China is widely anticipated to unveil an official roadmap for developing a hydrogen economy later this year as part of its forthcoming 14^th Five-Year Plan (FYP). Beijing is looking to build on its leading position in production volumes by catching up in the global race to lead hydrogen technology development.

While Europe, Canada, Japan and South Korea have ramped up their plans to utilise hydrogen to support decarbonisation goals, a national hydrogen energy strategy for China remains conspicuous by its absence. The release of the 14^th FYP this year is expected to shape the near-term outlook of China’s hydrogen economy and will likely include specific targets for the fledgling sector.

Chinese policymakers acknowledge zero-emission hydrogen as the best vehicle fuel environmentally for long-haul transport, but believe it still needs to overcome certain technological and economic barriers, industry insiders told Hydrogen Economist.

There were c.7,000 hydrogen fuel-cell vehicles (FCVs) on China’s roads at the end of last year, with 1mn predicted by 2030. That compares with c.4mn electric cars, a number that is expected to swell to 80mn over the same period.

Chinese policymakers acknowledge zero-emission hydrogen as the best vehicle fuel environmentally for long-haul transport

The lack of an overarching strategy has not stopped China from making strides in certain key areas for a hydrogen economy. No companies make electrolysers for production of hydrogen in larger quantities and at lower prices than those based in China—an early dominance that could pose a challenge for Western firms seeking to gain a foothold in the emerging industry.

The world’s top three electrolyser manufacturers by production numbers are all based in China, which accounted for nearly two-thirds of global electroyser production last year. China’s top manufacturer, Cockerill Jingli Hydrogen—a joint venture between Belgium’s John Cockerill Group and Suzhou Jingli Hydrogen—alone accounted for 20pc of global hydrogen electrolyser sales last year.

China is also home to leading domestic fuel-cell manufacturers such as Shanghai-based Refire Technology, which are tapping into growing domestic demand for fuel-cell buses and commercial vehicles.

Meanwhile, China’s incumbent energy players, such as state-owned refiner Sinopec and provincial player Zhejiang Energy Group, are considering using hydrogen to lower emissions from their existing operations. In the short term, they will continue to rely on brown and grey hydrogen, produced from coal and gas respectively, but are investigating how to lower the carbon footprint of their hydrogen supply.

Cost-parity essential

China’s anticipated hydrogen development blueprint will need to tackle the key issue of achieving cost-parity with traditional motor fuels. Chinese end-user costs for hydrogen stand at CNY60-70/kg ($9.3-10.8/kg) but need to be halved to CNY30/kg for the fuel to be competitive with diesel.

Analysts believe end-user costs can be reduced through three main ways: making better use of hydrogen produced as an industrial byproduct; regulating hydrogen as a fuel rather than a hazardous chemical to cut compliance costs; and scaling up green hydrogen production.

More than two-thirds of China’s hydrogen output is produced via coal gasification. Brown hydrogen enjoys the best economics, with production costs of $1.6/kg, according to the China Hydrogen Alliance. But the carbon-intensive process contradicts Beijing’s low-carbon agenda and climate-change goals, meaning other production pathways are likely to take precedence in the coming years.

Around 30pc of China’s hydrogen output is derived from industrial processes such as coking, steelmaking and chemical production. Utilising this so-called byproduct hydrogen is expected to be the focus of China’s hydrogen development in the short-to-medium term, but this faces challenges too.

A more favourable regulatory framework would also help cut costs

Byproduct hydrogen must be purified before it can be used as a vehicular fuel, but few companies in China have so far been willing to invest in purification due to the lack of a market.

Still, the availability and low cost of byproduct hydrogen should gradually facilitate its use and spur more investment in purification—potentially lowering the end-user cost to as low as CNY25-30/kg. This would give hydrogen cost-parity with diesel and in turn enable hydrogen refuelling stations in China to become profitable.

A more favourable regulatory framework would also help cut costs. Hydrogen is regulated as a hazardous chemical rather than as a fuel in China—a designation that has led to high compliance costs in storage and transportation, adding to end-user costs.

There are hopes that policymakers will use the 14^th FYP to separate regulation for hydrogen as a vehicular fuel and hydrogen for industrial use. Separate policies would offer more flexibility for cutting the cost of hydrogen for industrial use, which stands at CNY80/kg. A lower hydrogen price for industry would consequently motivate domestic hydrogen producers to seek new markets for their product, such as transportation.

Long-term green plan

Brown hydrogen and byproduct hydrogen are expected to remain China’s primary sources of supply for this decade, but green hydrogen is the long-term goal. China’s massive buildout of solar and wind power over the past dozen years means there is significant scope for green hydrogen development.

The China Hydrogen Alliance expects the share of green hydrogen within the national hydrogen supply mix to increase from 3pc in 2020 to 70pc by 2050 based on the ramp-up of renewable generation capacity over the next 30 years. Chinese players have already started exploring green hydrogen production by carrying out a number of pilot projects—some of which are already achieving a competitive production cost of CNY25-30/kg.

But for green hydrogen to achieve competitive economics, the cost of power must be within the range of CNY0.3-0.5/kWh or lower. Utilising renewables-based electricity that would otherwise be wasted due to curtailment can potentially reduce power costs to CNY0.1/kWh, while scaling up green hydrogen production would reduce them further.

While there is optimism that the price of hydrogen can be lowered over time, similar cost reductions will be needed on the distribution side. A hydrogen refuelling station typically costs CNY20-30mn to build, of which CNY5-10mn goes towards acquiring land as the current design of stations requires a large footprint.

In addition, some of the equipment and facilities must be built on-site, adding to the cost and complexity of construction. The high capex requirements mean domestic stations are often unprofitable even with government subsidies.

1mn – Fuel cell vehicles on Chinese roads by 2030

The expectation among industry insiders is that an official 14^th FYP for hydrogen this year will demonstrate Beijing’s commitment to industry development, helping to encourage new designs and technology to reduce station construction costs.

In contrast to the absence of national targets, at least 40 provincial and city governments in China had outlined clear goals for development as of mid-February, according to data compiled by Hydrogen Economist. The provinces of Sichuan and Shandong—which are gas production and petrochemical hubs respectively—stand out as they have published medium- and long-term plans.

The provincial and city-level plans commonly include targets for the number of FCVs and refuelling stations as well as measures for fostering cutting-edge FCV-related businesses. Many of the provincial plans call for promoting FCVs in public transportation first before gradually expanding their use in other areas.

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Author: Shi Weijun