China's global position unclear as it races ahead with hydrogen
Clean hydrogen production is expanding rapidly in China, but high domestic demand and rising competition on high-quality electrolyzers mean it’s dominance of the industry is far from certain.
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China already produces and consumes around a third of the world’s entire hydrogen output at about 35 million tons (Mt) a year, and demand is expected to rise to 60 Mt/year by 2050.
The vast majority of that is made from coal with less than 0.1% from renewable sources of energy.
China’s 'Medium- and Long-term Plan for the Development of the Hydrogen Energy Industry (2021-2035)', released in March 2022, aims for clean hydrogen production of 100,000-200,000 tons a year and 50,000 hydrogen fuel-cell vehicles on the road by 2025.
Though China provides little guidance beyond that date – apart from carbon neutrality by 2060 – the industry is already expanding rapidly.
The world’s first 100,000-ton clean hydrogen demonstration project was connected to the grid in Juungar Banner, Inner Mongolia in January, 2024, using wind and solar to power electrolyzers, according to a China Daily report.
In June, 2023, the country’s state-run oil and gas company Sinopec began producing clean hydrogen at a plant in the western region of Xinjiang which has a capacity of over 20,000 tons a year using solar power to run the electrolyzers.
Sinopec began construction on the plant, which has storage capacity of 210,000 cubic meters and transmission capacity of 28,000 cubic meters an hour, in November 2021 with an initial investment of around 3 billion yuan ($414.5 million).
Meanwhile, Air Liquide is building a supply hub in Tianjin which is projected to have an around 3,000-ton capacity by the second half of the year as part of the first phase of the project and up to 7,000 tons in phase two.
The pace of construction contrasts with Europe, the United States, and elsewhere.
“The barriers of getting projects off the ground is not as challenging (in China) as in the United States or Europe with regards to financing and signals of offtake,”, says Minh Khoi Le, the Head of Hydrogen Research at Rystad Energy.
“Most of the projects in China are being built by a state-owned company that also has related businesses like renewable energy development or downstream chemicals.”
Electrolyzer manufacturing capacity by country
(MW)
(Click to enlarge)
Note: Manufacturing capacity based on company's actual site of manufacturing; Operation capacity refers to operational nameplate capacity.
Source: Rystad Energy HydrogenCube
Electrolyzer advantage
Without complicated debates on what constitutes clean hydrogen (as is happening in the United States) or the need to navigate novel financing mechanisms (as in Europe and Britain), China is manufacturing much of the world’s electrolyzers at some of the cheapest prices.
Electrolyzer costs represent around a third of the cost of clean hydrogen production. China makes more than 40% of the world’s electrolyzers and has more than 60% of the global alkaline electrolyzer manufacturing capacity.
As such, Chinese alkaline electrolyzers are a fraction of the price of those manufactured elsewhere.
Alkaline electrolyzer costs in the United States are currently seen at between $800,000 and $1.4 million/ MW, though that can rise to over $2 million/MW for Proton Exchange Membrane (PEM) electrolyzers, according to the U.S. Department of Energy (DOE).
By comparison, state-held China Energy Construction awarded 16 electrolyzer contracts at the end of 2023, which included 11, five megawatt alkaline electrolyzers for just around $275,000/MW.
The stark difference in pricing has many concerned that China will dominate international markets, much like it has done in the solar panel sector.
“Anecdotally, my clients are working primarily with electrolyzer (Original Equipment Manufacturers) OEMs outside of the United States, and the reason for that is economic, but also strategic in terms of project sizing and operational metrics,” says Kyle Hayes, Partner at Foley & Lardner who serves as Co-Chair of the firm’s Hydrogen Practice.
Until the United States builds its own robust domestic supply chain, it's logical to think that Asian and other foreign manufacturers will be the preferred suppliers of electrolyzers, Hayes says.
Stuttering start
However, while China appears to have a head start, especially with alkaline electrolysis, there are signs the transition has not been easy.
The less efficient alkaline electrolysis method of producing hydrogen can lead to low production levels when coupled with intermittent renewable energy, on which most of China’s projects rely.
“I'm starting to notice that an expansion into more advanced electrolysis technologies like PEM, which is much more compatible with renewables, may not be going smoothly,” says Jane Nakano, a Senior Fellow, Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS).
It also wasn’t clear the level of resources the Chinese government was pouring into research and development on electrolyzers better suited for intermittent renewable energy, Nakano says.
In fact, high domestic demand for hydrogen in China coupled with a lack of infrastructure to connect future demand hubs along the southeastern coast to the northwest and northeast supply centers, have some analysts believing that the country will become a net importer of hydrogen.
China must choose between investing in extensive new infrastructure or opting for hydrogen imports, according to a study by the Center for Global Energy Policy at Columbia.
There is little consensus on the matter, the study noted.
Deloitte is forecasting China to become the world’s largest hydrogen importer of 13 Mt by 2030, from the Middle East via ammonia, while the Hydrogen Council expects China’s imports to reach 25 Mt by 2050.
The International Renewable Energy Agency (IRENA) and International Energy Agency (IEA) believe China would be self-sufficient, with maybe some ammonia imports, by 2050.
Meanwhile, Europe is positioning itself to become a major player in the clean hydrogen economy.
“The Europeans are still in a pretty decent position to be able to stay in the race. Not necessarily ahead of Chinese, but on the post-alkaline (technology) … The race is not over,” says CSIS’s Nakano.
By Paul Day