Green hydrogen: can China replicate its success in EVs, batteries and solar panels?

Across the venue, which showcased the latest technologies and developments from local governments in the race for a green future, at least a dozen exhibits depicted a hydrogen-fuelled future to visitors from across the world.

“There were some hydrogen-related companies here last year, 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 launched a pilot hydrogen production project in Shanghai in March. “This year it was different; they brought real [world] products and detailed solutions.”

There were dozens of hydrogen companies at the expo, from less than 10 last year. More than 20 of them were from Shanghai’s Lingang district, which is known for US carmaker Tesla’s Gigafactory.
The event showcased China’s ambitions for its hydrogen industry. The world’s largest greenhouse gas emitter has looked into opportunities presented by the most abundant element in the universe. China wants to be a global leader in hydrogen to provide a pathway to carbon neutrality, reduce its reliance on energy imports. It also sees hydrogen as a pillar of economic growth.

Swiss army knife

Hydrogen, which does not emit carbon dioxide when burned, has been described as a “Swiss army knife” that can be used for power generation, heating and to decarbonise industries like steel and cement. To limit the global temperature rise to 1.5 degrees Celsius, the world will need at least 430 million tons a year of hydrogen by 2050, compared with 95 million tons in 2022, according to a forecast by the International Energy Agency (IEA). This could translate into many big business opportunities, creating millions of jobs worldwide in such a hydrogen-fuelled future.

In March, hydrogen appeared for the first time in the Chinese government’s annual work report, listed as a “cutting-edge” industry that will see accelerated deployment. This came after Beijing released its maiden national hydrogen strategy in 2022 up to 2035. The initiative called for at least 50,000 hydrogen-powered vehicles to be deployed and 100,000 to 200,000 tons of green hydrogen to be produced annually by 2025.

“China is probably one of the most active countries trying to popularise hydrogen and develop the hydrogen economy,” said Jenhao Han, managing director of Asia at Hy24, a Paris-based global investment firm exclusively focused on the hydrogen industry.

At a forum in Beijing in April, Ouyang Minggao, a Tsinghua University professor, said China has great advantages in taking the lead in manufacturing green hydrogen-related products and equipment such as electrolysers, fuel cells and fuel-cell vehicles, as well as ammonia and methanol, two carriers of hydrogen.
He called hydrogen the “fourth pillar” of China’s economy, following the country’s success in solar panels, electric vehicles and lithium-ion batteries, which accounted for 1 trillion yuan (US$138 billion) of exports last year and powered China’s 5.2 per cent gross domestic product growth.

Green hydrogen, produced using renewable energy, can also help ease China’s solar and wind overcapacity issue. Last year, China added a record 301 gigawatts (GW) of renewable capacity, nearly 60 per cent of the global total. However, the country’s power infrastructure was unable to consume much of the generated power.

“Green hydrogen projects can help absorb some of the renewable power produced in northwestern China, where most of the large-scale wind and solar projects are located and power demand is low,” said Yao Zhe, a Beijing-based global policy analyst at Greenpeace East Asia.

Global race to dominate industry

China’s ambition to dominate the industry mirrors that of at least 40 countries and regions, including the US, the Middle East and the EU. This decade will trigger a race for technology leadership in hydrogen, which has the potential to change the geopolitics of energy relations, according to the International Renewable Energy Agency.

Every country has its own advantages that would allow it to take a slice of the emerging but complex hydrogen ecosystem, according to Hy24’s Han. The mismatch between regions with demand for hydrogen and those that can supply it also adds to the complexity, meaning no single country is likely to dominate the entire chain, he added.

“China is in an interesting situation because it has the ability to produce as well as the demand,” said Han.

There is no guarantee of China’s success, but it has the potential to dominate the production of electrolysers and fuel cells, according to Li Jing, a partner at KPMG. “It’s not like the semiconductor and AI sectors,” he said. “There are not many technical bottlenecks in developing hydrogen-related equipment from R&D to manufacturing.”

While Chinese companies lag overseas peers in the research and development of equipment in the high-end area, they are winning on prices and are catching up fast in terms of quality as well, Li said.


Green hydrogen: can China reclaim its glory in EVs, batteries and solar panels?

Green hydrogen: can China reclaim its glory in EVs, batteries and solar panels?

China’s mature and efficient manufacturing sector has made it easier to quickly build up supply chains, which will help accelerate the scaling-up of the industry and reduce initial costs, according to Rory Meng, leader of the hydrogen working group at TUV Rheinland’s China operations.

“With many companies in China making cars, batteries and pressure vessels, they can convert their existing supply chains to build hydrogen cars, fuel cells and storage tanks,” said Meng.

The biggest advantage for China’s hydrogen sector is the backing of the government, with state-owned enterprises playing a huge role.

“If there is a very clear and strong target from China to do that, it will get done,” said Aaron Fleming, co-head of the energy and natural resources industry group for Asia-Pacific at Natixis. “There’s a lot more government involvement in China to direct positive outcomes.”

To boost the development of a hydrogen supply chain, Beijing has ordered different cities to form “clusters”, offering a bonus of as much as 1.7 billion yuan.

The state-backed industry group China Hydrogen Alliance, which announced its Renewable Hydrogen 100 initiative in 2021, sees 100GW of installed capacity of electrolysers by 2030 capable of producing around 7.7 million tons of green hydrogen a year.

Oil giant China Petroleum and Chemical Corporation (Sinopec) announced plans to become the country’s biggest green hydrogen producer, capable of producing 120,000 tons a year by the end of 2025.

China is already the global leader in terms of installed green hydrogen capacity, which stood at nearly 7GW last year, far ahead of No. 2 ranked Saudi Arabia at 2GW, according to the IEA. Based on current capacity, China can become a major exporter of green hydrogen by producing it at the lowest cost compared with other regions, said Go Nakanishi, founder of Shanghai-based research firm Integral.

But China could potentially face resistance from other countries, given that the US has unveiled a series of measures to limit exports of solar panels, battery components and EVs, with the EU following suit.

“I think the development of solar panels and electric vehicles over the last 20 or 30 years in China was largely down to demand, and China’s ability to work with the global market on exports,” said Hy24’s Han.

“The current situation is much more complicated,” he said. “I think there’s a lot of resistance from many countries to work with China unlike previously.”

Tapping overseas opportunities

While Chinese EV makers are opening factories overseas and turning to friendly markets as a workaround to the export curbs, Chinese hydrogen equipment makers are likely to adopt the same strategy.

Companies like Shanghai-based fuel-cell maker Refire and hydrogen vehicle maker Wisdom Motor have been eyeing Middle Eastern countries to sell their products. Others like Shanghai-based hydrogen storage firm Hydrexia have been exploring opportunities in Malaysia and Vietnam to build refuelling stations.
“Over the years, Chinese companies have been able to get their costs down, operate efficiently and replicate their businesses in other countries,” said Fleming. “There’s no reason Chinese companies can’t go to India, or Australia, or the Middle East to deploy their expertise and technology.”

One key issue for China to realise its hydrogen dream is probably demand. Although the demand for the fuel will be huge in the long term, the short-term outlook is uncertain because of the current high costs, scant application scenarios and lack of infrastructure to deliver the product to the end users. This could affect China’s plan for the subsidy-driven hydrogen economy.

“I think they’ll have the products available and get the costs down, but it does not address the issue of transport to the end user,” said Grant Hauber, strategic energy finance adviser for Asia at the Institute for Energy Economics and Financial Analysis. “The subsidies are not going to be endless. Will there be demand after that?”

It took China 13 years and nearly 250 billion yuan of subsidies to build the EV supply chain to make the industry the biggest in the world today. Besides, the subsidies for the hydrogen companies are considerably lower, as the government tightens its purse strings amid a sluggish economy.

The country’s hydrogen sector is fraught with overcapacity problems, as local governments’ and companies’ ambitious production plans have outstripped the slow growth in infrastructure and demand, a Citi report warned last year.

But these problems have not dented the optimism of governments and companies that want to position themselves to capture opportunities in the fuel of the future.

Back at the expo in Shanghai, brightly glowing LED slogans exhort participants and investors to “plan for future industries, develop new productive forces”.

“To me, the build-up is just starting,” said Natixis’ Fleming. “The seeds of the fourth pillar are being sown now.”


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