To Investors,
China currently has the largest installed solar capacity in the world. While other countries like the U.S. and South Africa debate the usefulness of solar energy and fail to put together a coordinated strategy to integrate solar energy into the main grid, China sees something that the world is missing, and they have been acting fast.
I wanted to think about the reasons why China seemingly values solar energy so high as to adopt solar as a national strategy, and I’ve come up with two schools of thinking that could explain China’s current solar power drive.
On a philosophical level, China is labelled as the world’s largest emitter of carbon emissions. According to a paper published by the State Council Information Office of the People’s Republic of China (State Council), the country recognised this and no longer wanted this negative association. So they set out to be the world’s largest renewable energy producer, with a goal to peak carbon emissions by 2030 and reach carbon neutrality by 2060.
Where China is now, is that ~57% of its energy comes from coal power as of 2024.
Where China is going, is that the state has invested billions of dollars into large-scale wind and PV power bases, among other regions, centred around the Kubuqi, Ulan Buh, Tengger, and Badain Jaran deserts, expected to reach a total installed capacity of 450 GW.
The national strategy also includes Concentrated Solar Power (CSP), with the largest site being in the Qinghai province, expected to reach 1,350MW.
Here’s a chart showing what China’s investment into solar energy to date has looked like…
This brings us into the second school of thought, which is based on technology.
China is shifting from an extraction based energy system to a manufacturing based system.
With solar energy we don’t burn a scarce resource, we instead use silica sand (producing silicon, the second most common element on earth) to manufacture solar panels. Once those panels are installed and organised to produce power efficiently according to the project specifications, a natural energy generation process takes place through the sun.
Here are the downstream effects of this strategy:
Falling coal use: between 2013 and 2023, energy produced from coal dropped by 12%. Additionally, according to the State Council: the “number of coal-fired boilers and power plants has decreased by more than 80 percent nationwide, and almost all bulk coal has been replaced with clean energy for winter heating in and around the Beijing-Tianjin-Hebei Region and in the Fenhe-Weihe River Plain”.
Cost effectiveness: As coal-based power plants age in the country, it is more cost-effective to install new solar energy capacity vs new coal power. According to Grok, utility-scale solar power plants offer lower upfront capital costs – ranging from $500 - $600 million for a 1 GW facility – compared to coal-fired plants at $600 million to $1 billion. The levelized cost of energy further underscores solar’s advantage, with unsubsidised ranges of $33/MWh versus $55-75/MWh for coal, driven by zero fuel expenses and rapid cost declines (89% since 2010). Even subsidising solar power with battery storage systems adds up to $30/MWh as a general estimate – meaning new-build solar power plants make more sense.
Solar energy is easier to scale: Solar involves simpler construction (panels, inverters, mounting), while coal requires complex boilers, turbines, fuel handling, and pollution controls.
Capacity factor: Solar power has a capacity factor of ~ 15-25%. The amount of energy produced by coal power in China in 2024 amounted to 665 GW. In the same year, the amount of installed solar energy capacity was ~ 887 GW. With a capacity factor of 25% (when not subsidised by battery storage systems), we can see that the amount of investment into solar energy capacity will likely continue in China.
Because solar is a manufactured technology, it follows a deflationary curve. As factories scale, automation improves, and material use declines, and the unit cost declines, making solar energy even more attractive over time.
Energy abundance: Energy abundance in China makes it extremely cheap to start or continue producing goods from China. With energy abundance there can be no other alternative manufacturing region based on production costs alone. For example, Apple CEO Tim Cook has emphasised that China’s appeal lies in its vast concentration of highly skilled tooling engineers and vocational experts, stating that “the skill and the quantity of skill in one location” make it hard to replicate elsewhere, even as labor costs have risen.
Truthfully, China is already in an energy abundant state, if we compare electricity production alone amongst the top electricity producing countries. The solar energy drive solidifies this abundance.
In an energy abundant state, China also strengthens their independence and solidifies their $19 trillion economic might (in GDP).
But let’s dig a little deeper…
Artificial Intelligence: New technologies like AI require energy abundance, that’s why Elon Musk is going to space for energy while China turns their unused land into a gargantuan solar power farm. Who will win the “AI race”?
EV network: A large solar power network across the country will enable the buildout of electric vehicle charging networks. This supports China’s EV industry and supports their battery energy storage systems (BESS) industry.
Solar panel technology: The local demand for solar panels could be a way to also force local manufacturers to iterate and vastly improve their solar panel technology. China already has between 83% and 97% market share for solar panel manufacturing across inputs including polysilicon, wafers, cells, and modules.
Solar energy does have its flaws at scale – see my earlier letter to investors on this here. But I think there is a path to energy abundance through solar energy for developing countries.
China believes there’s a path to improving the cost factor for solar power even more. As part of their most recent 5 year plan, the Chinese government is now moving away from “rapid expansion at any cost” toward market reform and grid integration, by eliminating fixed feed-in tariffs for new projects. Solar must now compete on market-based pricing, which is forcing developers to focus on efficiency and better storage (BESS) integration rather than just raw GW numbers. So as China is exhausting the quantity play, the quality play is now in motion.
One obvious fix to scaling solar energy is to encourage home owners to become micro solar power producers, and then to organise a mechanism for 1) feeding energy back into the grid and 2) peer-to-peer energy sharing. The first idea is already taking shape in Australia and even in South Africa — see the city of Cape Town’s efforts on this.
But that said, going back to China, there are always risks with solar power utility-scale projects that I’d be remiss not to mention.
One risk is that Chinese manufacturers are currently grappling with massive overcapacity. According to Gemini:
By 2025, China’s solar manufacturing capacity reached an estimated 1,200 GW, which is nearly double the total global installation demand of roughly 650 GW.
In 2025 alone, listed Chinese solar companies are estimated to have suffered combined losses exceeding 50 billion yuan ($7.3 billion).
Major industry leaders have reported massive hits to their bottom lines:
LONGi, Jinko Solar, Trina Solar, and JA Solar collectively lost nearly $1.54 billion in the first half of 2025.
Tongwei Co., the world’s largest polysilicon manufacturer, projected a loss of up to 10 billion yuan in 2025.
The production cost for a standard 400-watt solar module is approximately $42–$43, yet actual selling prices in late 2025 frequently dipped as low as $39, meaning companies were selling products at a loss simply to maintain market share.
Another major risk is grid bottlenecks. Gemini mentions the following important points:
By late 2025, 63 solar projects in Shandong province (totalling 5.84 GW) failed to connect to the grid on schedule and were declared in default.
In the second half of 2025, six Chinese provinces cancelled 143 wind and solar projects – totaling over 10 GW – largely due to a lack of adequate supporting grid infrastructure.
To solve these bottlenecks, the State Grid Corporation of China increased its fixed-asset investment to a record 650 billion yuan (~$93.2 billion) in 2025 alone.
China is however rapidly expanding Ultra-High Voltage transmission lines; as of 2025, the west-to-east transmission capacity reached 340 GW, allowing green power from the Gobi Desert to reach high-demand hubs like Shanghai and Beijing.
All things considered, grid-scale solar energy is an accelerant towards energy abundance in a country, even with its current flaws, because solar power is technology-based, and will therefore improve and become even more feasible over time.
What are your thoughts on why China is investing so much on solar energy?
Do you think we can organise as well in South Africa to create abundance through solar?
On my journey to becoming a master capital allocator, one lesson down, a billion more to go.
I hope you all have a great start to your week
-Wandile Sithole
