China Makes a Hard Turn Towards Clean Hydrogen
China is on track to become a powerhouse for the production of green hydrogen, one of the most promising alternative fuels for shipping, according to recent reports from BloombergNEF and Fitch. As the world's largest shipbuilder, largest exporter, largest port operator and third-largest shipowner, China's fuel policy choices will have a significant impact on the composition of the world fleet.
Hydrogen power is prominently included in the Chinese Communist Party's 14th Five-Year Plan. At present, most of China's hydrogen comes from coal gasification or steam reformation of methane, but green hydrogen (from renewable electricity) is a high priority as China takes aim at carbon neutrality by 2060. According to IEA data, China has 20 green hydrogen projects under development today.
As the cost of the electrolyzer units used to split water into hydrogen and oxygen comes down, the share of green hydrogen in China's economy is expected to rise. The Hydrogen Council predicts that electrolyzer prices are going to fall by 70-80 percent within ten years' time, dramatically lowering total cost of production.
The prospect of a hydrogen value chain is attracting large Chinese companies, including solar manufacturer GCL, which is jettisoning its solar power station assets and investing in new hydrogen projects. It plans to build out about 400,000 tonnes of green hydrogen capacity in China, predominantly from solar power sources, and it is investing in a much larger conventional natural gas-to-hydrogen project in Ethiopia. "We are re-locating ourselves and focusing on a new racing track," GCL Chairman Zhu Gongshan told Reuters.
However, there may be a timeframe mismatch between when Chinese production of electrolyzers ramps up and when demand for electrolyzers materializes. BloombergNEF expects that next year, demand for electrolyzers will be in the range of 2 GW - an unprecedented number driven up by growth in China. The same year, electrolyzer manufacturing capacity will hit 10 GW, rising to 16 GW by 2024 - creating an oversupply that could drive down electrolyzer prices and prompt further uptake.
“What's happening in China right now is revolutionary for clean hydrogen,” said Martin Tengler, lead hydrogen analyst at BNEF. "Chinese companies are racing to show their compliance with the country's carbon neutrality target, pushing the market for electrolyzers . . . to be at least nine times bigger in 2022 than in 2020."