Progresses and challenges of China’s hydrogen sector in 2023

2023 is a remarkable year for China’s booming low carbon hydrogen industry as we saw inspiring progresses across the value chain, as well as in the policy building and implementation.

As more and more stakeholders realized the role of green hydrogen will be crucial for China to achieve deep decarbonization while ensuring domestic energy security and boosting domestic economic development, policy makers are ramping up to establish institutional foundations for China’s hydrogen economy.

As of December 2023, 27 out of 31 provinces in China have provided their provincial hydrogen strategies and specified their targets through 2025, some provinces even specified targets for 2030 and 2035. According to these provincial level hydrogen strategies, altogether, China will deploy 116,900 FCEVs by 2025, significantly surpassing the 50,000 FCEVs target in China’s national hydrogen strategy. 8 provinces establish a target to deploy 10,000 FCEVs by 2025, including Beijing, Shanghai, Guangdong, Hebei, Shandong, Shanxi, Shaanxi, and Jiangsu province.

The deployment of FCEVs is accelerating. For the first eleven month of 2023, the sales volume of FCEVs in China reached 3,996 units, up 44.8% yoy, according to China Association of Automobile Manufacturers (CAAM). Heavy duty trucks rank No.1 among all the applications as current subsidy policies have a tendency favoring more powerful vehicles, indicating that China’s domestic FCEVs market is still a policy-driven market.

We also witness that over 400 hydrogen refueling stations have been established in all provinces except Tibet with another 39 in construction by the end of 2023. Guangdong province holds the leading position with over 60 hydrogen refueling stations followed by Shandong, Hebei, Shanghai, Zhejiang, Shanxi, and Hubei provinces with 20-30 refueling stations in operation. However, compared with the capacity building targets set in provincial hydrogen strategies or implementations plans, we identified that most provinces may fall behind their schedule.

2023 is a milestone for China’s green hydrogen production projects, provinces across the nation are coming up with plans to develop green hydrogen, especially renewable energy-rich regions, they are leveraging their location conditions or creating new industry clusters to develop the whole value chain of green hydrogen. As of Dec 15^th, over 30 green hydrogen production projects started construction this year, meanwhile, public procurements for electrolysers surged to 2,055MW, we found large state-owned energy companies dominate these projects.

China Petroleum and Chemical Corp (Sinopec) completed construction of the nation's largest photovoltaic green hydrogen production project in August, which is expected to produce 20,000 tons of green hydrogen annually when at full capacity, a significant breakthrough in China's scaled industrial application of green hydrogen. This is part of the company's planned $4.6 billion investment in the hydrogen sector through 2025, aiming to boost annual hydrogen production capacity to 500,000 tons by 2025.

Photo: Sinopec’s first 20,000 per annum green hydrogen production facility in Kuqa

China Energy Engineering Corporation Ltd (CEEC), also known as Energy China, has also proposed ambitious hydrogen strategies and become a forerunner in China’s green hydrogen industry. It has five major domestic green hydrogen production in construction including the country’s largest green hydrogen project — a 640MW facility in Songyuan, Jilin province, which will use the H₂ to produce green ammonia and methanol. The Rmb 29.6bn ($4.06bn) Hydrogen Energy Industrial Park in northeast China, will use wind power and solar to produce 45,000 ton of green hydrogen annually, which will then be converted into 200,000 ton of green ammonia and 20,000 ton of green methanol a year, which is also one of the largest of this kind globally.

Encouraged by the future of green hydrogen, Chinese companies are flocking into electrolyser business, a BNEF study forecasts that China is expected to have more than 40GW of electrolyser manufacturing capacity by the end of 2024, while our resources show even this number may underestimate capacity expansion in China. These capacity expansions come from both current top players and dozens of new comers-generally, the initial capacity would be 1GW or more.

Although the majority capacity building is still focusing on ALK electrolysers which Chinese players arguably have cost competitiveness to western peers, many companies, especially new comers, are in favor of PEM technology, and several innovators are building industrial scale SOEC and AEM electrolyser manufacturing capacity.

As China’s electrolyser manufacturing capacity will be far beyond domestic demand — which is projected to be around 4GW by many domestic analysts, producers have to seek opportunities in oversea markets. We saw Chinese EPCs have gained contracts to build giga green hydrogen projects in Middle East, North Africa, and Central Asia, it’s reasonable for Chinese electrolyser to penetrate markets via these projects.

Despite all the brilliant progresses, many challenges are emerging. Almost all electrolyser manufacturers are losing money today as the harsh competition is driving profitability to the ground. Situation is the same for the major fuel cell OEMs, released documents show that all of them have been suffering huge financial losses during the last few years. The whole FCEVs value chain still heavily relies on government subsidies, which raises concern for the sustainability.

Cost of retail hydrogen is a key factor-survey found that operation rate of FCEVs was pretty low in some regions setting fleet idle, mainly due to high retail hydrogen price. There are many challenges ahead to reduce the storage and transportation cost of hydrogen to consumers.

Looking forward, we expect China’s burgeoning low carbon hydrogen industry could maintain momentum. Although various obstacles exist, stimulating policies, technology innovations, vast domestic and international markets will push stakeholders adding investments and expanding capacity. As the climate change mitigation becomes more urgent, China is under international pressure to decarbonize its industries at faster pace. And China has also identified the potential of hydrogen to inject green energy into its sliding economy. These fundamentals will certainly support development of hydrogen energy in China. We are expecting more advancements in coming 2024, including policies (especially domestic carbon market reform), capacity building, technology innovations, as well as international cooperations. Subscribe my publication to keep tracking China’s hydrogen industry.

At last, all my readers and friends, I wish you a peaceful and prosperous 2024.