, technological sophistication, and rational valuation.

Key structural changes defining the 2026 landscape include:
1. Supply Side Consolidation: The "anti-involution" policies and market forces have forced a significant contraction in supply, particularly in polysilicon and wafers, leading to a gradual recovery in prices and a shift from industry-wide losses to a divergence where leading firms regain profitability while laggards exit.
2. Cost Structure Inversion: Due to rising silver and aluminum prices and falling polysilicon costs, silver paste has replaced polysilicon as the largest cost component in PV modules, fundamentally altering the cost sensitivity and driving innovation in metalization technologies (e.g., copper substitution).
3. Policy-Driven Market Reform: In China, the transition to market-based electricity pricing, mandatory storage configurations for large-scale projects, and the cancellation of export tax rebates are reshaping profit models and accelerating the globalization of manufacturing footprints to bypass trade barriers.
4. Technological Dominance of N-Type: N-type TOPCon has solidified its mainstream status with an 87.6% market share, while HJT and XBC technologies continue to niche out based on efficiency gains. The complete phase-out of P-type capacity is expected in 2026.

For institutional investors, the investment thesis for 2026 shifts from betting on beta-driven volume growth to selecting alpha-generating companies with superior cost control, technological moats (especially in N-type efficiency and low-silver/zero-silver technologies), and robust global supply chain resilience. The sector is moving towards a "survival of the fittest" equilibrium, offering attractive entry points for high-quality assets after the rigorous cleansing of 2024-2025.

Key Takeaways

1. Industry Overview: The End of Irrational Expansion and the Dawn of Rationality

1.1 The 2025 Retrospective: Painful but Necessary Correction

In 2025, under the continuous drive of "Carbon Neutrality" goals, the global energy structure transition entered deeper waters. Although technological iterations further reduced the Levelized Cost of Electricity (LCOE), the logic of global PV installation growth shifted from "explosive total volume expansion" to "high-quality structural growth." Consequently, the year-on-year growth rate of new global installations declined significantly, entering a period of rational adjustment.

On the manufacturing side, after two years of deep destocking and capacity clearing, the supply-demand imbalance eased slightly, but structural contradictions remained prominent. Main chain prices stabilized and rebounded under the support of cost floors and supply-demand rebalancing, while auxiliary material prices diverged due to rising raw material costs (silver, aluminum) and technical route changes. The industry officially entered a new stage of "eliminating the weak and returning to value."

1.2 Manufacturing Sector Analysis: Capacity, Technology, and Pricing

A. Polysilicon: The Epicenter of Overcapacity and Clearance
Polysilicon remains the core raw material of the PV industry. In 2025, China’s polysilicon production reached 1.34 million tons, maintaining a global market share exceeding 85%. However, the industry faced extreme overcapacity, with total capacity surpassing 3.5 million tons/year by the end of 2025.

• Technology Shift: Granular silicon, produced via the silane fluidized bed method, gained traction due to its low carbon footprint, cost advantages, and economic benefits in the crystal pulling process. Its market share rose from 14.4% in 2024 to 20.1% in 2025.
• Price & Profitability: Throughout 2025, polysilicon prices remained at historically low levels, causing widespread operational losses across the industry.
• Clearing Mechanism: To address malignant competition, national authorities and industry self-regulatory bodies launched strong "anti-involution" governance actions. These included strict controls on low-end capacity expansion, encouragement of mergers and acquisitions, and the establishment of capacity reserve regulation mechanisms. Leading enterprises proactively reduced operating rates to stabilize prices, while older, high-cost capacities were forced to shut down or exit due to inability to cover cash costs.
• Outcome: Driven by the tripartite mechanism of "Government Guidance + Industry Coordination + Enterprise Transformation," China’s polysilicon production dropped by 26.4% year-on-year in 2025. Prices began to rebound in the second half of the year, marking the formal transition from scale expansion to high-quality stock optimization.

B. Wafers: Technological Iteration Amidst Idle Capacity
Wafer production involves crystal growth and precision cutting. In 2025, the focus on cost reduction and efficiency enhancement yielded significant results in technology and product structure:
* N-Type Dominance: N-type wafers became the market dominant force, with penetration reaching 97%.
* Large Format Standardization: 182mm and 210mm large-size wafers achieved universal普及, with a combined market share of 99.7%.
* Cutting Technology: High-strength tungsten wire diamond wires basically replaced traditional carbon steel wires. The mother wire diameter decreased by 4μm to 29μm compared to 2024, significantly improving cutting yield and reducing silicon consumption.

Despite these technical advances, the supply-side pressure was immense. By the end of 2025, China’s total wafer capacity exceeded 1,500 GW, far surpassing global terminal digestion capabilities. Affected by slower downstream demand growth, domestic wafer production in 2025 was 680 GW, a 9.7% year-on-year decline, with overall operating rates below 50%. Wafer prices remained low throughout the year due to upstream cost transmission pressures and high inventory levels.

C. Cells and Modules: The Battle for Efficiency and Cost
The cell segment is the fastest-evolving link in the PV industry regarding technology iteration.
* Technology Mix (2025):
* N-type TOPCon: Market share increased to 87.6%, firmly establishing itself as the mainstream technology. Average conversion efficiency for mass-produced TOPCon cells reached 25.7%.
* Heterojunction (HJT): Market share declined from 3.3% in 2024 to 2.6% in 2025, constrained by cost and mass production progress. Efficiency reached 25.9%.
* XBC (Back Contact): Benefiting from breakthroughs in back-contact technology and strategic promotion by leading enterprises, penetration grew from 5.0% to 6.7%. Efficiency reached 26.5%.
* Vertical Integration: Most enterprises have established a closed-loop "Wafer-Cell-Module" full industrial chain, achieving efficient capacity coordination. Cell output scales basically match module demand.
* Pricing Dynamics: In 2025, affected by supply-demand imbalance, average prices for cells and modules fell to 0.289 RMB/W and 0.683 RMB/W, respectively, down from 0.345 RMB/W and 0.840 RMB/W in 2024. However, entering 2026, as polysilicon prices stabilized and rebounded, the cost transmission effect began to appear, driving a rational repair in cell and module prices.

1.3 Power Generation End: Slowing Growth but Massive Scale

Global PV installation scale continued to grow rapidly against the backdrop of green development.
* Global Installations (2025): Estimated at 580 GW, a year-on-year increase of 9.43%.
* China Installations (2025): New installations reached 315.07 GW, a year-on-year increase of 13.51%. While the growth rate slowed significantly, China’s cumulative grid-connected PV capacity exceeded 1,200 GW by the end of 2025, officially entering the "Terawatt Era." China remains the global leader in both new and cumulative installations.

Demand-Supply Mismatch Analysis:
Assuming a module-to-inverter capacity ratio of 1.30:1, the 580 GW of global new installations in 2025 translated to a demand of approximately 754 GW for modules, cells, and wafers, and 232.24 million tons for polysilicon.
Comparing this to China’s capacity at the end of 2025:
* Polysilicon: >3.5 million tons/year
* Wafers: >1,500 GW
* Cells: >1,400 GW
* Modules: >1,100 GW

It is evident that China’s capacity in all links completely exceeds global PV installation demand, indicating that the industry remains in a state of severe overcapacity, although the intensity of this surplus is being managed through active clearance.

(Source: CPIA, Lianhe Ratings Calculations)

2. Auxiliary Materials: The New Cost Drivers

In 2025, a fundamental reversal occurred in the cost structure of PV modules. While polysilicon prices remained low, the prices of commodities such as silver, aluminum, and oil/gas resources surged. Consequently, silver paste officially replaced polysilicon as the largest cost source for PV modules. The cost proportions of aluminum frames, encapsulation films (colloids), and glass also increased significantly under the raw material price transmission mechanism.

According to CPIA forecasts, in January 2026, the total cost of mainstream PV products (TOPCon 210R) was 0.762 RMB/W, with silver paste accounting for 13.39%. Sensitivity analysis shows that if silver prices reach 15,000, 20,000, and 25,000 RMB/kg, the total module cost rises to 0.783, 0.824, and 0.866 RMB/W respectively, with silver paste’s share increasing to 13.66%, 19.78%, and 23.56%.

2.1 PV Paste: The Silver Squeeze and Copper Substitution

PV cell paste determines conversion efficiency and reliability. Since 2025, silver prices have soared and fluctuated at high levels due to global macro liquidity fluctuations, intensified geopolitical games, and rigid contraction in silver mine supply.
* Technological Limits: Graph optimization technologies like SMBB (Super Multi-Busbar) and 0BB (Zero Busbar) are approaching physical limits.
* Copper Substitution: There is an urgent need to replace expensive silver with low-cost base metals. Copper, with conductivity close to silver, is the primary candidate. However, copper faces three core barriers in high-temperature processes (especially TOPCon sintering):
1. Easy oxidation.
2. Silicon-based diffusion contaminating the PN junction.
3. Poor stability with existing welding processes.
* Outlook: Significant technical breakthrough space remains for copper substitution. Companies that successfully commercialize low-silver or copper-based pastes will gain a distinct competitive advantage in 2026.

2.2 PV Glass: Geopolitical Risks and Cost Pressure

China remains the dominant producer, accounting for ~93% of global capacity (141,260 tons/day by end-2025).
* 2025 Price Trend: Prices fell in H1, with 2.0mm single-coated panel spot prices hitting a low of 10 RMB/sqm, breaking cash cost lines. In Q3, following the national "anti-involution" action, leading enterprises coordinated production cuts (cold repairs) and price hikes, restoring prices above average cost lines. The annual average price for 2.0mm panels was 12.37 RMB/sqm, a 16.3% YoY decline.
* 2026 Risk Factor: The deterioration of the situation in Iran and the risk of blockade in the Strait of Hormuz pose a severe threat to global natural gas supplies. Since PV glass production is highly energy-intensive and reliant on natural gas, the surge in international and domestic gas prices in 2026 will drastically increase cost pressures for manufacturers lacking long-term low-price gas locks.

2.3 PV Encapsulation Film (Colloid): Import Dependency and Oil Linkage

China produces ~90% of global PV films, with Hangzhou First Applied Material holding >50% market share.
* Product Mix: Transparent EVA remains the baseline (>40% share). POE films, known for high PID resistance and water barrier properties, are preferred for double-glass modules but rely heavily on imported POE resin particles. EPE (co-extruded POE composite) films, combining POE’s barrier properties with EVA’s adhesion, saw increased market share.
* Raw Material Supply:
* EVA: Domestic capacity release reduced imports by 23.9% to 697,000 tons in 2025, lowering import dependency from 53% (2021) to 19%.
* POE: Imports fell 20.4% to 726,000 tons, but import dependency remains high at 75.4%.
* Cost Pressure: The Middle East conflict drove up crude oil prices, transmitting inflationary pressure to EVA and POE particle prices, thereby squeezing film manufacturers' margins.

3. Policy Landscape: Structuring for Quality and Security

2025, the final year of the "14th Five-Year Plan," saw the construction of a comprehensive policy framework covering "Development – Grid Connection – Consumption – Technology – Trade." 2026, the start of the "15th Five-Year Plan," continues this high-quality development主线 (main line), anchored by the goal of building a "New Power System."

3.1 Key Policy Interventions in 2025-2026

3.2 Policy Implications for 2026

• Market-Based Pricing: The shift to market-determined electricity prices means that PV power generation enterprises can no longer rely on guaranteed high tariffs. Profitability will depend on their ability to participate in power trading, manage curtailment risks, and integrate with storage/VPPs.
• Export Tax Rebate Cancellation: The removal of the 9% export rebate is a seismic shift. It effectively raises the export cost for Chinese manufacturers, narrowing the arbitrage window between domestic and overseas prices. This policy, combined with rising trade barriers, incentivizes companies to build manufacturing bases overseas (localization) rather than just exporting from China. It also helps to rationalize domestic pricing by removing the artificial subsidy that encouraged dumping.
• IP Protection: Stronger IP enforcement protects R&D investments of leading firms, creating a higher barrier to entry for low-quality competitors and fostering a healthier innovation ecosystem.

Risks / Headwinds

While the outlook for 2026 is one of stabilization and quality improvement, several significant risks and headwinds persist that investors must carefully monitor.

1. Accelerated Industry "Shuffle" and Financial Distress

The "anti-involution" governance and market clearing are pushing the industry shuffle into deep waters.
* Operational Losses: In 2025, most PV manufacturing enterprises operated at a loss. This trend is expected to continue into early 2026 for weaker players.
* Financing Divergence: Market downturns exacerbate financial pressure and lead to a divergence in financing structures. Banks and capital markets are becoming increasingly selective, favoring top-tier firms with strong balance sheets.
* Exit of SMEs: Small and medium-sized enterprises (SMEs) with weak cash reserves, limited financing channels, poor cost control, and insufficient technical reserves are expected to accelerate their exit from the market in 2026. Some mid-sized enterprises with lagging layouts may face acquisition or shutdown.
* Generator Margin Compression: On the power generation side, the dual impact of electricity price marketization reforms and increased consumption pressure (curtailment) will significantly narrow the profit margins of PV power generation enterprises. Investors should be cautious of pure-play IPPs (Independent Power Producers) without diversified revenue streams or storage integration.

2. Structural Contradictions in Electricity Consumption

As China enters the "Terawatt Era," the contradiction between installation growth and grid/consumption infrastructure lag has become the core bottleneck.
* Declining Utilization Rates: In 2025, the national average PV utilization rate dropped to 95.7%, a 1.1 percentage point decline from 2024.
* Regional Imbalances:
* Northwest/North China: Large-scale base projects suffer from lagging UHV (Ultra-High Voltage) transmission channel construction. Utilization rates in some provinces have fallen below 90%.
* Eastern Coastal Areas: High penetration rates combined with insufficient distribution network upgrades have created intense local consumption pressure. Some regions have been forced to suspend the filing of large C&I PV projects.
* Investment Implication: Growth in regions with poor grid absorption capacity will be capped. Value accrues to companies involved in grid strengthening, energy storage solutions, and virtual power plants that can mitigate curtailment risks.

3. Deteriorating International Trade Environment

Global trade protectionism has upgraded significantly, forcing a reconstruction of global supply chain layouts.
* United States:
* Effective Jan 1, 2025, tariffs on Chinese solar wafers and polysilicon were raised to 50%.
* Anti-dumping rulings against Cambodia, Malaysia, Thailand, and Vietnam were finalized, with tax rates ranging from 0% to 271.28%. This effectively seals the channel for Chinese products to transit through Southeast Asia to the US.
* European Union:
* Introduced the PV Product Carbon Footprint Certification Rules. Starting 2026, incoming products must complete full lifecycle certification or face carbon tariffs. This poses an existential threat to smaller Chinese firms with lower low-carbon standards.
* India:
* Continued protectionist policies, launching anti-dumping investigations against Chinese PV films and glass in June 2025 to reduce dependence on Chinese auxiliary materials.
* Impact on Exports: In 2025, China’s PV export value fell by 17.2% to ~$26.5 billion, and export volume fell by 15.8%. The shrinkage of external demand further intensifies domestic overcapacity pressure.
* Strategic Shift: Chinese companies must accelerate "Global Local Manufacturing" to bypass these barriers. However, this carries execution risks, including political instability in host countries, higher labor costs, and supply chain fragmentation.

4. Raw Material Volatility and Geopolitical Shocks

• Silver Prices: High silver prices directly inflate module costs. Any further spike in silver due to macroeconomic factors or supply constraints will squeeze margins unless passed on to customers, which may dampen demand.
• Natural Gas: The potential blockade of the Strait of Hormuz due to Iranian tensions poses a severe risk to natural gas supplies. Since PV glass and polysilicon production are energy-intensive, a gas price spike would disproportionately affect these segments, potentially causing cost-push inflation across the supply chain.
• Oil Prices: Rising crude oil prices transmit to EVA and POE particle costs, pressuring the encapsulation film sector.

Rating / Sector Outlook (2026)

Sector Outlook: Neutral to Positive (Selective Bullishness)

We maintain a Neutral rating on the broader PV sector but upgrade our view to Positive for specific sub-segments and leading companies. The industry is transitioning from a "beta-driven" growth phase to an "alpha-driven" quality phase. The era of easy money from capacity expansion is over; the future belongs to those who can innovate, manage costs, and navigate global complexities.

Sub-Sector Views:

1. Polysilicon & Wafers: Neutral.
   • Logic: While prices have stabilized, overcapacity remains severe. Only the lowest-cost producers with advanced technology (e.g., granular silicon, large-format N-type wafers) will sustain margins. Expect continued consolidation.
2. Cells & Modules: Positive (for Leaders).
   • Logic: The shift to N-type TOPCon is complete. Leaders with high-efficiency cells (TOPCon/HJT/XBC) and strong brand/channel power will benefit from the rationalization of prices and the exit of weaker competitors. The cancellation of export rebates will help stabilize global pricing floors.
3. Auxiliary Materials (Glass/Film/Paste): Cautious.
   • Logic: High exposure to volatile raw material costs (Gas, Silver, Oil). Glass makers face geopolitical energy risks. Film makers face import dependency for POE. Paste makers face the silver squeeze. Innovation in material substitution (Copper paste, localized POE) is key.
4. Inverters & Storage Integration: Positive.
   • Logic: As grid congestion grows, the value of smart inverters and integrated storage solutions increases. Policy support for VPPs and mandatory storage favors this segment.
5. Power Generation (IPP): Neutral/Cautious.
   • Logic: Market-based electricity pricing introduces revenue volatility. Curtailment risks are rising. IPPs with strong trading capabilities and storage assets will outperform pure generators.

Valuation Perspective:
After the severe correction in 2024-2025, valuations for many PV stocks have compressed to historical lows, reflecting the worst-case scenarios of overcapacity and losses. As the supply side clears and profitability returns to leaders in 2026, there is potential for multiple expansion. However, investors should not expect a uniform sector rally; differentiation will be stark.

Investment View

1. Core Investment Logic: The "Quality" Premium

The central theme for investing in the PV industry in 2026 is "Quality over Quantity." The market will reward companies that demonstrate:
* Technological Moat: Superior conversion efficiencies (N-type TOPCon >25.7%, HJT/XBC leadership) and lower non-silicon costs.
* Cost Leadership: Ability to maintain positive gross margins even in a competitive environment, driven by scale, vertical integration, and operational excellence.
* Global Resilience: Diversified manufacturing footprint (outside China) to mitigate trade barriers (US/EU tariffs) and supply chain risks.
* Financial Health: Strong balance sheets with low leverage and ample cash flow to survive the "winter" of industry consolidation and fund R&D.

2. Key Drivers for 2026

• Supply-Demand Rebalancing: The active reduction in polysilicon and wafer output in late 2025 will lead to a tighter supply-demand balance in 2026, supporting price stability and margin recovery for surviving firms.
• Technological Iteration: The complete phase-out of P-type and the dominance of N-type will create a premium for advanced capacity. Furthermore, breakthroughs in "Copper replacing Silver" could be a major catalyst for cost reduction and margin expansion for early adopters.
• Policy Support for Consumption: The "15th Five-Year Plan" and VPP development guidelines will stimulate demand for grid-friendly PV solutions, including storage-integrated systems. This shifts value from simple module manufacturing to system integration and software/services.
• Emerging Markets Growth: While traditional markets (US/EU) face trade hurdles, emerging markets in the Middle East (Saudi Arabia, UAE), Latin America (Brazil), and Africa (South Africa) are becoming core engines for growth. Companies with strong presence in these regions will enjoy higher volumes and potentially better margins.

3. Recommended Investment Themes

Theme A: The "Survivors" – Integrated Leaders with N-Type Dominance

Focus on top-tier vertically integrated manufacturers who have successfully transitioned to N-type TOPCon/HJT/XBC at scale. These companies have the cost advantage, brand recognition, and global distribution networks to withstand trade barriers and capture market share as weaker players exit.
* Key Attributes: High N-type shipment ratio, low non-silicon cost, positive cash flow, overseas manufacturing capacity.

Theme B: The "Innovators" – Technology Disruptors in Materials and Cells

Invest in companies leading the next wave of technological disruption.
* Copper Paste Developers: Firms making progress in copper electroplating or other silver-substitution technologies. Success here would drastically reduce BOM costs.
* High-Efficiency Cell Tech: Leaders in HJT and XBC who can achieve cost parity with TOPCon while offering higher efficiency premiums for specific applications (e.g., rooftop, BIPV).
* Localised POE/EVA Suppliers: Companies successfully localizing the production of POE resin to reduce import dependency and margin volatility.

Theme C: The "Enablers" – Grid Integration, Storage, and VPP

As curtailment becomes a bigger issue, the value proposition shifts to technologies that enable higher PV penetration.
* Storage Integrators: Companies providing bundled PV+Storage solutions, especially for large-scale bases and C&I applications.
* Virtual Power Plant Operators: Platforms that can aggregate distributed PV and storage assets to participate in electricity markets and provide grid services.
* Smart Inverter Manufacturers: Providers of grid-forming inverters and advanced monitoring/control systems.

Theme D: Global Localizers

Companies that have effectively established manufacturing bases in key markets (e.g., US, Middle East, Europe) to bypass tariffs and serve local demand. These firms will benefit from the "premium" pricing in protected markets and reduced logistical/political risks.

4. Strategic Allocation Advice for Institutional Investors

• Overweight: Leading integrated module/cell manufacturers with strong N-type portfolios and global footprint; Energy storage and VPP solution providers.
• Market Weight: Polysilicon and Wafer leaders (selective, based on cost position); Inverter manufacturers.
• Underweight: Pure-play polysilicon/wafer producers with high cost structures; Small/Mid-cap module assemblers without proprietary technology or global channels; IPPs with high exposure to curtailed regions and no storage assets.

5. Long-Term Perspective: The Irreversible Energy Transition

Despite short-term cyclical challenges, the long-term trajectory for PV remains robust.
* IRENA Forecast: Renewable energy capacity to reach >11,000 GW by 2030, with PV exceeding 5,400 GW.
* IEA Forecast: By 2030, PV will account for 70% of all new power capacity additions globally.

PV is now the lowest-cost source of clean electricity in most parts of the world. The 2025-2026 consolidation is a healthy correction that removes inefficiencies and sets the stage for sustainable, profitable growth in the latter half of the decade. For long-term institutional capital, the current dislocation offers an opportunity to accumulate positions in high-quality assets at attractive valuations, provided one navigates the near-term volatility and selects winners based on the new "quality" criteria.

Conclusion

The 2026 PV industry landscape is defined by rationality, technology, and globalization. The "wild west" era of capacity expansion is over. Investors must pivot from tracking simple volume growth to analyzing competitive moats, cost curves, and geopolitical agility. The "anti-involution" policies and market forces are working to restore industry health. While risks from trade wars and grid constraints remain, the fundamental demand for cheap, clean energy ensures that the PV sector will continue to be a cornerstone of the global energy transition. The winners of 2026 will be those who have survived the shakeout, mastered N-type technology, and built resilient, globalized supply chains.

Disclaimer:
This report is based on the "2026 Photovoltaic Industry Analysis" by United Credit Ratings (Lianhe Ratings). The information contained herein is derived from public sources believed to be reliable. However, no representation or warranty, express or implied, is made as to the accuracy, completeness, or usefulness of any information herein. This report is for informational purposes only and does not constitute investment advice, an offer to sell, or a solicitation of an offer to buy any securities. Investors should conduct their own independent research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results.