In early July, the Chinese government announced three mandatory national standards for energy consumption and energy efficiency in the photovoltaic sector, establishing a new compliance framework covering polysilicon, silicon wafers, PV modules and inverters.
The rules, which will take effect on Jan. 1, 2027, are expected to reshape manufacturing, procurement and project selection by favoring higher-efficiency, lower-energy-intensity products. However, market participants remain divided over whether the new standards will effectively reduce overcapacity and support a more sustainable pricing environment.
According to Summer Zhang, senior analyst for solar supply chain at OPIS, a Dow Jones company, industry stakeholders generally expect the standards to accelerate the phaseout of outdated production capacity and help ease the solar industry’s prolonged oversupply. Some industry estimates suggest that up to 30% of existing capacity could eventually be affected.
Initial impact
“However, based on our discussions with industry participants, the initial impact is likely to be more pronounced on nominal capacity without materially lowering operating capacity,” she told pv magazine. “Market participants generally believe the standards alone will not fundamentally resolve the industry’s supply-demand imbalance. Instead, they view the measures as one component of a broader package of policies required to address structural overcapacity.”
“One polysilicon source noted that, if the standards are strictly enforced, only polysilicon production facilities commissioned after around 2018 would generally meet the new energy consumption requirements,” she went on to say. “However, because China’s major polysilicon capacity expansion largely occurred after that period, nearly 2 million metric tons per year of production capacity would still remain qualified. This would theoretically be sufficient to support approximately 900 GW of annual module production, suggesting that structural oversupply is likely to persist.”
“Given that the new standards will not take effect until 2027, it is still too early to conclude whether they will prove to be the definitive solution,” the Editorial Director of OPIS, Hanwei Wu, added.
Implementation challenges
Since China’s solar industry entered a prolonged downturn more than two years ago, policymakers and industry participants have been exploring various approaches to address severe overcapacity. One such initiative was a plan to reduce polysilicon overcapacity, which was ultimately abandoned after China’s State Administration for Market Regulation (SAMR) warned that it could have resulted in a monopoly in the polysilicon segment.
The plan involved China’s six largest polysilicon producers – Tongwei, GCL, Daqo, Xinte, East Hope, and Asia Silicon – and envisaged raising about CNY 50 billion ($7 billion) to buy and idle roughly one-third of the country’s polysilicon production. The six companies together have nearly 2.5 million metric tons (MT) of capacity; the rest of the industry accounts for 700,000 MT.
“Compared with the previously discussed polysilicon consolidation plan, many industry participants believe the new standards may face fewer implementation challenges,” said Zhang. “Unlike consolidation proposals, which rely on negotiations among companies and involve significant commercial complexities, the mandatory standards are legally defined, transparent and uniformly applicable to manufacturers of all sizes. Clear numerical thresholds could also make enforcement more straightforward.”
At the same time, some market participants argue that the standards largely reflect existing market dynamics rather than fundamentally changing them. “As one industry source noted, it was market competition that drove the tightening of these standards, not the standards that forced the market to eliminate outdated capacity,” said Wu. “Most inefficient production capacity had already lost competitiveness before the new requirements were introduced, with the standards primarily serving to prevent obsolete capacity from re-entering the market in the future.”
Consolidation
Both analysts converge on the idea that consolidation is unlikely to be significantly accelerated by energy consumption and energy efficiency standards alone. With manufacturers of all sizes continuing to operate under financial pressure, acquisition decisions remain cautious. “According to industry sources, consolidation depends on the specific value of individual assets rather than simply whether a company complies with the new standards,” Zhang further explained. “For example, some financially distressed listed companies may still retain acquisition value because of their public listing status, market presence or other strategic assets.”
While reducing inefficient production capacity is a key objective, the new standards also form part of China’s broader strategy to promote higher-quality industrial development.
“While these standards naturally benefit manufacturers producing higher-efficiency products, many market participants emphasize that these companies had already upgraded their technologies before the standards were introduced. This trend has been evident over the past two years in the technologies showcased by manufacturers at major solar conferences,” Wu emphasized. ” As several sources noted, market competition—not regulation—was the primary driver behind these improvements. Leading manufacturers had already invested heavily in higher-efficiency technologies and production upgrades in response to intense market competition.”
Module prices
OPIS analysts also said industry players do not expect the standards alone to materially affect global module prices in the near term. Meaningful price recovery is likely to require a broader improvement in industry supply-demand fundamentals, which generally cannot be achieved through a single policy measure.
Even before the standards were introduced, Chinese manufacturers had already been competing aggressively through product differentiation, including higher conversion efficiencies, new technology platforms and products designed for a wider range of applications. This competitive landscape has accelerated the diversification of technology portfolios, with many manufacturers now producing multiple cell and module technologies rather than relying on a single product route.
“In this context, the new standards are viewed as reinforcing the industry’s ongoing transition toward higher-quality manufacturing rather than serving as the primary driver of competitiveness,” Zhang stated. “Industry participants generally expect the new standards to have a limited impact on module availability in the near term. Although the measures are designed to phase out inefficient production capacity, the combined annual module manufacturing capacity of China’s top five manufacturers already complies with or exceeds the new requirements and totals more than 500 GW, suggesting that overall module supply will remain ample.”
Similarly, the standards alone are unlikely to materially increase module costs or significantly affect project economics.
“Instead, market participants expect manufacturers to focus increasingly on upgrading existing production lines rather than expanding capacity, with greater investment directed toward improving manufacturing efficiency and accelerating the adoption of advanced technologies,” Wu concluded. “Consequently, for developers, investors and policymakers outside China, the more important trends to monitor are likely to be supplier selection, technology roadmaps and the pace of manufacturing upgrades, rather than concerns over near-term module availability or pricing.”
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