Photovoltaic Industry 2026 Strategy: The Inflection Point of Supply-Side Reform and Gradual Restoration of Supply-Demand Balance

Date: December 14, 2025
Analyst: Duohong Zeng (S0600516080001)
Source: Soochow Securities Research Institute

Executive Summary

The global photovoltaic (PV) industry is standing at a critical historical inflection point. After two years of intense "involution" (hyper-competition) and price wars, the sector is transitioning from a phase of无序 expansion to one of structured consolidation and supply-side reform. Our analysis indicates that the worst of the supply-demand imbalance has passed, with significant improvements expected in 2026.

Key Thesis:
1. Supply-Side Turning Point: Driven by policy interventions (energy consumption standards), industry self-discipline (production cuts, joint storage reserves), and financial pressure on weaker players, capacity expansion in key links (silicon wafers, modules) is halting. We anticipate a tangible reduction in effective supply starting in 2026, leading to a gradual repair of prices and margins.
2. Demand Resilience & Structural Shifts: While China’s domestic installations are expected to correct from historic highs in 2025 due to policy adjustments (Document No. 136), global demand remains robust. Emerging markets (Middle East, India) are becoming primary growth engines, offsetting slower growth in mature markets (US, Europe). Global installations are projected to remain near 600GW in 2025-2026.
3. Profitability Restoration: The industry is moving from a "cash flow survival" mode to a "profit recovery" mode. Leaders with cost advantages, strong balance sheets, and technological moats (TOPCon 3.0, BC, HJT) are poised to capture disproportionate value as prices stabilize.
4. Inverter & Storage Alpha: The inverter and energy storage sectors exhibit superior growth trajectories compared to the main PV chain. Driven by grid stability needs, capacity电价 (capacity tariff) policies in China, and AI data center demand in the US, large-scale and commercial/industrial (C&I) storage are experiencing exponential growth.

Investment Recommendation:
We maintain an Overweight rating on the PV sector, with a strategic focus on three pillars:
1. High-Growth Inverters & Storage: Benefiting from global storage boom and grid modernization.
2. Supply-Side Reform Beneficiaries: Silicon material and module leaders with cost leadership and improving competitive landscapes.
3. Technology Leaders: Companies pioneering next-gen technologies (BC, Perovskite, Copper Paste) that offer efficiency premiums and cost reductions.

Key Takeaways

1. Demand Outlook: Global Growth Persists Amidst Domestic Correction

Global Installations: Steady Growth with Regional Divergence

We forecast global new PV installations to reach 599 GW in 2025 (+11% YoY) and 588 GW in 2026 (-2% YoY). The slight decline in 2026 is primarily attributed to a correction in the Chinese market, while overseas markets continue to expand.

Source: Soochow Securities Estimates, BP, EIA

China: Policy-Driven Market Segmentation

• 2025 Peak & 2026 Correction: Influenced by Document No. 136 and a rush to install before policy changes, China’s installations surged to 252.87 GW in Jan-Oct 2025 (+39% YoY). We estimate full-year 2025 installations at 290 GW. However, due to grid absorption limits and the implementation of market-based electricity pricing mechanisms, we project a significant correction to 215 GW in 2026 (-26%).
• "Dual-Track" Market Emergence: The introduction of mechanism-based electricity prices (competitive bidding for grid-connected volume) is creating a bifurcated market.
  • Mechanism Volume: Limited to ~130 billion kWh for PV nationwide. Projects within this quota face competitive pricing, with clearing prices varying significantly by province (e.g., lower in Heilongjiang/Gansu due to oversupply of bids; higher in Shanghai/Anhui due to undersubscription).
  • Non-Mechanism Volume: Large bases, distributed PV with high self-consumption, and green power direct trading will operate outside the mechanism, driven by pure economic viability. These two tracks are expected to contribute roughly equal capacity in the future.
• Component Bidding Contraction: Reflecting downstream caution, cumulative module bidding in 2025 (Jan-Nov) fell 42% YoY to 95.46 GW, indicating a shift from "volume at any cost" to quality and profitability preservation.

Overseas Markets: Diversification and Localization

• United States: The One Big Beautiful Bill Act (OBBBA) accelerates the phase-out of residential ITC (ending 2025) and advances the deadline for utility-scale credits (48E/45Y) to end-2027. This has triggered a rush to complete projects in 2025-2026. Additionally, strict Foreign Entity of Concern (FEOC) rules are forcing Chinese firms to dilute equity stakes in US subsidiaries to <25% (e.g., Canadian Solar, Trina Solar) to maintain eligibility for subsidies. US installations are expected to grow steadily post-2026, driven by local manufacturing incentives (45X MPTC).
• Europe: After a decade of growth, 2025 marks a year of stagnation (-1.4% estimated) as the market digests inventory and adjusts to higher interest rates. However, long-term fundamentals remain strong under REPowerEU, with steady growth resuming in 2026.
• Emerging Markets (Middle East & India): These regions are the new growth engines.
  • Middle East: Aggressive sovereign targets (Saudi Vision 2030, UAE Energy Strategy 2050) and abundant solar resources are driving an 87% YoY surge in 2025 installations (28 GW). Major projects like NEOM and SEC storage tenders are catalyzing demand.
  • India: With a target of 280 GW cumulative PV by 2030, India is enforcing local content requirements (ALMM, BCD tariffs) while stimulating demand through tender pipelines. Installations are expected to reach 31 GW in 2025 (+29% YoY).

2. Supply Side: The End of "Involution" and Price Stabilization

Capacity Expansion Halts; Consolidation Accelerates

The era of blind capacity expansion is over. Facing prolonged losses and tightened financing, manufacturers across the supply chain are halting new projects.
* Silicon Wafers & Modules: New capacity additions have effectively stopped. Existing plans are being delayed or cancelled.
* Battery Cells: Some production lines are being idled or converted. The industry is shifting focus from scale to efficiency (TOPCon 3.0, BC).
* Impact: We expect the supply surplus to narrow significantly in 2026. The "price war" dynamic is giving way to "profit preservation," with leading firms prioritizing margins over market share.

Financial Health: Cash Flow is King

Profitability across the main chain (Polysilicon, Wafers, Cells, Modules) remains under pressure, with many firms reporting losses in 2024-2025.
* Cash Flow Divergence: In this downturn, cash flow quality and debt structure are more critical than reported profits.
* Strong Balance Sheets: Companies like Tongwei (Polysilicon) and Daqo New Energy maintain robust cash positions and low leverage, allowing them to withstand the downturn and invest in technology.
* Vulnerable Players: Firms with high short-term debt and negative operating cash flows (e.g., some wafer and module integrators) face liquidity risks. The "survival of the fittest" phase is actively weeding out inefficient capacity.
* Operating Rates: Current utilization rates are at cyclical lows (Silicon ~37%, Wafers ~50%). However, with disciplined production cuts and inventory destocking, we anticipate a mild recovery in operating rates in 2026 as demand stabilizes.

Policy & Industry Self-Discipline: Catalysts for Recovery

Two major forces are accelerating supply-side clearance:
1. Stricter Energy Consumption Standards: The revised national standard for polysilicon energy consumption sets stringent limits (Tier 3: 6.4 kgce/kg for Siemens method). Approximately 30% of existing capacity fails to meet these standards and faces forced exit or costly upgrades. This policy acts as a hard constraint on low-efficiency supply.
2. Joint Storage Reserve Platform: In a landmark move, ten major polysilicon producers (including Tongwei, GCL, Daqo, Xinte) established "Beijing Guanghe Qiancheng Technology Co., Ltd." in December 2025 with RMB 3 billion in capital. This platform aims to purchase and store excess polysilicon, stabilizing prices and preventing destructive dumping. This signals a shift from fragmented competition to coordinated industry self-rescue.

3. Value Chain Analysis: Margin Repair and Leadership Concentration

Polysilicon: Bottoming Out, Ready for Rebound

• Supply/Demand: Total capacity exceeds 3 million tons (equivalent to >1,500 GW), but effective supply is constrained by low operating rates (37%) and maintenance. Production dropped to ~114,600 tons in Nov 2025.
• Price: Polysilicon prices have stabilized around RMB 50-52/kg. With the joint reserve platform and energy standard enforcement, further downside is limited.
• Outlook: 2026 will see a clear divergence. Leaders with low-cost, compliant capacity will regain profitability as prices inch up. We estimate neutral-case unit profits of RMB 10,000/ton could restore significant earnings for leaders like Tongwei and GCL.

Silicon Wafers: Platform Phase, Head Concentration

• Capacity: The industry has entered a "platform phase" with total planned capacity hovering around 1.1 TW. No significant new entries are expected.
• Competition: The market is consolidating towards leaders like LONGi and TCL Zhonghuan, who benefit from scale, technology (N-type), and better asset utilization.
• Profitability: Margins hit bottom in 2024-2025. With controlled production and destocking, wafer prices are expected to improve modestly in 2026, aiding margin repair for top-tier players.

Battery Cells: TOPCon Dominance, BC/HJT Niche Growth

• Technology Mix: TOPCon is the undisputed mainstream technology, accounting for ~81% of capacity in 2026. PERC is being phased out. BC (Back Contact) and HJT (Heterojunction) represent ~20% combined, serving premium segments.
• Capacity: Total cell capacity is shrinking slightly as inefficient lines close. Focus is on upgrading existing TOPCon lines to 3.0 standards (efficiency >27%, module power 670W+).
• Profitability: Cell margins are highly sensitive to silicon wafer prices. As wafer prices stabilize, cell makers with advanced tech (LECO, BC) can command premiums. Leaders like Aiko (BC) and Junda (TOPCon) are well-positioned.

Modules: Price Floor Established, Brand Value Returns

• Price: Module prices have fallen >60% since 2023, reaching ~RMB 0.6/W. This level is unsustainable for most producers, establishing a firm price floor.
• Margin Repair: Leading integrated manufacturers (LONGi, Jinko, JA Solar, Trina) have narrowed their gross margin declines through cost optimization and upstream price drops. We expect module margins to recover in 2026 as price wars subside.
• Strategy: Leaders are shifting from "volume growth" to "profitable growth." Channel strength and brand recognition are becoming key differentiators, favoring established giants over second-tier assemblers.

Auxiliary Materials: Inverters & Storage Shine; Glass/Film Stable

1. Inverters & Energy Storage: The High-Growth Alpha
* Global Trend: Inverters are decoupling from the slow PV module growth, driven by the explosive demand for energy storage.
* China Large-Scale Storage: The shift from "mandatory storage" to "economic-driven storage" via Capacity Tariff Policies is a game-changer. Provinces like Inner Mongolia, Gansu, and Hebei are offering capacity payments (e.g., RMB 330/kW/year in Gansu), boosting IRRs to 6-15%. We forecast China’s large-scale storage installations to reach 152 GWh in 2025 (+45%) and 232 GWh in 2026 (+52%).
* US Storage: Driven by ITC subsidies and AI data center power needs, US large-scale storage is booming. Cumulative bookings reached 66 GWh in Jan-Oct 2025 (+59% YoY). We expect US storage demand to hit 75 GWh in 2026 (+41%), with AI-related storage becoming a significant contributor (31 GWh).
* Europe & Emerging Markets: European C&I storage is doubling annually due to dynamic electricity pricing. Middle East storage projects (e.g., Saudi SEC, UAE Masdar) are scaling up rapidly, with regional demand expected to quadruple in 2025.
* Household Storage: Recovering in Europe and surging in Australia (due to subsidies) and emerging markets (Pakistan, South Africa).

2. Photovoltaic Glass: Consolidation Benefits Leaders
* Supply Cut: Due to losses, glass manufacturers have accelerated cold repairs (shutdowns). Daily melting capacity has dropped to 80,000-90,000 tons, below nominal levels.
* Leader Advantage: Flat Glass Group and Xinyi Solar hold nearly 50% market share and enjoy 10-20% higher gross margins than peers due to scale and raw material self-sufficiency. Prices strengthened in Q4 2025 due to restocking, supporting Q1 2026 performance.

3. Encapsulation Film (EVA/POE): Stable Oligopoly
* Market Structure: First Material (Foster) maintains ~50% market share. Capacity expansion has slowed industry-wide.
* Diversification: Leading film makers are expanding into non-PV sectors (electronics, automotive) to diversify revenue streams, mitigating PV cyclicality.

4. Technology Trends: Efficiency Upgrades and New Frontiers

TOPCon 3.0: The Immediate Standard

• Efficiency Gains: Through LECO (Laser Enhanced Contact Optimization), backside poly-silicon optimization, and half-cell passivation, TOPCon 3.0 modules are achieving 670W+ power and 24.8% efficiency.
• Adoption: Leading firms like Jinko are upgrading 40-50 GW of capacity to TOPCon 3.0 by end-2025. This technology commands a ~10% price premium over standard TOPCon, enhancing profitability for early adopters.

BC (Back Contact): Scaling Up

• Capacity: BC capacity has reached 50+ GW (LONGi: 30+ GW, Aiko: 18 GW). It is gaining traction in distributed/residential markets due to aesthetics and high efficiency.
• Cost Reduction: The adoption of copper paste instead of silver paste is a critical breakthrough. Copper paste reduces metallization costs by ~RMB 0.04/W. With silver prices high, copper paste adoption (expected to scale in 2026) will significantly improve BC economics, potentially opening up the utility-scale market.

HJT (Heterojunction): Premium Niche

• Status: HJT maintains a ~RMB 0.1/W premium over TOPCon due to higher efficiency (25.5-26%) and lower temperature coefficients.
• Cost Down: Silver-coated copper paste and 0BB (Zero Busbar) technology are reducing non-silicon costs to <RMB 0.2/W. While expansion is cautious, HJT remains a viable high-end alternative.

Perovskite: From Lab to Gigawatt

• Milestone: Perovskite is transitioning from MW-scale pilot lines to GW-scale commercial production.
  • Progress: Companies like GCL Perovskite, UtmoLight, and Microquanta are commissioning GW lines in 2025-2026.
  • Efficiency: Tandem perovskite-silicon cells have achieved certified efficiencies of 29.51% (GCL), far exceeding crystalline silicon limits.
  • Stability: Leading firms have passed rigorous IEC 61215/61730 stability tests. By 2026, with 3+ years of outdoor data, stability concerns should be largely resolved.
  • Application: Initially targeting niche markets (BIPV, flexible modules) before competing in the mainstream utility sector via tandem modules with >27% efficiency.

Risks / Headwinds

While the outlook is improving, investors must monitor the following risks:

1. Intensified Competition: If supply-side discipline breaks down and firms resume price wars to gain share, margin recovery will be delayed. The success of the "joint reserve" mechanism is not guaranteed.
2. Grid Absorption Constraints: In China and other key markets, grid infrastructure lagging behind PV installation rates could lead to curtailment, limiting actual generation revenue and dampening new project IRRs.
3. Policy Uncertainty:
   • Domestic: Changes in electricity market rules or subsidy policies could impact project economics.
   • International: US trade policies (tariffs, FEOC interpretations) and EU carbon border adjustments pose risks to export-oriented manufacturers.
4. Demand Miss: If global macroeconomic conditions worsen (high interest rates, recession), PV and storage investments could be deferred, leading to lower-than-expected installations in 2026.
5. Technology Disruption: Rapid shifts in technology (e.g., faster-than-expected BC or Perovskite adoption) could strand assets in companies heavily invested in older TOPCon or PERC lines.

Rating / Sector Outlook

Sector Rating: Overweight

The PV industry is undergoing a fundamental reset. The supply glut is being addressed through market forces and policy intervention, setting the stage for a healthier, more profitable industry structure in 2026. While top-line growth may moderate in China, the quality of earnings is set to improve. The energy storage sector, closely linked to PV, offers superior growth visibility.

Valuation Perspective:
Many leading PV stocks are trading at historically low P/B and P/E multiples, reflecting peak pessimism. As profitability recovers in 2026, we anticipate a significant valuation rerating, particularly for companies with strong balance sheets and technological leadership.

Investment View

We recommend a barbell strategy: combining high-growth exposure in inverters/storage with value recovery plays in the main PV supply chain.

1. High-Growth Direction: Inverters & Energy Storage

• Logic: Decoupled from PV module price volatility; driven by global grid modernization, AI data center power needs, and favorable policy frameworks (capacity tariffs).
• Top Picks:
  • Sungrow Power Supply (300274.SZ): Global leader in inverters and large-scale storage integration. Benefiting from strong US/Europe demand and robust order book.
  • Hyperstrong (Haibosichuang) (Unlisted/Pre-IPO): Pure-play large-scale storage integrator with rapid growth in China.
  • Deye Shares (605117.SH): Strong presence in household storage and hybrid inverters, benefiting from emerging market growth (South Africa, Southeast Asia).
  • GoodWe (688390.SH), Ginlong Solis (300763.SZ), Hoymiles (688032.SH): Exposure to residential and C&I segments in Europe and Americas.
  • Arctech Solar (688408.SH), Citic Bo (688408.SH): Tracking system leaders benefiting from increased penetration in emerging markets.

2. Supply-Side Reform Beneficiaries: Main Chain Leaders

• Logic: Companies with cost advantages, strong cash flows, and market share gains as weaker competitors exit. Benefiting from price stabilization and margin repair.
• Polysilicon:
  • Tongwei Co. (600438.SH): Lowest-cost producer, strong balance sheet, key participant in joint reserve platform. High elasticity to polysilicon price recovery.
  • GCL Tech (3800.HK): Leader in FBR (Fluidized Bed Reactor) technology with lower energy consumption, well-positioned for new standards.
  • Daqo New Energy (688303.SH): Pure-play polysilicon with pristine balance sheet.
• Modules & Integrated:
  • LONGi Green Energy (601012.SH): Leader in BC technology and wafer scale. Valuation attractive relative to historical averages.
  • Jinko Solar (688223.SH), JA Solar (002459.SZ), Trina Solar (688599.SH): Top-tier module brands with strong global channels and integrated cost advantages.
  • Canadian Solar (688472.SH): Strong presence in US market and storage integration.
• Auxiliary Materials:
  • Flat Glass Group (601865.SH): Duopoly leader in PV glass, benefiting from supply cuts and cost advantages.
  • Foster Material (603806.SH): Dominant player in encapsulation films, expanding into electronic materials.
  • Junda Shares (002865.SZ): Leading independent cell maker, transitioning to high-efficiency TOPCon/BC.

3. Technology Leaders: Next-Gen Innovators

• Logic: Companies enabling efficiency gains and cost reductions through new materials and processes.
• Copper Paste & Metallization:
  • Boqian New Material (688126.SH), Polymer Material (688503.SH), DKEM (300842.SZ): Benefiting from the shift to copper paste in BC/HJT cells, reducing silver dependency.
• Perovskite:
  • Jinjing Science & Technology (600586.SH): Substrate glass supplier for perovskite.
  • Manst (301320.SZ), Jingshan Light Machine (000821.SZ), Jiejiawei (300724.SZ): Equipment suppliers for perovskite production lines.

Summary Table: Key Recommendations & Valuation

*Note: 2025E PE is negative or distorted due to temporary losses/low earnings in the transition year. 2026E PE reflects normalized profitability.

Conclusion:
The photovoltaic industry is emerging from its darkest hour. The convergence of supply-side discipline, policy support, and technological innovation creates a compelling investment case for 2026. Investors should focus on quality leaders who can navigate the transition and capitalize on the structural growth in energy storage and high-efficiency modules.

Disclaimer: This report is for institutional investor reference only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities. Past performance is not indicative of future results. Please refer to the full disclosure statement in the original source document.