Summary of Key Points
In July 2026, China's photovoltaic (PV) installed capacity surpassed that of coal-fired power for the first time, making PV the largest source of electricity. However, this victory is somewhat misleading: although PV accounts for 31.5% of the total installed capacity, it only generates 12.5% of the electricity (while coal-fired power generates 51.1% with 32% of the capacity). This has led to a series of issues, such as plummeting electricity prices or even negative prices at noon due to excessive PV generation, insufficient grid capacity that results in the suspension of new PV projects, increased costs for consumers due to reliance on coal-fired power, intense competition and losses within the PV manufacturing industry, and poor economic viability of energy storage solutions. Behind PV's status as the leading energy source lies a real test of the energy system's transformation.
1. PV Leads in Capacity, but Its Contribution is Limited
The fact that PV has more installed capacity than coal-fired power sounds impressive, but its actual power generation is much lower. Why? PV relies on sunlight, which is only available for about 1,000 hours per year (equivalent to working only two days a week), whereas coal-fired power can generate electricity for over 4,000 hours (five days a week). For example, in 2025, PV accounted for 31.5% of the installed capacity but only 12.5% of the electricity produced; coal-fired power, with 32% of the capacity, generated more than half of the electricity. This is like a person who is the tallest but lacks the strength to support the entire day's demand—PV can't provide power around the clock, and coal-fired power is still needed to fill in the gaps at night.
2. Electricity Prices Drop to Negative Levels at Noon, Leading to Losses for PV
PV generates the most electricity at noon when demand exceeds supply, causing prices to plummet to negative levels. In Shandong, there were 973 hours of negative electricity prices in 2024, and during the May Day holiday in 2025, prices were negative from 8 a.m. to 4 p.m. almost every day (8 cents per kilowatt-hour). In Zhejiang, prices dropped to -0.2 yuan per kilowatt-hour in January 2025. The National Energy Administration states that the more PV there is, the less valuable electricity becomes at noon, which is devastating for investors: the more PV installed, the cheaper the electricity sold, and the longer it takes to recoup costs. Previously, it took eight years for farmers to recover their investment; now, it may take ten years, and commercial and industrial projects are facing significant profit reductions.
3. Grids Can't Handle the Increase, Making PV Integration Challenging
The PV installed capacity has reached 12.86 gigawatts, but many grids are already overloaded. More than 450 cities and counties have been designated as "red zones" due to insufficient grid capacity, and new distributed PV projects have been suspended. For instance, over half of Henan's areas are in red zones, and 37 counties in Shandong have no capacity to absorb additional PV power. Industrial and commercial PV projects are required to use at least half of the electricity they produce, and Hebei has strict restrictions on exceeding capacity limits (PV capacity must not exceed 80% of the grid's capacity). The "golden age" of distributed PV has ended—while before, PV projects could generate and sell electricity immediately, now large commercial projects must use the electricity they produce on-site, and the grid no longer allows them to sell excess power.
4. Coal-Fired Power Remains Essential, but We Have to Support It
Although PV has become the leading source of electricity, coal-fired power has not been phased out. It still provides 60% of the country's electricity, as well as 70% of the peak power capacity (especially during hot summer months) and 80% of the regulation needed to balance the energy system. However, coal-fired power generation costs have not decreased, and the state must provide a "guaranteed price" to support its operation. In 2024, coal-fired power received 95 billion yuan in capacity fees, and this proportion is expected to increase to at least 50% in 2026 (100% in some regions like Yunnan and Gansu). This cost is ultimately passed on to consumers, meaning we have to pay extra to maintain coal-fired power as a backup for "green energy."
5. China Produces 80% of Global PV Components, but Domestic Manufacturers Are Losing Money
China accounts for 80% of the global PV component market, which is impressive. However, the domestic manufacturing industry is in a state of intense competition and losses. Component prices have dropped from 1.9 yuan per watt at the beginning of 2023 to 0.6-0.7 yuan per watt by the end of 2024, a decrease of over 60%. Silicon material and wafer prices have also plummeted by 88.6% and 84.7%, respectively. In the first quarter of 2025, leading companies like Longi and Jinko reported losses of 1.3-1.6 billion yuan each, and 16 large-scale companies went bankrupt, with more than 150 in poor financial condition. Chinese manufacturers are dominating the global market at the expense of their profits, leaving them with little money for research and development and upgrades—a unsustainable strategy.
Conclusion
PV becoming the largest source of electricity is a milestone in the energy transition, but it also marks the beginning of challenges. To truly make PV a reliable and effective energy source, three issues need to be addressed: improving grid capacity to handle increased PV generation, ensuring investors can make a profit through reasonable electricity prices, and supporting the manufacturing industry to maintain profitability and avoid excessive competition. Otherwise, this "leadership" will be merely a numerical achievement, and the energy system will remain inefficient and problematic. The real test is just beginning.