“Last year, there were a few hydrogen-related companies exhibiting, but most of them just talked about concepts,” said Lu Yufei, vice president of Shanghai CEO Environmental Protection Technology, a maker of sewage and exhaust gas purification equipment that began a hydrogen production pilot project in Shanghai in March. “This year was different. They brought actual hydrogen production results. [world] products and detailed solutions.”
Swiss Army Knife
In March, hydrogen appeared for the first time in the Chinese government’s annual work report, listed as a “cutting-edge” industry whose adoption will be accelerated. This came after Beijing published its first national hydrogen strategy for 2022 to 2035. The plan calls for the introduction of at least 50,000 hydrogen vehicles by 2025 and the production of 100,000 to 200,000 tonnes of green hydrogen per year.
“China is probably one of the countries that is most proactive in promoting hydrogen and developing a hydrogen economy,” said Zhenhao Han, Asia managing director at Hy24, a Paris-based international investment firm focused on the hydrogen industry.
Green hydrogen, produced using renewable energy, could also help alleviate China’s solar and wind overcapacity problem. Last year, China added a record 301 gigawatts (GW) of renewable energy capacity, nearly 60 percent of the global total. But the country’s power infrastructure couldn’t consume much of the electricity being generated.
Global competition for industry dominance
Each country has its own strengths that allow it to capture a piece of the emerging but complex hydrogen ecosystem, according to Hy24’s Han, who added that the mismatch between where hydrogen is needed and where it can be supplied adds to the complexity, making it unlikely any one country will dominate the entire chain.
“China is in an interesting situation because they have not only the demand but also the production capacity,” Han said.
According to Li Jing, a partner at KPMG, there’s no guarantee that China will succeed, but it has the potential to dominate electrolysis and fuel cell production. “It’s not like the semiconductor or AI sectors,” he said. “From R&D to manufacturing, there aren’t many technological bottlenecks in the development of hydrogen-related equipment.”
Li said Chinese companies lag behind their overseas peers in research and development of high-end equipment, but they are winning on price and are rapidly catching up in quality.
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Green Hydrogen: Can China Reclaim Its Glory with EVs, Batteries and Solar Panels?
Green Hydrogen: Can China Reclaim Its Glory with EVs, Batteries and Solar Panels?
China’s mature and efficient manufacturing industry makes it easier to set up a supply chain quickly, which will help speed up the industry’s scale-up and reduce start-up costs, said Rory Meng, hydrogen working group leader at TÜV Rheinland’s China division.
“China has many companies making cars, batteries and pressure vessels, and can shift their existing supply chains to making hydrogen cars, fuel cells and storage tanks,” Meng said.
The biggest strength of China’s hydrogen industry is government support, with state-owned enterprises playing a major role.
“If the Chinese have clear and strong goals, they’ll get it done,” said Aaron Fleming, co-head of Natixis’ Asia Pacific energy and natural resources industry group. “There’s a lot more government involvement in China to drive positive outcomes.”
To boost the development of the hydrogen supply chain, Beijing has ordered different cities to form “clusters” and offered subsidies worth up to 1.7 billion yuan.
The China Hydrogen Alliance, a national business body that announced the Renewable Hydrogen 100 initiative in 2021, predicts that by 2030, an installed capacity of 100GW of electrolyzers will be achieved, producing around 7.7 million tonnes of green hydrogen per year.
China already leads the world in installed green hydrogen capacity, reaching about 7GW last year, well ahead of second-place Saudi Arabia’s 2GW, according to the IEA. Based on its current capacity, China can become a major exporter of green hydrogen by producing it at the lowest cost compared with other regions, said Tsuyoshi Nakanishi, founder of Shanghai-based research firm Integral.
“I think the development of solar panels and electric vehicles in China over the past 20 to 30 years has been mainly driven by demand and China’s ability to connect with global markets for exports,” said Hy24’s Han.
“The situation is much more complicated now,” he said. “Unlike before, I think there is a lot of resistance from many countries to working with China.”
Taking advantage of overseas opportunities
Just as Chinese EV makers have been setting up factories overseas and looking to friendlier markets to get around export restrictions, Chinese hydrogen equipment makers are likely to adopt a similar strategy.
Perhaps the key challenge for China to realise its hydrogen dream is demand. In the long term, demand for the fuel will be huge, but the current high costs, few application scenarios and lack of infrastructure to deliver the product to end users make the short-term outlook uncertain. This could impact China’s plans for a subsidy-driven hydrogen economy.
“I think they’ll have the product ready and they’ll get the cost down, but they’re not solving the problem of transportation to the end consumer,” said Grant Hauber, Asia strategic energy finance adviser at the Institute for Energy Economics and Financial Analysis. “Subsidies aren’t infinite. Will there still be demand after that?”
It took China 13 years and nearly 250 billion yuan in subsidies to build an EV supply chain and what is now the world’s largest EV industry, and subsidies for hydrogen companies have been significantly reduced as the government tightens fiscal policy amid the economic downturn.
A Citi report last year warned that the country’s hydrogen industry is suffering from overcapacity problems as ambitious production plans by local governments and companies outpace modest growth in infrastructure and demand.
But these issues have not dampened optimism among governments and businesses looking to seize the opportunity of the fuel of the future.
Back at the Shanghai expo, bright LED slogans urge attendees and investors to “Plan the industries of the future and develop new capacity.”
“To me, the preparations are just beginning,” Natixis’ Fleming said. “The seeds of Pillar 4 are being planted now.”
