Summary of Key Points
In the first half of 2026, China's photovoltaic (PV) industry suffered its worst losses in history, with 22 out of 26 listed companies reporting losses totaling 18.3 to 21.4 billion yuan. Prices across the entire supply chain fell below the cost point, leading to severe price competition and inefficiency. To address this situation, the China Photovoltaic Industry Association took the lead in issuing the "General Rules for Photovoltaic Industry Cost Accounting Models," which standardizes the method of calculating costs across the entire supply chain. This move aims to resolve the previous issue of inconsistent cost calculations by various stakeholders and, together with existing energy consumption and safety standards, creates a closed-loop governance system that forces out inefficient capacity and guides prices back to a reasonable range.
The PV Industry in the First Half of the Year: Losing Profits to the Point of Collapse
The performance of the PV industry in the first half of 2026 can be described as a collective setback. Among the 26 listed companies that have released their semi-annual reports, only 4 reported profits, while the remaining 22 incurred losses amounting to 18.3 to 21.4 billion yuan. Even more problematic is that the prices of products at every stage of the supply chain—from silicon raw materials and wafers to batteries and modules—fell below their cost points. For example, silicon raw materials, which should have been sold for 100,000 yuan per ton to break even, are now being sold for only 80,000 yuan; modules, with a cost of 1.2 yuan per watt, are being sold for as little as 1 yuan per watt without any takers. Companies compete by cutting prices, pushing profits down to near zero or even incurring losses, a manifestation of extreme price competition.
The Previous Failure to Curb Low-Price Competition
As early as 2025, national authorities sought to regulate the disorderly low-price competition in the PV industry but faced a critical issue: how to define "selling below cost"? According to legal definitions, production cost includes manufacturing, administrative, sales, and financial expenses. However, this formula does not apply effectively in the PV sector for several reasons:
- Different companies use varying calculation methods; some include research and development costs, while others do not;
- The depreciation period varies (10 years vs. 5 years);
- Integrated companies (producing everything from silicon to modules) cannot be directly compared with specialized companies (focusing on a single stage).
Lack of a unified cost standard left regulatory bodies unable to effectively monitor and prevent low-price dumping.
The New Cost Standard: Bringing Precision to Cost Calculation
The newly issued "General Rules" aim to solve this problem by:
- Standardizing the calculation method for the entire supply chain: Unifying the scope of costs (e.g., which expenses to include), the depreciation rates, and the models for calculating costs (e.g., how to allocate direct materials);
- Aligning with legal requirements: Transforming the abstract concept of "cost" into practical methods applicable to each stage of the PV industry;
- Assisting both regulators and companies in cost analysis: Regulators can use these standards to determine if companies are engaging in low-price dumping, and companies can self-check their prices against the norms.
In simple terms, before the new standard, companies could claim their costs were low without clear evidence, leaving regulators with no way to challenge them. Now, with a unified measure, it is clear what constitutes selling below cost.
The Comprehensive Governance Framework
The new cost standards are part of a larger set of regulations that form a closed-loop governance system for the PV industry:
- Energy efficiency standards: Ensure companies can produce efficiently (e.g., setting limits on energy consumption in silicon and wafer production);
- Safety and labeling standards: Ensure products meet safety requirements and that labels accurately reflect product specifications;
- Cost accounting standards: Prevent companies from engaging in predatory pricing.
These three sets of standards work together to filter out inefficient, high-energy-consuming, and substandard companies, leaving only those that are energy-efficient, high-quality, and avoid price wars.
Future Impacts: The Elimination of Inefficient Capacity
The implementation of these standards will directly lead to the elimination of inefficient production capacity. Companies with higher costs and outdated technologies, which previously survived by selling at low prices, will face increased regulatory scrutiny and either need to upgrade or shut down. Efficient companies (with advanced technology and lower costs) can focus on innovation and quality, leading to more sustainable profits. In the long run, this shift shifts the PV industry from a price-driven market to one based on value, where competitiveness revolves around better technology and product reliability.
In summary, the new cost accounting standards mark a crucial step towards the industry's transition from unregulated growth to regulated, sustainable development. They provide a clear basis for regulating competition and encourage companies to adopt more rational practices. The success of these standards will depend on whether inefficient firms can adapt to the new requirements.