China Aims to Dominate the Hydrogen Energy Market

Ten years ago, China used low prices to dominate the solar manufacturing industry, wiping out Western competitors just as worldwide demand for panels started to soar. The US and Europe are determined not to let the same thing happen with hydrogen.
As the world moves to decarbonize, the next round of competition revolves around a device called an electrolyzer. These devices can extract hydrogen from water using clean electricity, without producing any planet-warming emissions. This is a crucial step in creating a green fuel that can decarbonize industries like steel, cement, and shipping.
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As demand for green hydrogen grows, companies around the world are ramping up electrolyzer production. According to BloombergNEF, a clean energy research group, worldwide electrolyzer production will need to grow 91 times by 2030 to meet demand. However, many Western clean tech veterans are feeling a sense of déjà vu, as China currently produces more than 40% of all electrolyzers.
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Chinese electrolyzers are not as efficient as those made in the US and Europe, but they cost far less - about a quarter of what Western companies charge. Chinese electrolyzer companies still largely serve their domestic market, but they are starting to expand sales overseas.
"I've heard too many government officials say that we can't repeat the experience of solar power," said BNEF hydrogen analyst Xiaoting Wang. "I think that's a mistake."
China's green hydrogen machines will be cheaper than their counterparts for years to come. This is due to the country's large investments in renewable energy sources, which has helped to drive down the cost of production.
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President Joe Biden served as vice president during the crucial years when China seized the lead in solar manufacturing. Now, he views China as a competitor more than a supplier, and he has made bringing clean tech manufacturing back to the US a pillar of his climate policies. The US is determined not to let China control this new energy boom, and Biden's Inflation Reduction Act showers money on domestic hydrogen production.
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"The reality is that the US government is going to provide generous subsidies to ensure that local suppliers survive," Wang said.
Europe has its own reasons for wanting to be involved in this new industry.
The Russian invasion of Ukraine has underscored the importance of fuel that can be produced within Europe, and has spurred the continent's ambitions for hydrogen production. However, some hydrogen advocates say that the European Union is not following through on its commitments, putting it at a disadvantage to both the United States and China. The EU has set a target for green hydrogen production of 10 million tons per year by 2030, but has not yet decided which methods will qualify as "green." This makes it difficult for companies to commit to the large-scale hydrogen production projects that would be needed to meet this goal.
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Jorgo Chatzimarkakis, chief executive officer of the Brussels-based lobbying group Hydrogen Europe, said he is concerned that European market share in the electrolyzer business will be taken away by other regions. "The EU are shooting themselves in the head," he said. "Not in the foot—in the head."
Many analysts expect the efficiency of Chinese electrolyzers to improve, which could erode any technological advantage US and European companies have at present.
"I am confident that China is working on improving its electrolyzers," said Bridget van Dorsten, senior hydrogen analyst at the Wood Mackenzie research and consulting firm. "The day that China decides to no longer be a laggard is the day they will no longer be a laggard."
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Some Chinese companies have a head start in the development of electrolyzers. These companies have been manufacturing electrolyzers for years, and have installed large-scale water electrolysis systems for various industries, such as the production of polysilicon for solar cells.
Electrolyzers use electricity to split water into hydrogen and oxygen. They have been on the market since the 1920s. Many countries now see hydrogen as the best way to decarbonize industries that can't easily run on electricity. If an electrolyzer's power comes from a solar or wind facility, or a nuclear reactor, the process of producing the hydrogen is also carbon-free.
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There are several different types of electrolyzers on the market, each with its own advantages and disadvantages. Chinese companies tend to produce "alkaline" electrolyzers that have low up-front costs but require more electricity to produce each kilogram of hydrogen. In contrast, US and European companies focus on "solid oxide" and "proton-exchange membrane" (PEM) electrolyzers that have a higher initial cost but require less electricity. This is a big selling point in places where electricity is expensive.
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Chinese manufacturers are developing PEM electrolyzers and refining their alkaline products. They are also eyeing foreign markets for growth.
Longi Green Energy Technology Co., based in Xi'an, is the world's largest solar equipment maker. In March 2021, it set up a hydrogen unit and has already built 1.5 gigawatts of electrolyzer manufacturing capacity in China. According to Wang Yingge, vice president of Longi Hydrogen, the company is developing PEM but predicts that alkaline electrolyzers will dominate the industry for the next five years. He expects that within three years, foreign markets will make up more than half of Longi's sales.
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According to Wang, Europe and the US have the most proactive incentive policies for the hydrogen industry, while the Middle East and Africa have the largest scale and most economical renewable energy. He notes that green hydrogen projects in these regions have good profitability.
Meanwhile, state-owned PERIC received orders in 2022 from seven foreign countries, including Australia, the US and Korea, according to BNEF. Shandong Saikesaisi Hydrogen Energy, one of the few Chinese manufacturers to specialize in PEM, now gets a significant portion of its sales from overseas, said Huang Fang, a project director of the company. It is aiming to improve that percentage amid strong demand from Europe and Australia, Huang said.
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Climate policy is increasingly focused on reducing greenhouse gas emissions, which is driving demand for green hydrogen. Green hydrogen is produced using renewable energy sources, and emits no carbon dioxide when used. This makes it a key technology for achieving deep emissions reductions.
While the electrolyzer is essential to green hydrogen production, there are some key differences between the two technologies. Solar cells are able to directly convert sunlight into electrical energy, while electrolyzers require an external power source to split water molecules into hydrogen and oxygen. Solar cells are also more efficient than electrolyzers, with typical conversion rates around 20-25%.
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Solar panels are a common technology that can be easily bought and installed. They usually don't require much customization, whether they're for a rooftop or a desert array. However, hydrogen production is different. Electrolyzers are only a small part of a hydrogen production plant, which must be designed specifically for the energy source and customer needs. Plug Power Inc. is therefore building a variety of green hydrogen production plants across the United States, each with its own unique design, according to Chief Executive Officer Andy Marsh.
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He said that the plant in Texas is different from the plant in New York, which is different from the plant in Georgia. Plug, based in Latham, New York, also makes and sells PEM electrolyzers.
There are advantages to manufacturing electrolyzers within the market they’re intended to serve. Belgium’s John Cockerill Group established a joint venture in China – Cockerill Jingli Hydrogen – to make electrolyzers for China, rather than for other countries. The company is also investing in two factories in Europe as well as potentially the US and India.
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The equipment is complex and heavy, requiring significant on-site customization for each customer, said Raphaël Tilot, Cockerill’s head of hydrogen. “Transporting this from China to other parts of the world isn’t easy,” he said. “The level of on-site work to make it compatible with the client’s project is quite significant.”
Although China's solar industry has benefited from generous subsidies from the central government in recent years, hydrogen has not received the same level of support. The country introduced its first state-level plan for hydrogen development early last year, but has not implemented any financial support policies such as subsidies, disappointing equipment manufacturers.
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Meanwhile, Roeland Baan, chief executive officer of Denmark's Topsoe A/S, said that the American incentive system is now easier to navigate than the EU's. His company is developing a 500-megawatt factory to produce solid-oxide electrolyzers, which operate at high temperatures and are more efficient than alkaline or PEM electrolyzers. Baan said that they decided to put their first plant in Denmark, but they haven't decided yet where to locate their second plant. It might definitely be in the US.