The cadmium chloride annealing treatment is an essential step in the manufacture of efficient thin film CdTe solar cells. In previous work we have shown that the primary effect of the treatment is to remove high densities of stacking faults from the as-deposited material. Use of density functional theory has shown that some of the higher energy stacking faults are hole traps. Removal of these defects dramatically improves cell efficiency. In this study we focus on the effect of the activation treatment on the underlying n-type cadmium sulphide layer. A range of techniques has been used to observe the changes to the microstructure as well as the chemical and crystallographic changes as a function of treatment parameters. Electrical tests that link the device performance with the micro-structural properties of the cells have also been undertaken. Techniques used include High Resolution Transmission Electron Microscopy (HRTEM) for sub-grain analysis, EDX for chemical analysis and XPS and SIMS for composition-depth profiling. By studying the effect of increasing the treatment time and temperature, we will show that the cadmium sulphide layer depletes to the point of complete dissolution into the absorber layer. We will also show that chlorine penetrates and decorates the grain boundaries in the cadmium sulphide. In addition we will show that chlorine builds up at the heterojunction and concentrates in voids at the cadmium telluride/cadmium sulphide interface. A combination of these effects damages the electrical performance of the solar cell.