Summary of Key Points
In July 2026, China's photovoltaic (PV) installed capacity (1.286 billion kilowatts) surpassed that of coal-fired power (1.285 billion kilowatts) for the first time, becoming the largest source of power in the country, accounting for 31.5% of the total installed capacity and generating approximately one-eighth of the nation's electricity demand. This breakthrough is due to significant cost reductions brought about by advancements in PV technology (the cost per kilowatt-hour has dropped to as low as 0.25 yuan, which is cheaper than coal-fired power in some areas) and the promotion of dual-carbon policies. However, the industry is facing a paradoxical situation: on one hand, PV capacity has reached a new high; on the other hand, there is overcapacity, narrowing profits (the price of polysilicon has dropped by more than 40%, and Tongwei incurred a loss of 5.1 billion yuan in the first half of the year), and in some regions, there is an issue of excess electricity that cannot be utilized. The industry is seeking new growth by phasing out inefficient capacity, integrating energy storage, expanding into new applications (such as AI computing centers and PV-based hydrogen production), and localizing its operations overseas.
Detailed Analysis
1. PV's Overcome of Coal-Fired Power: Thanks to Lower Costs and Policy Support
The key to PV's success over coal-fired power lies in the significant reduction in costs:
- Cost Reductions: Through technological advancements and scale expansion, the investment cost for PV equipment has dropped below 2.5 yuan per watt, and the price of PV panels has fallen below 0.8 yuan per watt (with some N-type products below 0.7 yuan per watt), a significant decrease from earlier highs. In areas with abundant sunlight, the cost of generating electricity can be as low as 0.25 yuan per kilowatt-hour, making it more cost-effective for businesses and consumers to adopt PV systems.
- Policy Support: The dual-carbon goals aim to reduce coal usage and increase green energy production. Grid reforms have facilitated the transmission of electricity over long distances (for example, from the northwest to the southeast), and the marketization of green energy provides additional incentives. The combination of large-scale projects and distributed installations has created a positive cycle where lower costs lead to more installations, which in turn drive further cost reductions.
2. The Challenges Behind the Bright Prospects: Overcapacity and Struggling Enterprises
In previous years, the PV industry experienced rapid growth, leading to excessive capacity that outpaced demand, resulting in intense competition and price drops:
- Price Drops: From January to July 2026, the price of polysilicon dropped by more than 40%, and the prices of silicon wafers and batteries decreased by nearly 30%, squeezing profits. Tongwei suffered a loss of 5.1 billion yuan in the first half of the year, and many companies experienced reduced operational efficiency and significant inventory pressure.
- Policy Measures to Address Overcapacity: Unlike previous administrative measures, market-based approaches are being used to address overcapacity, such as increasing the required capital for new projects, setting energy consumption limits for high-energy-consuming facilities, and canceling export tax incentives to discourage low-price competition. The industry is waiting for three key indicators to improve: the elimination of inefficient capacity, stabilization of prices at cost-levels, and a recovery in demand to normalize inventory levels.
3. Solving the Problem of Excess Electricity: Energy Storage Becomes a Must
PV relies on sunlight, which results in higher electricity production during the day. However, the grid capacity may not be sufficient to handle this surplus, especially in the northwest, where there are high rates of excess electricity being discarded (over 10% at noon). The solution is to mandate the installation of energy storage systems:
- Energy Storage as a Requirement: New PV projects must include energy storage to store excess electricity for use when needed. As of June 2026, energy storage capacity had increased by 61%, playing a crucial role in stabilizing power supply.
- Other Solutions: High-voltage transmission technologies are being used to transport electricity from the northwest to the southeast, and data centers are required to use a certain percentage of green energy (at least 50% in some regions). These measures help to manage the surplus electricity.
4. PV's Next Steps: New Applications, International Expansion, and Technological Advancements
After reaching a new peak in installed capacity, growth will depend on innovative approaches:
- New Applications: PV is being used in commercial and industrial distributed systems to reduce energy costs, in AI computing centers that consume large amounts of electricity and require green energy, and in PV-based hydrogen production (for example, Sinopec has built the world's largest 20,000-ton hydrogen production project in Xinjiang).
- International Expansion and Localization: PV companies are moving overseas to establish factories (for example, Longi in Malaysia and Jinko in the Middle East) to avoid trade barriers and better meet local demand.
- Technological Progress: N-type PV panels are replacing older P-type panels, offering higher efficiency and lower costs. Leading companies are leveraging these advancements to gain a competitive advantage (for example, TOPCon technology has become the mainstream in the N-type panel market).
These developments indicate that the PV industry is transitioning from being driven by government subsidies to being driven by market demand. However, to sustain its growth, it must overcome challenges such as overcapacity and ensure adequate electricity consumption. Technological advancements and new applications will be key to its future success.