For years, Chinese solar companies have led the world in harnessing the power of the sun. Now the country is competing hard in the race to produce more energy from the universe’s most abundant element — hydrogen. 

The latest landmark for China’s developing industry came last week, when Shanghai-based hydrogen technology company Refire Group filed for an initial public offering in Hong Kong that could raise more than $100 million, according to the Wall Street Journal. Refire produces essential equipment such as electrolyzers, which produce hydrogen with electricity, as well as fuel cells which use the gas to power products such as electric vehicles.

Firms like Refire have already helped China achieve a significant role in the emerging hydrogen power supply chain. The country is the largest producer and consumer of hydrogen globally, and as of last year, controls more than one-third of global electrolyzer manufacturing: Europe and North America respectively control 27 percent and 15 percent, according to the Clean Hydrogen Monitor. 

As the market rapidly scales up, policymakers and companies outside of China worry that the hydrogen industry will follow the same trajectory as solar — where the Chinese government poured subsidies into supporting companies, pushing down prices for panels and other products so far that it effectively wiped out foreign competitors. 

The global landscape for the hydrogen industry, however, is far from settled. Western governments have ambitious plans which dwarf Beijing’s hydrogen targets, leading several experts to argue that China’s dominance in yet another renewable technology is not a foregone conclusion.

“China has economies of scale, and clearly, they succeeded twice: in solar panels and also in electric vehicles,” says Ismael Arciniegas Rueda, a senior economist at RAND Corporation, the federally-funded research institution based in California. “But the U.S. and Europe are trying to prevent that from happening.” 

Hydrogen can be used both as a fuel itself or as a storage mechanism for other types of energy. So-called ‘green’ hydrogen’ is made by running electricity produced by solar or wind power through an electrolyzer, which splits water into hydrogen and oxygen. ‘Gray’ hydrogen, which is far more common, is produced with natural gas, while ‘black or brown’ hydrogen uses coal.

Experts hope green hydrogen could provide a clean fuel for sectors where harmful emissions are particularly hard to abate, such as steel-making, long distance aviation, and the production of chemicals like ammonia.

Left: Universal Hydrogen Co’s Dash-8 modified 40-passenger regional airliner, powered on one side by a hydrogen fuel cell powertrain, April 11, 2023. Right: ZeroAvia’s Dornier 228, with a hydrogen fuel cell and electric propulsion systems powering the left wing, April 13, 2023. Credit: Universal Hydrogen, ZeroAvia

To date, green hydrogen has played a limited role in the global energy transition, although that could grow. As of 2021, 2.5 percent of the world’s energy use came from hydrogen: the International Energy Association (IEA), for example, estimates that the rate of green hydrogen usage will need to grow to around 10 percent by 2050 in order to achieve net zero. 

“In some cases, we can’t achieve net zero without hydrogen,” says Joseph Webster, a senior fellow at the Atlantic Council’s global energy center, although he points to the fact that it is expensive and difficult to transport as key limiting factors. 

A major issue with the hydrogen China produces is that the vast majority is produced using coal power, according to data from the World Economic Forum. Developments like the Kuqa project in Xinjiang, run by state-owned Sinopec and set to be the world’s largest solar-to-green hydrogen plant, will be key to turning this around. Despite experiencing delays in ramping up, the plant plans to produce 20,000 tons of green hydrogen annually by 2025.

Such big investments should help Chinese companies along the hydrogen supply chain. Some Chinese solar giants have already expanded their production of electrolyzers for the hydrogen market. LONGi Green Energy Technology, one of China’s largest solar companies, opened a hydrogen technology subsidiary in 2021 and is now supplying electrolyzers to the Kuqa project. 

Chinese-made electrolyzers’ big advantage is that they are cheap, costing about a quarter of those made in the U.S. and Europe, according to data from the Bloomberg New Economy Forum. But the Chinese industry has to date focused on so-called alkaline electrolyzers, which are less efficient. Western markets have invested more in proton exchange membrane (PEM) electrolyzers — which are more expensive, but able to produce higher purity hydrogen. 

Experts say that the extent to which Chinese firms catch up on PEM technology will determine China’s future position in the global electrolyzer market. 

“It is hard to say that China will certainly dominate the market as it did in solar, because in a subset of electrolyzers that will be more efficient, China has not been dominant,” says Amy Ouyang, a research associate at MacroPolo, a think tank. “PEM is something Chinese companies and the government are eyeing to further develop.” 

Shuayb Ismail, associate partner at Xynteo, a climate-focused global advisory firm headquartered in the United Kingdom, recalls working with several large steel makers in India who were looking to purchase electrolyzers in 2021. “Chinese electrolyzers, from what we know on paper, are definitely cheaper, but the quality is a question mark at the moment,” he says. “And I think that addressing that quality assurance will be one part of the puzzle if China wants to really grow its electrolyzer export market.”

Hydrogen is very expensive, and it’s a new industry. Beijing wants to sit on the sidelines for now, and let the provincial governments and private sector drive growth.

Amy Ouyang, a research associate at MacroPolo, a think tank

Despite Western policy maker concerns, Chinese central government support for hydrogen has been relatively tempered. Beijing’s national hydrogen plan, released in 2022, set a goal of producing 100,000 to 200,000 metric tons of renewable-based hydrogen annually, as well as having 50,000 hydrogen-fueled vehicles on the road by 2025. China also lacks a developed hydrogen pipeline system: while the U.S. has about 2,600km of hydrogen pipelines in operation, China only has 100km, according to some estimates.

In fact, China’s local governments have been far more ambitious on hydrogen. Inner Mongolia, for example, aims to produce more than double the national hydrogen target by 2025. 

The U.S., meanwhile, aims to produce 10 million metric tons of clean hydrogen by 2030, supported by significant investment from the Biden administration. The 2022 Inflation Reduction Act includes a generous tax credit for clean hydrogen producers, while in 2023, the Department of Energy (DOE) announced it would award up to $7 billion to seven green hydrogen hubs across the country. In addition, President Biden invoked the Defense Production Act in 2022 to accelerate domestic manufacturing of electrolyzers. 

“China’s national plans for hydrogen appear to be very conservative, compared to the U.S. and Europe, but also compared to China’s provincial governments,” says Ouyang. “Hydrogen is very expensive, and it’s a new industry. Beijing wants to sit on the sidelines for now, and let the provincial governments and private sector drive growth.” 

Part of the U.S. government’s goal is to avoid being dependent on China for another clean energy technology. In 2022, when a DOE-funded hydrogen project in Utah purchased electrolyzers made in China, some expressed concern that the U.S. government was not learning from the mistakes of the solar industry. 

But others in the industry caution that it is important for China to continue being involved in the sector, both because it could help China reduce emissions in massive, polluting sectors like steel-making, but also because it could help the world ramp up a new supply chain.

“Many see China’s hydrogen market as being part of everyone’s global solution,” says Ismail. “There’s these really ambitious targets set by governments, really ambitious targets set by companies. But when you really go to those who are trying to manufacture [electrolyzers], they don’t have the capacity yet to service everyone. That’s where I believe that China has a role to help solve this.”

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