Photovoltaics 2026 Annual Strategy: "Anti-Involution" Drives Turnaround; Beta Repair Hinges on Demand Expectations, Alpha Focuses on New Tech & Second Curves

Sector: Power Equipment & New Energy
Rating: BUY (Maintained)
Date: December 2025
Analysts: Yao Yao (S1130512080001), Zhang Jiawen (S1130523090006)
Source: Guojin Securities Research Institute

Executive Summary

The global photovoltaic (PV) supply chain has endured nearly two years of sustained losses. However, since July 2025, top-down signals promoting "anti-involution" (curbing irrational competition) have intensified, leading to tangible improvements in industry sentiment. We anticipate that price controls combined with supply-side clearance will drive a profitability repair, with the entire PV产业链 (industry chain) expected to return to profitability in 2026.

From a market-driven perspective, persistent losses are forcing the exit of tail-end enterprises. Simultaneously, leading battery and module manufacturers are accelerating high-efficiency technological upgrades (TOPCon, BC), which further accelerates the elimination of obsolete capacity. By 2026, the proportion of high-efficiency capacity among leading firms is expected to rise significantly, with 650W+ module supply capability becoming the key differentiator between Tier-1 and Tier-2 players.

On the demand side, market expectations have hit rock bottom. However, we identify significant potential for upside surprises driven by:
1. Domestic Policy Support: Mechanism electricity prices in recent provincial auctions have declined less than expected (mostly within 5 cents/kWh of coal-fired benchmarks). Coupled with new models like green power direct connection and mandatory storage, project yields are regaining attractiveness.
2. Global Macro Drivers: The surge in AI computing power construction and global manufacturing recovery is exacerbating power shortages overseas, particularly in developed markets.

This "repair in demand expectations" creates a fertile ground for a sector-wide Beta opportunity. Concurrently, Alpha opportunities lie in cost-leading leaders, equipment upgrades for crystalline silicon lines, perovskite industrialization, and companies expanding into high-growth "second curves" such as semiconductors, robotics, and AI infrastructure.

Key Takeaways

1. Supply Side: "Anti-Involution" & Market Clearance to Drive 2026 Profitability Turnaround

1.1 Policy-Driven Price Stabilization

Since July 2025, regulatory bodies have intensified efforts to curb below-cost selling:
* Legal Framework: The revised Price Law draft explicitly defines dumping as selling below cost. Industry meetings mandated cost audits, with penalties for pricing below minimum costs.
* Price Recovery: Polysilicon prices have risen to cover costs. As of late September, N-type dense material averaged 49,700 RMB/ton (+56% from bottoms), covering head enterprise costs. Futures closed at 55,800 RMB/ton in December.
* Downstream Impact: Silicon wafer, cell, and module prices are gradually aligning to cover full costs. We estimate the module price required to cover full industry costs is approximately 0.81 RMB/W (tax-inclusive). Current transaction prices (0.685–0.76 RMB/W) indicate ongoing pressure, but the trend is upward.

1.2 Supply-Side Clearance: Energy Standards & Consolidation

• New Energy Consumption Standards: The new national standard for polysilicon energy consumption lowers the threshold for existing enterprises to 6.4 kgce/kg-Si (from 10.5 previously). Facilities failing to meet this will face rectification or shutdown. This is expected to reduce effective domestic polysilicon capacity by 16.4% to ~2.4 million tons/year.
• Capacity Consolidation Platform: A significant milestone was reached in December 2025 with the establishment of Beijing Guanghe Qiancheng Technology Co., Ltd. (Registered Capital: 3 billion RMB). Shareholders include major players: Tongwei (30.35%), GCL Tech (16.79%), East Hope (11.3%), Daqo (11.13%), and Xinte (10.12%). This platform aims to acquire and shut down inefficient capacity, potentially removing 1 million tons (approx. 1/3 of total capacity), mimicking an OPEC-like quota system to resolve supply-demand imbalance.

1.3 Market-Driven Exit & Technological Barriers

• Cash Flow Improvement: In 3Q 2025, operating cash flows for most main-chain companies improved quarter-on-quarter as firms adopted "production based on sales" strategies.
• Tail-End Exit: Secondary and tertiary firms in auxiliary materials (e.g., encapsulation films) are exiting via equity transfers or business contraction.
• High-Efficiency Barrier: Leading firms (Jinko, JA Solar, Trina, Tongwei) have mass-produced 650W+ modules (Tiger Neo 3.0, DeepBlue 5.0, etc.). Achieving this power level requires complex process innovations (0BB, edge passivation, multi-segment cells) and significant capex, creating a widening gap between Tier-1 and Tier-2 players. Higher power modules lower unit manufacturing costs and boost utilization rates, further squeezing out laggards.

1.4 Profitability Elasticity Forecast (2026E)

We model profitability under Conservative/Neutral/Optimistic demand scenarios. Assuming polysilicon prices stabilize at levels covering marginal costs:

*Note: Polysilicon profits vary significantly by company cost structure. Tongwei and GCL show higher elasticity due to lower all-in costs.

2. Demand Side: Expectation Repair Triggers Beta Opportunities

2.1 2025 Review: Rush-to-Install Driven Growth

• Policy Catalyst: The "Notice on Deepening Market-Oriented Reform of New Energy On-Grid Tariffs" (Document No. 136) issued in Feb 2025 mandated market-based pricing for new projects after June 1, 2025. This triggered a massive rush-to-install in H1 2025.
• Data: Jan-Oct 2025 domestic installations reached 253 GW (+40% YoY). Module exports remained resilient at 208 GW (-0.1% YoY), while cell exports surged +78.4% to 86.6 GW.

2.2 2026 Outlook: Domestic Pressure vs. Overseas Surprise

• Domestic Slowdown: Due to the high base effect from the 2025 rush, we expect the first negative growth in domestic installations since grid parity.
  • Forecast 2026E Domestic Installations:
    • Conservative: 185 GW (-35% YoY)
    • Neutral: 225 GW (-21% YoY)
    • Optimistic: 275 GW (-4% YoY)
• Mechanism Electricity Prices Better Than Expected: Recent provincial auctions show mechanism prices mostly within 5 cents/kWh of desulfurized coal benchmarks. In regions like Shanghai, Chongqing, and Anhui, prices are nearly flat with coal benchmarks. With >80% of volume guaranteed at mechanism prices for new projects, yield uncertainty is contained.
• New Consumption Models: Policies promoting Green Power Direct Connection (self-consumption ≥60%) and Zero-Carbon Parks are unlocking new demand spaces. The inclusion of new energy storage in capacity电价 (capacity tariff) mechanisms provides long-term revenue visibility for storage-coupled PV projects.

2.3 Global Demand: AI & Manufacturing Resurgence

• Power Shortage Narrative: Since 2024, electricity consumption growth in the US, Korea, and Japan has decoupled from GDP growth, signaling structural power deficits.
• AI Data Center Boom:
  • Grid interconnection queues in US core data center regions (PJM, ERCOT) have extended to 3-5 years.
  • US electricity prices have been trending up since late 2023.
  • Data centers are projected to account for >50% of global new energy demand driven by AI through 2028.
• Cost Competitiveness: In Germany, utility-scale PV + Storage LCOE (8.4 Euro cents/kWh) is now lower than new CCGT gas plants.
• Incremental Demand from AI: We estimate AI data centers in the US and Europe will drive incremental PV installations of 7-78 GW (US) and 4-35 GW (Europe) annually from 2025-2028, assuming 20% of their power needs are met by PV.

3. Technology: Crystalline "Alpha" & Perovskite "Beta"

3.1 Crystalline Silicon: Efficiency & Cost Optimization

• TOPCon: Non-silicon costs have stabilized around 0.177 RMB/W. Further cost reduction relies on:
  • Silver Reduction: Steel mesh printing and silver-copper pastes can reduce metallization costs by ~0.02 RMB/W each.
  • Power Boost: Micro-innovations (0BB, edge passivation) are pushing module power to 650W+, reducing BOS costs.
• HJT (Heterojunction):
  • Cost Inflection Point: In 4Q 2025, HJT cell costs dropped below TOPCon by ~0.01 RMB/W due to silver-clad copper paste advantages. Module costs are now parity with TOPCon (~0.68 RMB/W).
  • Overseas Advantage: HJT faces fewer patent risks abroad compared to TOPCon (which faces litigation from First Solar). Maiwei’s HJT 4.0 solution reduces footprint and labor, favoring overseas expansion.
  • High-Power Leadership: Huasheng’s 760W HJT modules (24.5% efficiency, 2000V system) offer 0.15 RMB/W BOS savings over 725W TOPCon.
• xBC (Back Contact):
  • Duopoly: LONGi and Aiko hold >80% of the ~80GW existing capacity.
  • Premium & Value: BC modules command a ~0.06 RMB/W premium over TOPCon. In concentrated scenarios, ABC modules (665W) deliver +0.4% IRR and -2.3% LCOE vs. TOPCon (625W).
  • Cost Gap Narrowing: ABC module cost gap vs. TOPCon has narrowed to ~0.02 RMB/W.

3.2 Perovskite: From 0-to-1 Industrialization

• Policy Tailwinds: Multiple provinces (Shandong, Anhui, Beijing, Shanghai) and the MIIT have issued policies supporting perovskite pilot platforms and industrialization in late 2025.
• Efficiency Progress:
  • Lab Records: Single-junction 27.2%; Tandem (Perovskite/Si) 34.9% (LONGi).
  • Commercialization: Large-area single-junction modules reaching ~18%; tandem cells >25%.
• Cost Potential: At 28% efficiency and scale, tandem module costs could drop to ~1.0 RMB/W, offering a reasonable premium of 0.1-0.3 RMB/W over TOPCon due to BOS savings.
• Investment Activity: Primary market financing remains active, shifting from pure R&D to equipment and material suppliers. GW-level production lines are being planned by GCL, UtmoLight, and others.
• New Applications:
  • Terrestrial: BIPV, CIPV (Consumer Integrated PV).
  • Space/AI: Perovskite’s high specific power, radiation resistance, and low weight make it ideal for space-based solar power for AI satellites. Elon Musk’s vision of 1TW/year AI deployment via space solar highlights this long-term "Beta" narrative.

Risks / Headwinds

1. Policy Implementation Risk: If "anti-involution" measures (price floors, capacity closures) are not strictly enforced, supply oversupply may persist, delaying profitability recovery.
2. Traditional Energy Price Volatility: A significant drop in coal/natural gas prices would erode the relative economic advantage of PV + Storage, impacting investment sentiment.
3. International Trade Barriers: As China dominates PV manufacturing, other countries may impose stricter trade barriers (tariffs, local content requirements), potentially increasing costs for global developers and limiting Chinese export volumes.
4. Storage Cost Reduction Lag: High penetration of PV requires flexible resources (storage). If storage costs do not decline as expected, it could bottleneck PV grid integration and limit mid-term growth.

Rating / Sector Outlook

Rating: BUY (Maintained)

Sector Outlook:
We maintain a BUY rating on the PV sector. The industry is at an inflection point where supply-side discipline ("anti-involution") is beginning to outweigh demand-side headwinds. While 2026 may see a nominal decline in domestic installation growth due to base effects, the quality of demand is improving (better pricing mechanisms, AI-driven overseas demand). The convergence of policy-supported price floors and market-driven capacity exit sets the stage for a broad-based profitability turnaround in 2026.

Valuation Context:
Most leading PV companies are trading at historically low valuations, with many reflecting deep losses in 2024-2025. As earnings recover in 2026, P/E multiples are expected to compress rapidly, offering significant upside potential.

Investment View

We recommend focusing on three core investment themes for 2026:

Theme 1: Cost-Leading Industry Leaders (Alpha)

Companies with superior cost structures and integrated capabilities will capture the majority of profits as the industry normalizes.
* Integrated Leaders: Sungrow (300274.SZ), Canadian Solar (688472.SH), CATL (300750.SZ) (for storage integration).
* Polysilicon: Tongwei (600438.SH), GCL Tech (3800.HK) – Beneficiaries of capacity consolidation and price stabilization.
* Glass: Xinyi Solar (0968.HK), Flat Glass (601865.SH) – Duopoly benefits from supply clearance.
* High-Efficiency Cells/Modules: Junda (002865.SZ), Aiko (600732.SH), Hengdian DMEGC (002056.SZ), JA Solar (002459.SZ).
* Auxiliary Materials: Foster (603806.SH) (Encapsulation Film), Meichang (300861.SZ) (Diamond Wire).

Theme 2: Technology Iteration & Equipment Upgrades

Capital expenditure will shift from capacity expansion to efficiency enhancement and new technology adoption.
* Crystalline Upgrades: Companies providing equipment for TOPCon efficiency boosts (0BB, laser patterning) and HJT/BC line expansions.
* Perovskite/Tandem: Early movers in perovskite equipment and materials.
* Key Tickers:
* Maiwei (300751.SZ): Leader in HJT and Perovskite equipment.
* Autowell (688516.SH): Module automation and stringer equipment.
* Jiejia Weichuang (300724.SZ): Cell equipment (TOPCon/HJT/Perovskite).
* DR Laser (300776.SZ): Laser processing for BC and TOPCon.
* Gaoce (688556.SH): Cutting equipment and services.

Theme 3: "Second Growth Curve" Diversification

Companies leveraging their core manufacturing/electronics expertise to enter high-growth sectors like Semiconductors, Robotics, and AI Infrastructure.
* Logic: These companies offer downside protection via stable PV businesses and upside optionality via high-margin new ventures.
* Key Tickers:
* Materials: Foster (603806.SH), Hengdian DMEGC (002056.SZ), Yongzhen (603381.SH), Polymer Material (688503.SH).
* Equipment: Maiwei (300751.SZ), Autowell (688516.SH), DR Laser (300776.SZ), Gaoce (688556.SH).
* Inverters/Power Electronics: Companies expanding into EV charging, energy management systems, and AI power supplies.

Selected Financial Estimates & Valuation Table (2025E - 2027E)

(Source: Wind, Guojin Securities Estimates. Note: 2025E profits for some companies remain negative due to ongoing restructuring and inventory write-downs. 2026E marks the expected turnaround.)

Detailed Analysis: The Path to Profitability

1. The Mechanics of "Anti-Involution"

The term "involution" in the Chinese PV context refers to destructive price wars where companies sell below cash cost to maintain market share, leading to industry-wide value destruction. The 2025 policy shift is not merely rhetorical; it involves:
* Legal Enforcement: Using the Anti-Unfair Competition Law and Price Law to penalize predatory pricing.
* Standardization: The new energy consumption standards for polysilicon act as a non-tariff barrier to inefficient capacity. Older facilities (often owned by smaller, less capitalized players) cannot meet the 6.4 kgce/kg threshold without prohibitive retrofit costs.
* Financial Discipline: Banks and investors are increasingly reluctant to fund loss-making capacity expansions, forcing a natural credit crunch for tail-end players.

The formation of the Beijing Guanghe Qiancheng platform is a critical structural change. By consolidating ownership of excess capacity among the top 5-10 producers, the industry moves towards a coordinated supply management model. This reduces the "prisoner's dilemma" where each producer ramps up output hoping others will cut back.

2. Demand Nuances: Beyond the Headline Numbers

While the headline forecast for 2026 domestic installations shows a decline, this masks important qualitative shifts:
* Yield Stability: The fear that market-based electricity prices would crash PV project IRRs has been alleviated. The auction results show that provinces are willing to pay a premium for stable, green power, especially when coupled with storage. The "mechanism price" acts as a floor.
* Green Power Direct Connection: This policy bypasses grid congestion issues by allowing large industrial users to buy power directly from nearby PV plants. This creates a decentralized demand stream that is less sensitive to grid curtailment risks.
* Overseas AI Demand: This is the most significant "unknown variable" with high upside potential. Traditional demand models underestimate the speed at which tech giants will deploy off-grid or dedicated renewable power for AI clusters. The inability of traditional grids to expand fast enough makes PV+Storage the only viable short-to-medium term solution for new data center loads.

3. Technology Battle: TOPCon vs. HJT vs. BC

• TOPCon: Remains the workhorse. Its dominance is secured by sunk costs and incremental improvements. However, its margin potential is capped by silver costs. The shift to 650W+ is a defensive move to maintain relevance.
• HJT: The "Dark Horse." With cost parity achieved in 4Q 2025, HJT is poised for a resurgence, particularly in markets sensitive to IP risks (US/Europe) and high-efficiency requirements. The 2000V system compatibility gives it a distinct BOS advantage in large-scale projects.
• BC (Back Contact): The "Premium Product." Led by LONGi and Aiko, BC is carving out a niche in high-value segments (distributed, BIPV, and premium utility). Its aesthetic appeal and higher efficiency justify the premium. The narrowing cost gap with TOPCon makes it increasingly competitive.

4. Perovskite: The Long-Term Disruptor

While 2026 will not see perovskite dominating the mainstream market, it is the year of industrial validation.
* GW-Scale Lines: The commissioning of GW-scale lines by GCL and others will provide real-world data on yield, stability, and LCOE.
* Equipment Orders: The surge in equipment orders (laser, coating, encapsulation) indicates that the supply chain is maturing. Investors should view perovskite equipment makers as the immediate beneficiaries, ahead of module manufacturers.
* Space Application: This is a speculative but high-impact narrative. If perovskite proves durable in space, it opens a entirely new market segment unrelated to terrestrial grid constraints.

Conclusion

The PV industry is transitioning from a phase of chaotic expansion to structured consolidation. For institutional investors, the key is to distinguish between companies that will survive the clearance (cost leaders, tech innovators) and those that will perish. The combination of policy-supported price floors, market-driven capacity exit, and emerging demand from AI and green power models creates a compelling risk-reward profile for the sector in 2026. We recommend accumulating positions in high-quality leaders and technology enablers ahead of the anticipated earnings turnaround.