An overload of solar panels cut prices in half last year — but not in the US

• Global solar panel prices have crashed by 50% as China has flooded the market with modules.
• But US prices saw a much smaller decline, given barriers to its trade with China.
• Instead, a jump in domestic demand has helped prices slide, though this may change in 2024.

A massive pileup of solar panels last year has halved the average price of the modules, as China's blowout manufacturing sent supply soaring. 

According to the International Energy Agency, the country is on track to account for 85% of global solar-module manufacturing by 2028. Its output has been so strong that it recently forced the closure of one of Europe's largest solar production plants, while fueling a panel supply glut that has yet to be unwound.

"Prices in Europe have significantly cratered, because of that oversupply and stockpiling," David Feldman of the National Renewable Energy Laboratory told Business Insider. "In the US, it's a different story."

Instead, the US solar market has largely stayed insulated from the supply flood, with less than 0.1% of module imports coming from China. Between the first and third quarter last year, US modules depreciated by only 10%-15%, Wood Mackenzie reported in December.

That's as US legislation effectively bars solar panel trade with China. Restrictions include tariffs, as well as the US Uyghur Forced Labor Prevention Act (UFLPA), a 2022 law that prohibits imports from China's Xinjiang region. 

Still, some of the domestic depreciation was a result of the ripple effects from China's output, Feldman said. Some Chinese companies have set up manufacturing in other parts of Southeast Asia, allowing them some access to American markets.

But for the most part, US price declines and stockpiling result from internal changes. 

There was indeed some level of oversupply, as the enactment of UFLPA and other trade barriers with China created supply crunch worries.

"There were just concerns about installers getting panels," Feldman said. "So developers and installers were working to sort of get a good supply chain, and there was potentially a little bit of an overwhelm."

Meanwhile, demand has generally jumped, incentivized by the Inflation Reduction Act and the technology's increasing efficiency and cheapness.

But the pipeline for new projects has slowed considerably, Feldman said. On a national level, demand for solar has been dampened by higher interest rates, and debt financing has become much more expensive. 

As projects are set to run dry in California as well as the Northeast, residential solar installations could decline by 12% this year, Wood Mackenzie estimated.

But the research firm expects this to be a singular dip, and for the market to recover by an annual rate of 10% between 2025 and 2028.

"[Analysts] are expecting significant increases, but that said, manufacturing has probably grown more than that. So it might be a few years for demand to catch up with the amount of manufacturing that has happened," Feldman said.