Global solar and storage costs are expected to increase by 9% in the fourth quarter (Q4) of 2025, as policy shifts in China will end an era of low equipment prices that has prevailed over the past 18 months, according to a report by Wood Mackenzie.

Per the report, equipment procurement costs are projected to increase significantly from this quarter onwards due to policy shifts and supply-side production cuts.

Wood Mackenzie said polysilicon consolidation, supply-side production cuts, and China’s cancellation of its 13% VAT export rebate will push solar module prices higher during Q4 2024, with further price increases anticipated through 2026.

Yana Hryshko, Senior Research Analyst and Head of Global Solar Supply Chain at Wood Mackenzie, said, “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. 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 report states that solar module prices reduced to historic lows of $0.07 per watt to $0.09 per watt in 2024 and early this year due to China-based manufacturers engaging in price competition despite suffering considerable losses.

Factors Driving Costs

One of the main reasons for the shift is the consolidation in the polysilicon sector. This consolidation grew by four times from 2022 to 2024, resulting in massive oversupply and declining prices.

China has introduced new guidelines that restrict expansion and mandate utilization cuts, reducing production rates to between 55% and 70% among leading producers. These restrictions and mandates have increased polysilicon prices by 48% just in September 2025.

The second key reason for the policy shifts is the cascading of the production cuts throughout the solar value chain. By mid-2025, module operating rates among the leading manufacturers declined to a range of 55% to 60%. Additionally, manufacturers phased out obsolete PERC production lines, reducing the available capacity further.

The third critical reason is China’s plan to cancel the 13% VAT rebate applied earlier to solar module and storage system exporters. As the country supplies more than 80% of the global solar modules and 90% of the lithium-iron phosphate battery packs for energy storage, this policy shift is expected to directly impact the global benchmark pricing.

This will increase costs for U.S. storage projects sourcing storage-related equipment from China. The VAT rebate for inverters is also expected to be cancelled, increasing solar project costs in the U.S.

China experienced oversupply in 2024, prompting many companies to reduce prices across the solar supply chain. The imposition of import tariffs by the U.S. exacerbated the Chinese solar industry’s problems.

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

The cost of four-hour lithium-ion battery systems could decline from $334/kWh in 2024 to as low as $108/kWh or remain as high as $307/kWh by 2050, according to the National Renewable Energy Laboratory.

Structural Shift

The report suggests that China’s policy shifts are not merely a temporary market adjustment, but rather a structural correction, moving towards sustainable margins and away from destructive price wars.

Hryshko said this shift will benefit the industry’s health in the long term. These changes represent an opportunity for manufacturers to reinvest and innovate, and developers globally will have to adjust their procurement expectations. Finally, the shifts are a reminder for policymakers of the inherent risks of concentrated supply chains.

Wood Mackenzie suggests that China’s actions will even affect developers who had secured supply agreements earlier in 2025. They will face production schedule renegotiations post-November this year.