Large industrial companies in China are planning massive clean hydrogen projects on a scale unheard of anywhere else in the world—and to an extent that surprised the authors of research firm BloombergNEF’s newly released H2 2021 Hydrogen Market Outlook.

“Deployments and plans for deployments in China are going through the roof,” says Martin Tengler, BNEF’s lead hydrogen analyst. The surprise regarding China’s rise to prominence is because the country has no national hydrogen policy, although it does have a 2060 net-neutrality target, announced on 22 September 2020.

What is happening in China right now is revolutionary for clean hydrogen” Tengler, BNEF

 “What is happening in China right now is revolutionary for clean hydrogen,” says Tengler. “Chinese companies are racing to show their compliance with the country's carbon-neutrality target, pushing the market for electrolysers to be at least nine times bigger in 2022 than in 2020.”

Chinese executives want to stay in the government’s good books, meaning it is not a question of market forces, he adds.

Tengler says one implication of China’s rapid rise to become the world leader in clean hydrogen is that there is no one-size-fits-all policy to drive growth. Incentives and a $100/t carbon price may be needed for broad hydrogen adoption in some market economies, but China’s unprecedented growth has been fuelled by little more than a yet-to-be legislated commitment to carbon-neutrality.

China has been the world leader in hydrogen for some years, but electrolysers were mostly powered by grid-based electricity, which has been based heavily on coal. The deployment of renewable energy in China has been rapid and recent.

The country’s demand for clean hydrogen comes from big steel and national oil and fossil fuel-based chemicals firms—especially state-owned enterprises—says the reports, which focuses on clean hydrogen, whether green or from fossil fuels with carbon capture and storage.

As of mid-July, at least six large Chinese companies had more aggressive CO₂ reduction plans than the central government, and five of these six companies plan to adopt hydrogen  as a feedstock in chemical reactions.

Three of these firms drive the majority of BNEF’s forecast for electrolyser deployment in Asia-Pacific: energy company Baofeng; Sinopec, the world’s largest oil refiner; and Baowu, the world’s largest steel producer.

To give an idea of the scale of the trend in China, Tengler noted that Baofeng is building a 150MW electrolysis project to come online by the end of 2021. The world’s current largest electrolyser is Air Liquide’s 20MW project in Quebec, commissioned in January.

Electrolyser surge

Globally, electrolyser shipments are set to double in 2021 and quadruple in 2022, when they will reach 1.8-2.5GW. China should account for 60-63pc of 2022 global installations, BNEF says.

By 2030, cumulative global installations could exceed 40GW based on developer disclosures. Alkaline electrolysers will continue to dominate the market due to better economics, with an 80pc share in 2022, says BNEF.

60-63pc – China’s expected share of global electrolyser installations in 2022

 Although more than 40 countries have now published a hydrogen strategy or are developing one, the market for clean hydrogen is still far from certain because of its cost and a lack of incentives, says Tengler.

He adds that the world will need to see CO₂ prices of at least $100/t by 2030 to incentivise much hydrogen adoption. The EU has a price of only about half that today, and BNEF forecasts only three markets will reach $100 before 2030: Canada, where there is a national carbon price; the EU, with its emissions trading; and the UK, which will basically follow the EU’s lead.

“It is no surprise then that the vast majority of announced large-scale demand-side clean hydrogen projects come from these regions," he says.

Apart from higher carbon prices, so-called ‘contracts for difference’ could be a form of support for hydrogen, the BNEF report says. These pay project developers the difference between the actual carbon price and the carbon needed to justify their investment. A carbon border adjustment mechanism should also help developers of low-carbon projects. The EU, which is pioneering both approaches, will act as a laboratory for policies stimulating hydrogen demand, according to the report.

BNEF forecasts that clean hydrogen will cost below $2/kg in much of the developed world by 2030. It could outcompete coal in steel production by around 2027 in Canada and around 2028 in the EU and the UK, according to the report.

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Author: Ros Davidson