Across the 15 key industrial sectors covered by the OECD MAGIC database, the production of solar cells and modules was the most subsidised sector over the period 2005-24.
The period 2005-24 also saw the People’s Republic of China (henceforth “China”) becoming dominant across the entire solar value chain, with Chinese firms having gained a combined global market share of at least 80% in the production of polysilicon, wafers, cells, and modules.
The scale of subsidisation in China’s solar sector has contributed to continued investment in production capacity regardless of market conditions. This has led to the concentration of manufacturing activities in China along the solar value chain, which raises trade and competition concerns and heightens risks of value chain disruptions.
Chinese manufacturers of solar panels have experienced severe economic difficulties in recent years. In 2024, the sector witnessed significant price declines, prompting some companies to sell solar modules at prices below their break-even point. As a result, revenue and profitability in the sector have fallen, leading to significant job losses.
While some OECD Members have recently adopted new policy measures aiming to spur investment in domestic solar manufacturing capacity, it remains unclear whether these will be enough to reverse China’s market dominance, even as the financial performance of solar panel producers in China has considerably worsened.
Subsidies and the solar panel industry
Manufacturers of solar photovoltaic panels have received very large amounts of subsidies over the past 20 years, causing the sector to undergo profound changes in where and how production takes place. Among the 15 sectors covered by the OECD MAGIC database on industrial subsidies, the production of solar cells and modules was, on average, the most subsidised between 2005 and 2024 (Figure 1), with subsidies representing nearly 3.2% of firms’ revenue against an overall MAGIC database average of 0.9%. Producers based in China were the largest recipients of subsidies overall by a significant margin, although, partly in response, there has been a recent increase in subsidies benefitting firms based in OECD Member countries. Over the same period, producers based in China also came to dominate the sector, displacing OECD-based producers in countries such as Germany, Japan, and the United States.
Industrial subsidies by sector, average for 2005-24 (% of annual firm revenue)
Source: OECD MAGIC database.
The large subsidies received by producers of solar panels have contributed to generating sustained imbalances between supply and demand and financial hardship for the industry. The last two decades notably saw continued investment in module production capacity beyond current and projected global demand levels, mainly in China and particularly between 2019 and 2024, while the average selling price (in USD per watt) dropped dramatically from 2008 onwards (Figure 2). The decline in prices was such that, in 2024, they averaged a level below the break-even point for several Chinese solar firms, implying that prices were not high enough to cover firms’ operational expenses, depreciation, amortisation, and interest expenses. This decline in pricing cannot be attributed to innovation and economies of scale alone; rather, it appears to reflect also subsidy-fuelled over-capacity as reflected in supply-demand imbalances, companies’ persistently low average capacity utilisation rates, and declining profitability (Figure 2).
Note: The graphs above are based on the sample of firms covered in the OECD MAGIC database and therefore do not account for the entirety of solar module capacity and prices. Prices are not adjusted for inflation.
Source: OECD research.
The market imbalances fuelled by subsidies are reaching a critical point for the industry and raising questions about the sustainability of earlier practices. Despite having received relatively large amounts of subsidies, firm-level data collected by the OECD show that Chinese producers of solar panels experienced in 2024 falling revenue, sizable losses, and job cuts (Figure 3, left). While in 2023 the sector had already witnessed slower revenue growth and lower profit, results for 2024 mark a notable reversal in financial performance, accompanied by a comparatively smaller decrease in subsidies. In line with this weak financial performance, Chinese manufacturers saw a clear decline in income-tax concessions and below-market borrowings, but government grants – which had seen a sharp increase since 2020 – remained mostly unchanged at an elevated level (Figure 3, right).
Note: Variables are rebased such that their value in the year 2020 corresponds to 100 on the y axis.
Source: OECD MAGIC database.
Excessive investment in solar manufacturing capacity exacerbated by large amounts of subsidies has increased concentration and undermined diversification of supply in the solar value chain. In 2023, Chinese module producers accounted for more than 90% of global shipments by volume, while OECD-based producers (e.g. based in Germany, Japan, and the United States) saw their combined share fall below 10%, down from 80% back in 2005. In this regard, extensive government support may have enabled China-based producers to better withstand the low prices partly caused by excessive investment in production capacity, whereas many producers based outside China have, over the last two decades, either exited the market, downsized their operations, or were acquired by their competitors. The resulting concentration of production capacities in the hands of firms based in China has important trade and competition implications. While the exit of higher-cost producers from the market is a normal feature of healthy competition, subsidies that incentivise investment in production regardless of market demand may lead efficient firms to exit the market and discourage market entry, ultimately undermining innovation and competition.
Concentration of manufacturing capabilities in China along the entire supply chain raises concerns around value chain resilience as well as economic and energy security. China’s lead has expanded gradually to all segments of the solar value chain, from solar-grade polysilicon to modules. According to the International Energy Agency, China’s share of global manufacturing capacity today ranges between 80%-95% depending on the segment of the value chain. This concentration renders the solar sector almost entirely reliant on producers based in China, thereby placing downstream companies and consumers at risk of value chain disruption.
The experience of the solar manufacturing sector is illustrative of what can happen when market-distorting producer subsidies overshoot and global markets reach high levels of concentration. While subsidies can be useful policy instruments for addressing certain market failures, they can also have negative consequences when they exceed what is necessary for ensuring well-functioning markets. Large subsidies in one country may notably undermine foreign competitors and foster subsidy races among countries. They may also concentrate production geographically to the detriment of value chain resilience and security of supply. The situation of China’s solar industry in 2024 underscores, moreover, that significant subsidies can erode profitability and undermine innovation and competition globally. Despite the economic challenges experienced by Chinese solar firms and the policies recently deployed by some OECD Members seeking to develop local manufacturing capacity to address concerns about economic security, addressing the market dominance of China in the solar industry value chain will remain challenging and require a concerted effort of countries working together to rebalance the solar market.
The current state of the solar panel industry offers a good illustration of how subsidies can contribute to fuelling continued investment in production capacity irrespective of market conditions. Not only can the resulting excess capacity lead to market concentration by driving non-subsidised competitors out of the market, but it can also erode the profitability of those companies receiving subsidies.
The scale and extent of China’s subsidisation in the solar panel sector over the last two decades and the effects on trade and competition provide important lessons for other sectors, such as the wind turbine industry. One such lesson would be to address market distortions caused by industrial subsidies before they afford an unassailable advantage throughout the entire value chain.
As market dominance built on subsidies has global market implications, and as countries risk a further subsidy race in endeavouring to create or maintain alternative supply capacity. It is important that countries co-operate to address the root causes, namely the excessive subsidies and other non-market policies and practices along the entire solar supply chain that have shaped global markets for solar panels.
OECD (2025), “How governments back the largest manufacturing firms: Insights from the OECD MAGIC Database”, OECD Trade Policy Papers, No. 289, OECD Publishing, Paris, https://doi.org/10.1787/d93ed7db-en.
OECD (2025), "Government Support in the Solar and Wind Value Chains", OECD Trade Policy Paper, No. 288, OECD Publishing, Paris, https://doi.org/10.1787/d82881fd-en.
IEA (2024), Energy Technology Perspectives 2024, International Energy Agency, Paris, Energy Technology Perspectives 2024 – Analysis - IEA.