The hidden costs of cheap solar panels: Subsidies, imbalances and trade risks

Many everyday products are far cheaper today than they were a generation ago. Cars and household appliances that were once expensive are now widely affordable, often reflecting genuine progress driven by innovation, competition and more efficient production.

Lower prices, however, do not always signal healthy markets. When prices fall too far or too fast, and beyond what efficiency gains alone would suggest, they may reflect deeper imbalances. This can include excess supply spurred by sustained government support, which can weaken competition, strain supply chains and risk over-concentrating production.

These dynamics are visible in the solar industry. Falling solar panel prices have helped accelerate the renewable energy transition, making them more affordable for households, businesses and utilities, and supporting emissions reductions. Yet behind these gains, decades of subsidies and rapid expansion of production capacity have reshaped where solar panels are made, with growing implications for markets and global trade.

In solar manufacturing as in other sectors, government support can contribute to rapid scale-up, cost reductions and wider access. However, the scale, extent and persistence of subsidies have also profoundly influenced investment decisions and global production patterns.

Over the past two decades, solar cell and module manufacturing received more government support than any of the 15 key industrial sectors tracked by the OECD. Between 2005 and 2024, subsidies in the solar manufacturing sector averaged nearly 3.2% of firms’ revenues, compared with 0.9% across all sectors covered.

Over the same period, the People’s Republic of China emerged as the dominant producer across the entire solar value chain. This position was reinforced by continued investment in manufacturing capacity, often regardless of market conditions. While global demand for solar energy expanded rapidly, investment in production capacity grew even faster, notably between 2019 and 2024 in China.

By 2023, Chinese module producers accounted for more than 90% of global shipments by volume, while OECD-based producers, including those in Germany, Japan and the United States, saw their combined share fall below 10%, down from around 80% in 2005. In just two decades, a relatively diversified industry evolved into a highly concentrated global supply chain, raising trade and competition concerns and heightening risks of value chain disruption.

For consumers, lower prices are generally welcome. For manufacturers, however, persistently falling prices can at times reflect structural imbalances that limit healthy competition.

Average solar module prices have declined sharply over recent decades. By 2024, prices had even fallen below break-even levels for several Chinese producers, meaning revenues no longer covered firms’ operating and financing costs. This price decline cannot be explained by efficiency gains alone, but also reflects subsidy-fuelled overcapacity, visible in supply-demand imbalances, low average capacity utilisation rates and declining profitability.

These market dynamics have translated into tangible economic outcomes. In 2024 Chinese solar manufacturers recorded falling revenues, losses and job cuts, even as government grants remained elevated.

These developments matter beyond the solar manufacturing sector itself. Energy security depends, among other things, on diversified and resilient supply chains.

China’s share of global solar manufacturing today ranges from 80% to 95%, depending on the segment of the value chain. This concentration places downstream users of solar panels at greater risk of disruption.

While competition can naturally push higher-cost producers out of the market, subsidies that encourage investment regardless of demand can distort markets, discourage market entry and weaken long-term resilience. Over time, many producers in OECD countries downsized their operations, exited the market or were acquired by competitors, leaving in place only their most subsidised competitors.

The solar sector highlights both the benefits and limits of industrial subsidies. Well-designed support for solar and wind can accelerate renewable energy deployment, but excessive and poorly co-ordinated subsidies can generate overcapacity, undermine profitability and increase concentration.

Without international co-operation, subsidy races risk reinforcing existing imbalances rather than correcting them. Rebalancing global solar markets will require addressing excessive subsidies while preserving the gains solar has delivered for energy and climate goals.

For more information on OECD work on industrial subsidies, visit: 

https://www.oecd.org/en/topics/sub-issues/industrial-subsidies.html