Will China dominate the electrolyser market?

Green hydrogen can play a key role in helping the world reach net-zero emissions by 2050. Demand for hydrogen is growing, from around 87million metric tonnes (MT) in 2020 to around 180million MT in 2030 and up to 680million MT in 2050, according to the International Energy Agency. That represents huge potential. 

However, green hydrogen still makes up a tiny percentage of that: the IEA has said that less than 1% of hydrogen production globally can be classed as ‘green’.

That is no great surprise. In the US, it cost around $5/kg to produce green hydrogen in 2021 according to the US Energy Department, compared to $1.50/kg for hydrogen created using fossil fuels (or ‘grey hydrogen’). Analysis from Bloomberg New Energy Finance said it would cost $4.91/kg to produce green hydrogen in Germany in 2025. Grey hydrogen had a head start, and green hydrogen must cut costs to hit back.

This focus on cost-cutting could push developers towards Chinese manufacturers. There are two major up-front costs for green hydrogen projects – the electrolyser and the electricity to power it – and Chinese machines could be attractive options.

China’s playbook for green hydrogen is well-known. In the 2010s, it used low prices to corner the solar panel production market, with the result that today it makes 80% of the solar panels used globally and has driven out most of its western rivals. We  are now seeing the same happen in hydrogen electrolysers: BNEF reported in 2022 that Chinese-made electrolysers are a quarter of the price of western machines.

On that basis, isn’t the case for Chinese machines obvious? Well, no.

Efficiency matters

The downfall of many Chinese electrolysers is efficiency, as the China Hydrogen Energy & Fuel Cells Industry Innovation Strategic Alliance reported in 2021. It said Chinese electrolysers are far less efficient and reliable than machines produced in Europe or the US. This is vital for developers making decisions right now. 

But this will not last forever. BNEF said it expects Chinese electrolysers to account for 30% of hydrogen electrolyser sales in the US and Europe before 2025, but that demand will grow after that. This means policy-makers in the US and Europe have a vital window to bring in policies to help their own suppliers, which is happening with the US Inflation Reduction Act and, to a lesser extent, the REPowerEU plan. 

The IEA has also reported this month that electrolyser innovation is not dominated at present by any single country. It said global manufacturing of hydrogen electrolysers is set to grow from around 10GW a year now to 100GW a year in 2030; and said in an analysis, called ‘Hydrogen patents for a clean energy future’, that companies in the EU and US are still currently at the forefront of electrolyser innovations.

Overall, it said 80% of patent applications related to hydrogen in 2020 focused on low-carbon applications of production rather than more carbon-intensive methods. Innovations like this should help green hydrogen close the gap with grey hydrogen.

It also highlighted that 28% of hydrogen patents that year came from the EU – led by Germany, France and the Netherlands – and with 24% in Japan. The US accounted for 20%, with China and South Korea also in a strong position; and countries such as the UK, Canada and Switzerland just outside the top five.

This bodes well for the market generally. Research and development work is vital if the industry is to deliver green hydrogen cheaply; and developers have to consider efficiency alongside cost when making decisions on technology. It is not a foregone conclusion that China will corner the green electrolyser market, but governments in the US, EU and elsewhere will need to work very hard to hold it back.