The cost of solar and storage may increase in 2026 as Chinese policies end a 9% tax advantage on solar panels.
An analysis by Wood Mackenzie shows that three coinciding factors will drive up equipment procurement costs in Q4 2025 and beyond.
Solar and storage developers will face a sharp increase in equipment procurement costs from Q4 2025 due to Chinese government policy changes and supply-side production curtailments, ending the era of low prices that has characterized the market for the past 18 months, according to a new report from Wood Mackenzie.
The analysis reveals that three coinciding factors – polysilicon consolidation, supply-side production curtailment, and the elimination of China's 13% VAT rebate on exports – will cause solar module prices to rise by approximately 9% in Q4 2025, with further increases expected in 2026. "For the past eighteen months, developers have benefited from solar modules and energy storage systems being sold at rock-bottom prices by Chinese manufacturers trying to offload excess inventory," 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 worldwide will need to adjust their procurement expectations accordingly." The research shows that solar panel prices plummeted to historic lows in 2024 and early 2025 as Chinese manufacturers engaged in price competition despite heavy losses. This unsustainable situation has now reached a turning point due to coordinated government intervention.
Three factors driving costs Consolidation in the polysilicon sector is the first key factor. Chinese polysilicon capacity quadrupled between 2022 and 2024, leading to a massive oversupply and price decline. New government directives have restricted expansion and mandated a reduction in utilization, cutting production at key producers to 55-70%. This alone caused a dramatic 48% surge in polysilicon prices in September 2025. Secondly, these production cuts have had a cascading effect throughout the solar value chain. Module utilization rates at leading manufacturers dropped to 55-60% by mid-2025, while older passive emitter and rear cell (PERC) production lines were phased out, further reducing available capacity. The third decisive factor is fiscal policy. From Q4 2025, China will eliminate the 13% VAT rebate previously applied to exports of solar panels and storage systems.
Given that China supplies over 80% of the world's solar panels and 90% of lithium iron phosphate batteries for energy storage, this policy change will directly impact global benchmark prices. For the US market, this means an increase in costs for storage projects that source storage-related equipment from China. Analysts also expect the VAT rebate for inverters to be eliminated, which will also lead to higher costs for solar projects in the US. "Module manufacturers have already warned international customers to expect approximately 9% price increases in Q4 due to the elimination of the VAT rebate," Hryshko said. "Given the lack of alternative suppliers in the short term, developers have little choice but to absorb these higher costs." A structural shift Wood Mackenzie's analysis indicates that this is a structural correction, moving away from destructive price wars and towards sustainable margins, rather than a temporary market adjustment. "This shift will ultimately benefit the long-term health of the industry," Hryshko explained. "For manufacturers, this is a welcome opportunity to reinvest and innovate. For developers worldwide, it means adjusting their 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 signed supply agreements earlier in 2025 will need to renegotiate production scheduled after November 2025, as the new pricing environment takes hold.