China is beating the world on yet another climate technology — Quartz

In July 2021, UK-based oil major Shell made a splash when it switched on a 10-megawatt facility to produce hydrogen from renewable energy, the largest in Europe. “Green” hydrogen, as it’s called, is rare today, but is poised to be essential in the climate-proofed economy to replace fossil fuels in agriculture, shipping, and heavy industry. European countries and the US have big plans to build more large-scale electrolyzers, the machines that use electricity to split hydrogen atoms out of water. But as with other climate technologies like solar panels, wind turbines, and batteries, on electrolyzers China is already eating the rest of the world’s lunch.

In December, Chinese state-owned oil company Sinopec broke ground on a 300megawatt green hydrogen electrolyzer, which will be the world’s largest when it comes online next year. Chemical producer Baofeng is also already operating a 200-MW green hydrogen plant. Many other smaller projects are scattered across China. Green hydrogen is not cost-competitive today with hydrogen made from natural gas, and most experts expect it will need at least a decade of government subsidies to come down in cost and gain market share. But in China, many major emitters, especially state-owned enterprises (SOEs) are lining up as big customers for domestic electrolyzer producers, such that electrolyzer sales there far outpace those in Europe or the US. In a Jan. 21 forecast, energy intelligence firm BloombergNEF said it expects global electrolyzer sales to quadruple in volume in 2022 from last year, with China accounting for two-thirds of demand.

“With China’s net-zero goal, state-owned companies are quite keen to show they’re in line with the government’s target,” said Martin Tengler, BNEF’s lead hydrogen analyst. “So they’re taking the initiative, and building projects that are much bigger than what we see in the rest of the world.”

China’s solar skills gave it a leg up on hydrogen

China’s journey to command the solar market started after heavily-subsidized pioneers in the US and Germany had already laid the groundwork for mass-produced panels. Hydrogen is different; China has long dominated electrolyzer production. But the two stories are linked: Throughout the 2010s, the country’s top customers for electrolyzers were solar companies, which use hydrogen in the production of polysilicon for solar cells. Electrolyzers, like solar panels, are relatively inexpensive and easy to mass-produce; because of the lower cost of labor and raw materials, electrolyzers made in China can be sold for a quarter of the cost of those made elsewhere. And now that there’s more demand for them, production is booming—starting with domestic customers but eventually targeting exports.

“A lot of the same factors that enabled Chinese companies to dominate the solar market can be done with electrolyzers,” Tengler said. “And a lot of the new electrolyzer entrants include those same companies that have come to dominate the solar industry,” including panel manufacturer Longi and power inverter manufacturer Sungrow.

Europe and the US could still catch up. In December German conglomerate Thyssenkrupp said it would build the first gigawatt-scale individual electrolyzer by 2026, in Saudi Arabia. Electrolyzer manufacturers in the US and Europe are building a number of “gigafactories” that together will be equipped to roll out gigawatts’ worth of electrolyzers over the next couple of years. But until more industrial hydrogen consumers in Europe and the US are willing to shell out for green hydrogen—or are forced to by government decarbonization mandates—Tengler said the new electrolyzer factories will struggle to find many customers.

“A lot of this capacity will be sitting idle,” Tengler said. “They could be producing more than China, but the demand just isn’t there.”