Solar and storage costs are set to increase 9% in Q4 2025 as Chinese policy shifts end an era of low equipment prices

Solar and storage developers face a sharp increase in equipment procurement costs from Q4 2025 onwards due to Chinese government policy changes and supply-side production cuts, which are bringing an end to the era of low prices that have characterized the market for the past 18 months, according to a new report from Wood Mackenzie.

The analysis reveals that three converging factors – polysilicon consolidation, supply-side production cuts, and the cancellation of China's 13% VAT export rebate – will drive solar module prices up by approximately 9% in Q4 2025, with further increases expected through 2026.

"For the last eighteen months, developers have benefited from solar modules and energy storage systems being sold at rock bottom prices by Chinese manufacturers attempting to shift excess supply,” said Yana Hryshko, senior research analyst and head of Global Solar Supply Chain at Wood Mackenzie. "However, this is about to change. The Chinese government has intervened to stabilize the market, and developers globally will have to adjust their procurement expectations accordingly."

The research shows that solar module prices fell to historic lows of US$0.07-0.09 per watt during 2024 and early 2025, as Chinese manufacturers engaged in price competition despite posting heavy losses. This unsustainable situation has now reached a turning point through coordinated government intervention.

Three factors driving cost
Consolidation in the polysilicon sector is the first key driver. Chinese polysilicon capacity expanded fourfold between 2022 and 2024, creating massive oversupply and driving down prices. New government guidelines have restricted expansion and mandated utilization cuts, which have reduced production rates to 55-70% among leading producers. This has resulted in a dramatic 48% increase in polysilicon prices in September 2025 alone.

Second, these production cuts have cascaded through the solar value chain. Module operating rates among leading manufacturers dropped to 55-60% by mid-2025, while obsolete passive emitter and rear cell (PERC) production lines were phased out, further reducing available capacity.

The decisive third factor comes from fiscal policy. From Q4 2025, China will cancel the 13% VAT rebate previously applied to exports of solar modules and storage systems. With China supplying over 80% of global solar modules and 90% of lithium iron phosphate battery packs used in energy storage, this policy change will directly impact global benchmark pricing.

For the US market, it will mean of the cost increase of storage projects that source storage-related equipment from China. Analysts also expect that the VAT rebate will be cancelled for inverters as well which will bring higher cost for solar projects in the US as well.

"Module manufacturers have already warned international customers to expect approximately 9% price increases in Q4 as a result of the VAT rebate cancellation," Hryshko noted. "With no possibility of alternative supply in the short term, developers will have little choice but to absorb these higher costs."

A structural shift
Wood Mackenzie's analysis indicates this represents a structural correction away from destructive price wars toward sustainable margins, rather than a temporary market adjustment.

"This shift will ultimately benefit the industry's long-term health," Hryshko explained. "For manufacturers, it represents a welcome opportunity to reinvest and innovate. For developers globally, it means adjusting procurement expectations. And for policymakers, it's a timely reminder of the risks inherent in concentrated supply chains."

The research suggests that even developers who secured supply agreements earlier in 2025 will face renegotiation for production scheduled after November 2025, as the new pricing environment takes hold.