China Takes up “Green” Hydrogen Challenge

The International Energy Agency has to admit that the development of the global hydrogen industry is not going according to the scenario the agency had hoped for. According to the 2022 forecast, 80 GW of solar and wind electricity is supposed to be used to produce green hydrogen in 2027. In the new forecast, the agency has lowered this figure to 75 GW, moving it to the end of 2028. One GW of electricity can produce approximately 150,000 tons of green hydrogen. But there is no certainty that this scenario will be implemented in practice either.

The global large-scale production of low-emission hydrogen has been in the “crouch start” stage for years, but is still unable to truly launch. The preferences that governments give to pure hydrogen producers in Europe and the USA don’t help either. A common problem is the cost of low-emission hydrogen and the unwillingness of customers to pay a high price for it. High interest rates and the rising cost of electrolyzers have added to the obstacles that green hydrogen projects face. The projects announced by the developers, with the 2030 deadline, should utilize 360 GW of renewable electricity capacity. However, only a small part of green hydrogen projects (4% of the declared capacity), has now passed the Final Investment Decision stage.

Against this depressing reality, only one country – China – has earned a positive assessment from the IEA. 2 GW of renewable energy will be allocated to green hydrogen projects this year, and the IEA estimates that 28 GW will already be available in 2028.

China’s green hydrogen production is rising rapidly, driven by strong growth in renewable energy capacity and a surplus of green electricity in some parts of the country. Although many green hydrogen investors see the Chinese market as one of the most attractive to supply their products, it is China that will pioneer in the global green hydrogen market.

Attention to China’s potential as an importer is also explained by the fact that China is already the world’s hydrogen empire. The country is the world’s largest producer and consumer of hydrogen, as well as its exporter. Hydrogen production in 2022 was 37.8 million tons, a third of the world’s volume. By 2060, it should grow to 130.3 million tons, i.e. 3.5 times.

The Chinese economy has not only a developed hydrogen production segment, but also established hydrogen distribution and consumption chains. Approximately 70% of the hydrogen consumed in the PRC is used to produce ammonia and methanol. Hydrogen is widely used to increase the depth of oil refining and purification of oil products from sulfur contaminants. China is beginning to explore new alternative applications for hydrogen as an environmental fuel, clean energy storage, and a tool to reduce greenhouse gas emissions in the metallurgy and cement industries.

At this stage, the most promising area for alternative use of hydrogen is transportation. Building on its own H₂ resources, China has currently embarked on creating an extensive network of hydrogen refueling stations, which should make the country a world leader in this field. By the end of 2025, China is going to build 1200 hydrogen refueling stations. As of March this year, it already has 420 of them, while there are no more than 1000 in the entire world.

Such gas stations are decided at the level of provincial governments, 29 of which have already included them in their development plans. For example, the Shanghai Government intends to put 10,000 hydrogen fuel cell (HFC) vehicles on the roads in 2025 and provide them with 70 hydrogen refueling stations.

UK-based Interact Analysis notes that in addition to refueling stations, about 50,000 HFC vehicles should be in operation in China by early 2026, up from about 10,000 as of March 2024.

Beijing’s initial focus was on developing commercial truck and bus hydrogen vehicles. Worldwide sales of hydrogen cars experienced a 30% decline last year, one of the reasons being the underdeveloped refueling infrastructure. In China, on the contrary, the sales of HFC vehicles have increased, and for the first time, it took the first place in the international ranking for sales of these kinds of cars. The number of such cars sold does not compare to the sales of electric cars numbering more than 10 million per year. But the continuity of hydrogen mobility with electric mobility is clear. First, the PRC became the world champion in electric car production. Now, by replacing the battery with fuel cells, China is becoming a world leader in hydrogen mobility. The China Hydrogen Alliance considers that the number of HFC vehicles could possibly exceed 10 million in 2060.

The overall favorable picture in the field of hydrogen in China is spoiled by one fundamentally important circumstance. The hydrogen industry in China in its current form not only fails to meet the country’s goals and objectives of moving toward carbon neutrality and is a source of greenhouse gas emissions. For a sustainable carbon-neutral future, Chinese hydrogen in its current form is no good.

Hydrogen produced from fossil fuels, namely coal and natural gas, accounts for 79%. These are, using the accepted “color” hydrogen palette, brown hydrogen from coal and gray hydrogen from natural gas, respectively. Only one percent of hydrogen produced in the country by water electrolysis methods can be conditionally classified as “pure” hydrogen, and the source of electricity used for this purpose is not always from RES.

Therefore, the challenge of developing a hydrogen economy in China is to shift the supply balance in favor of low-carbon hydrogen. According to Erasure Development, green hydrogen will account for 81% of all hydrogen production in 2060. Thus, green hydrogen should dominate China’s energy mix.

March 2022 should be considered the beginning of China’s hydrogen energy restructuring. The clear realization that the energy transition is impossible without low-emission hydrogen was reflected in the publication of the country’s first ever long-term hydrogen industry development plan for the period until 2035. The Chinese government has decided to launch hydrogen production based on green electricity in the amount of 100-200 thousand tons/year in 2025.

If we compare China’s low-emission hydrogen targets with those in Europe, they look overly conservative. In comparison, according to the Hydrogen Strategy 2020, the EU is going to consume 15 million tons of low-emission H₂ in 2030, of which 5 million tons will be imported.

However, the positive side of China’s conservative plans is that they meet the action, while the practical implementation of the EU’s increased commitments has encountered many pitfalls.

In July 2023, Chinese oil, gas, and chemical corporation Sinopec officially launched “the world’s largest solar-to-hydrogen conversion project.” The 260 MW plant, capable of producing 20,000 tons of green hydrogen per year, was built in Kuga City in the Xinjiang Uygur Autonomous Region of China. Kuga’s green hydrogen is intended to replace “dirty” H₂ at the Tahe refinery, as well as at the company’s hydrogen fueling stations.

But it will soon be overtaken by the Ordos plant under construction in the Inner Mongolia Autonomous Region, which is expected to have a capacity of 390 MW. The electrolyzers are powered by a solar power plant, as well as wind energy, and are capable of producing 30,000 tons of green hydrogen. In Inland Mongolia, Sinopec plans to increase green hydrogen output to 0.5 million tons by 2025.

In the same year 2025, a plant of Chinese company Mintal Hydrogen will start operating in Baotou city, producing 390 thousand tons of green ammonia per year, to be supplied to the company’s chemical plants.

In September 2023, CEEC, a state-owned corporation known as Energy China, held a ceremony in Songyuan City to start construction of the country’s largest green ammonia and methanol plant. The over $4 billion, 640 MW facility will produce 45,000 tons of low-carbon hydrogen in 2030, which will then be processed into 200,000 tons of green ammonia and 20,000 tons of green methanol.

Based on the targets set by China’s provinces, the country’s clean hydrogen production capacity in 2025 will reach about 2 million tons per year, meaning the government’s target for that year will be exceeded several times over. This is guaranteed at least by the fact that solar power capacity in China currently exceeds the needs of domestic hydrogen production by dozens of times, and the country is a world leader in the production of electrolyzers. It seems that only China has been able to move the global green hydrogen issue forward due to its low costs.

China currently has only a few short hydrogen pipelines, which do not allow large volumes of hydrogen to be transported from the northwest to the southwest.

In early 2023, Sinopec began construction of its first long-distance 400-kilometer hydrogen pipeline from Ulankab in Inner Mongolia to the Yanshan Petrochemical complex in Beijing. The annual throughput of the pipeline will be about 100,000 tons in the first phase and may increase to 500,000 tons in the long term.

In mid-2024, construction will begin on another 737-kilometer-long hydrogen pipeline involving Tangshan Haitai New Energy Technology, a division of solar panel manufacturer Haitai Solar, and a subsidiary of oil giant CNPC. Construction will be completed in June 2027. The hydrogen pipeline will connect the green hydrogen plant in Zhangjiakou City to the port of Caofeidian in Hebei Province. The port is 250 kilometers southeast of Beijing. While Sinopec’s pipeline project is aimed at meeting domestic demand, the new pipeline is export-oriented.

Hydrogen has opened up a new market niche for China in the form of the ability to export a wide range of equipment for low-carbon hydrogen production, transportation, and storage. China aims to monetize its technological leadership and other advantages not only in the solar panel market, but also in the electrolyzer market.

A decade ago, China’s expansion in the global solar panel market caused panic in Europe and the USA. According to research firm Info-link, China exported 208 GW of solar modules in 2023, up 34% from 154.8 GW in 2022. Europe, as in 2022, was the largest buyer. Over the past year, Europeans imported a total of 101.5 GW of solar modules from China, up nearly 17% from 86.6 GW in 2022. Already this year, the spot FOB price of the popular TOPCon module in Europe has been $0.11 to $0.13 per watt. These low prices make solar energy extremely competitive.

In spite of desperate attempts by Europe, India, and the USA to establish their own solar panel production, global dependence on Chinese devices is not yet waning.

With a sense of deja-vu, these countries are looking at nascent competition with Chinese electrolyzers. According to BNEF, more than 40% of all electrolyzers produced today are sourced from China. Chinese electrolyzers are not always more efficient than those produced in the USA and Europe, but they are much cheaper – about four times cheaper. Chinese electrolyzer companies have so far mainly served their domestic market, but they are beginning to expand sales abroad despite attempts to restrict exports from the PRC under various pretexts.

Does green hydrogen from the PRC have any worthy rivals to compete with it in the global H₂ markets? The costs of production are of critical importance here. Let’s refer to the results of BNEF’s 2023 comparative cost studies of hydrogen production.

The cost range for green hydrogen produced from Chinese alkaline electrolyzers is estimated by BNEF to be $2.4 to $5.9 per kg of hydrogen. For Western-made alkaline electrolyzers, the cost ranges from $4.18 to $11.07 per kg of hydrogen. For western-made PEM electrolyzers, it is $4.75 to $12.0 per kg of hydrogen.

The chances of those PRC competitors in the global hydrogen markets that use more expensive non-Chinese electrolyzers, all other things being equal, are virtually nonexistent at the moment.

Zuhreddin Zuhreddinov
Independent Expert Oil, Gas and Energy (Uzbekistan)