The global solar industry witnessed strong growth in 2024, reaching a record 495 GWdc of installed capacity. It reflected a 14% year-on-year increase. The main reasons behind the solar boom were the rising demand for renewable energy from data centers and electrification trends.

But anticipation is looming large over the solar industry this year, despite significant demand. Wood Mackenzie recently revealed a global solar report predicting a slight contraction, forecasting new installations to reach 493 GWdc in 2025. So, is the solar industry embracing a storm? Let’s weigh in on the potential opportunities and challenges ahead.

Source: Wood Mackenzie

Data Center to Drive Solar Industry Boom

This year, the solar industry will mainly be driven by rising electricity demand from data centers and AI language models. The study reveals that more than 100 GW of new data center capacity has been proposed in the U.S., and even if half of this is built over the next five years, electricity demand in some regions could rise by 10-20%.

• According to EIA, The electric power sector will add 26 gigawatts (GW) of new solar capacity in 2025 and 22 GW in 2026. These additions will boost U.S. solar generation by 34% in 2025 and 17% in 2026.

But the question is how will solar meet the demand surge. The Wood Mackenzie report highlighted some ways the industry will adapt. They are:

• Solar energy has to replace fossil fuels and scale up to meet new demand from data centers.
• Solar developers will have to innovate by pairing solar with storage, wind, and natural gas to provide reliable, zero-emission power.

In another scenario, data center developers will compete with traditional buyers for solar assets. This competition will push solar PPA prices higher and force solar developers to change their strategies. This will drive market shifts and possible price increases.

Solar companies able to manage large-scale, multi-GW projects will thrive in this environment. This trend may lead to market consolidation and more transactions, as firms strive to secure their place in the changing energy landscape.

In today’s evolving solar landscape SolarBank, a leading North American solar company holds immense promise. It is playing a pivotal role in developing commercial, industrial, and community solar projects in the U.S.

Solar Panel Prices Set to Rise

For the past two years, solar panel prices have reached record lows due to global overcapacity and intense competition among manufacturers. While this was a win for buyers, it raised concerns about the long-term impact on the solar manufacturing industry.

However, a shift is expected in 2025, with prices projected to rise to around $0.15/W FOB China—a level unseen since 2021. Despite the persistent overcapacity in module component manufacturing, key players in the industry are taking steps to address the issue. Simply put, oversupply won’t be a permanent thing. 

For instance, polysilicon giants GCL and Tongwei have pledged to scale back production. Similarly, major module manufacturers are working together to stabilize the market by limiting output and setting minimum prices.

China Will Dominate Despite Challenges

China, the world’s largest solar market, is grappling with its own challenges. Unclear policies under its 14th Five-Year Plan have created uncertainties. Rising curtailment of solar power and revenue risks are likely to slow the industry’s expansion, bringing a period of stabilization instead.

Despite these hurdles, China will remain a global leader in solar manufacturing, holding 75% (1.2 TW) of the world’s operational capacity for key module components.

Apart from the top economies, other regions are also ramping up solar manufacturing with government support. India is expanding cell production with its Approved List of Cell Manufacturers to cut reliance on Chinese imports.

The Middle East is becoming a solar hub, with Saudi Arabia, Oman, the UAE, and Egypt attracting major investments in polysilicon, wafer, and module production. Chinese manufacturers are setting up facilities there, driven by incentives and the need to bypass Southeast Asian tariffs while meeting global demand.

Cumulative installed solar power capacity in China from 2012 to 2024 (gigawatts)

Source: Statista 2025

Solar Tech Shifts for Greater Efficiency

The solar industry is gearing up for major advancements in technology that will boost efficiency and reduce costs. The study shows:

• TOPCon and HJT Cells: These technologies will replace p-type PERC in utility-scale solar, offering better efficiency and higher power density.
• Higher Panel Ratings: Modules with ratings over 650 Wp are common, with some exceeding 750 Wp. By 2025, wattages could surpass 800 Wp.
• Land Use Reduction: Larger modules can cut land use by 15%, saving 5-10% on project costs, though size increases installation and transportation challenges.

Additionally, inverters can shift towards more efficiency up to 2000 Vdc. This change will allow longer strings of powerful modules. This will further lower costs and boost scale. Also, smart AI-powered trackers will enhance production by 2-6%. They will help protect against the weather too. Companies like Nextracker and GameChange Solar are leading this trend.

Policy Uncertainty to Cloud Global Solar Projects

Last year elections have reshaped governments worldwide, introducing policy changes that are causing uncertainty for the solar sector. A stellar example is the United States where the Trump administration has questioned the future of renewable energy incentives. It includes tariffs on solar imports and a lack of clarity on tax credits. These uncertainties are creating significant concerns for developers, making long-term solar investments appear riskier.

Amid these policy shifts, the U.S. is still witnessing a surge in solar manufacturing projects. Tariffs on solar products from Cambodia, Malaysia, Thailand, and Vietnam are driving investments in local module, cell, and wafer production.

Europe’s Strained Incentives

In Europe, declining financial incentives are impacting the economics of solar projects. In Germany, reductions in capital expenditure rebates and export compensation for distributed solar projects pose significant financial barriers. Similarly, policy shifts in the Netherlands and Italy are expected to dampen growth in distributed solar energy.

Furthermore, some countries like South Africa are projecting protectionist policies that prioritize local content mandates. Such policies only increase costs, delay solar project development, and create hurdles for international market growth.

Source: SolarPower Europe

• READ MORE: Europe’s Solar Industry Saw Record Growth and Innovations in 2024

Transmission Bottlenecks: A Major Setback for Solar

In 2025, transmission and interconnection bottlenecks might throw crucial challenges. As solar energy production continues to rise, many regions are struggling to upgrade their grid infrastructure to meet the growing demand for renewable energy.

These delays in expanding transmission capacity are holding back new solar projects, creating a gap between the available energy supply and the demand for it. As a result, solar power can’t reach consumers as quickly as it’s being produced, slowing progress in the transition to cleaner energy.

The Bottom Line: 2025 Will be a Transition Year for the Solar Industry

The above analysis shows a crucial turning point for the global solar industry. While the demand for renewable energy is stronger than ever, the sector is facing several challenges that could slow its progress.

Despite these hurdles, the long-term future for solar energy remains bright. The industry is at a pivotal moment where smart adaptation, strategic planning, and support for stable policies will be key. As nations work to meet decarbonization goals, overcoming these obstacles will be essential for solar to continue driving the global energy transition.

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