AbstractThe Southern Annular Mode (SAM) is the dominant hemisphere‐scale mode of variability in the Southern Hemisphere. Analysis of the European Centre for Medium‐range Weather Forecasts Reanalysis data set (ERA‐Interim) for 1979–2015 shows that stratospheric variability associated with the October–November mean SAM index is modulated in synchrony with solar activity. The sequence of stratospheric variability after July, similar to that associated with the Polar‐night Jet Oscillation in the Southern Hemisphere, is well connected to the SAM during years of stronger solar activity, but the connection is weak during years of weaker solar activity. The source of this solar cycle modulation of the SAM was examined by performing momentum and energy budget (wave energy) analyses. The momentum analysis shows that the modulation of the zonal wind comes directly from the acceleration of zonal wind produced by waves. The wave‐energy analysis suggests that the modulation is produced through energy conversion from zonal‐mean fields, mainly by the baroclinic mechanism, although diabatic processes are also important. These analyses also suggest that a key factor regarding the effect of solar activity on the structural modulation of the SAM is the intensification of the sensitivity of the wave‐mean flow interaction in the stratosphere.