The global solar industry is seeing stronger demand, but growing economic and supply-side pressures are creating new challenges, Wood Mackenzie analyst Michelle Davis said in a Tuesday note.
The sector continues to expand, but the path to new capacity is becoming more complex. Faster demand growth, shifting policy environments, and ongoing geopolitical disruption are reshaping investment decisions and testing supply chains. While overall momentum remains positive, developers and investors are facing a more uncertain operating environment heading into the second half of the year.
In the US, long-term electricity demand projections have been revised upward again, driven largely by rapid growth in data center development. This is increasing pressure on power generation and accelerating the need for new capacity additions.
Solar remains a key pillar of new electricity supply and is expected to continue playing a major role in meeting rising demand over the next decade. Its relatively low cost and speed of deployment continue to support its competitiveness in markets where supply is tightening.
At the same time, industry economics are under strain. Rising input costs are pushing up manufacturing expenses, forcing producers to adjust pricing strategies and accelerate efforts to reduce reliance on key materials. These cost pressures are becoming a central concern across the value chain.
Technology transition is also shaping the outlook, Davis said. Current mainstream solar designs are expected to dominate in the near term, but the industry is already preparing for the next wave of innovation. New approaches under development show strong long-term potential, though widespread commercial rollout remains several years away due to durability and scaling challenges.