MERICSCHINAMONITORJune28,2022CHINA’SNASCENTGREENHYDROGENSECTOR:Howpolicy,researchandbusinessareforginganewindustryAlexanderBrown,NisGrünberg2MERICSCHINAMONITORJune28,2022KEYFINDINGSChinaregardshydrogenasastrategic“frontiertechnology”inwhichitaimstobecomeagloballeader.Itspolicyfocusintheshorttermwillbeongeneralindustrydevelopmentfirst,greeningsecond.Chinaispoisedtorapidlyexpanditsgreenhydrogenindustrywithinthenextdecade.Governmentmandatestodecarbonize,alongwiththelureofgrowingdemandforcarbon-neutralhydrogenandassociatedequipmentisspurringonrelatedR&Dandbusinessventures.Localpolicyandindustrydevelopmentsarealreadymovingfarbeyondthenationalstrategyanditsconservativetargets,buildingmomentumforthegreenhydrogenindustry.China’spushintogreenhydrogenwillbecharacterizedbystrongstate-ledsupportformarketcreationandtechnologyateachstageofthevaluechain.State-ownedenterprisesandpublic-fundedR&Dcentersarerushingtodevelophydrogentechnolo-gieswiththeexpectationofamassiverampingupoftheindustry.Drivenbybullishforecastsforfuturedemandinlow-carbonhydrogen,privateenterpriseisalsocontributingtotherapidcapacityexpansioningreenhydrogenpro-ductionequipment.Europe’sleadershipingreenhydrogentechnologywillshrinkasChinadeepensitsinnovationcapacitiesandstrengthensitspricecompetitiveness.Thecountryalreadyaccountsforathirdofglobalelectrolyzermanufacturingcapacityandwillbecomemorecompetitiveasitscalesupproduction.DespiteasurgeinresourcesdedicatedtohydrogenR&D,ChinaremainsbehindEurope,theUnitedStates,andJapaninadvancedtechnologicalcapabilities.Indus-tryexpertsinChinaestimateitwilltakeatleastfiveyearsbeforedomestictechnologycatchesuptoglobalindustryleaders.EuropeancompaniesengagewithChinesefirmsassuppliersaswellasR&Dandjoint-venturepartners.ThebenefitsfortheEuropeansideshouldbeweighedagainsttherisksassociatedwithacceleratingthedevelopmentofChinesemanufacturers.3CHINAMONITORJune28,2022©MERICSO2+H2OAnodeCathodeFOURPILLARSOFCHINA’SGREENHYDROGENINDUSTRYH2R&DINVESTMENTMorethanhalfofgreenhydrogen(waterelectrolysis)patentsfiledin2018and2019worldwidewereregisteredinChina.PROJECTDEVELOPMENTMorethan120greenhydrogenprojectsareunderdevelopment.POLICYSUPPORTOver500hydrogenrelatedpolicieshavebeenreleasedbylocalandprovincialgovernments.INDUSTRIALBUILD-UPInstalledelectrolyzercapacitytoreach38GWby2030.Chinaisontrackforarapidramp-upofgreenhydrogenproductionGovernment,businessandacademiacombinetotransformChina’shydrogenindustrySource:MERICSSource:MERICSELECTROLYSISfossil-fuelbasedH220202030204020502060140120100806040200renewables-basedH2lowcarbonH2CHINA'SFORECASTHYDROGENDEMAND(MILLIONTONS)GreenBlueGray/Brownfossil-fuelbasedHfossil-fuelbasedH224MERICSCHINAMONITORJune28,20221.CHINA’SHYDROGENAMBITIONSINTHEGLOBALGREENTECHNOLOGYRACEHydrogenwillplayanimportantroleintheglobalenergytransition.Itisestimatedthathydrogenwillaccountfor10–12percentofChina’senergyconsumptionby2050,andasmuchas22percentglobally.1Forthecountrytoreachthispointsustainablyandinlinewithitsemissiontargets,cheapandscalablegreenhydrogentechnologysuchaselectro-lyzersisneeded.Ascostsforcarbon-intensefuelsincreaseandelectrolysistechnologybe-comesmoreadvancedandefficient,2greenhydrogenisexpectedtoreachpriceparitywithcurrentlycheapergrayhydrogenwithinafewyears.Foreseeabledemand,alongwiththefactthattodayseveraltechnologiescompete,meanstheindustrywillbecomenotonlyalucrativemarketbutalsoafieldofintensecompetition,inChinaandinternationally.Chinaistheworld’slargesthydrogenproducerwithanannualoutputof33milliontons,overathirdofglobaldemand.3Hydrogenisusedin,amongotherthings,chemical,refining,andmetalindustries–eitherasanenergycarrier(forexample,providingheatorelectricityinmetallurgy)orasafeedstock(forexample,forproducingammonia).Whilehydrogenisa“clean”energycarrier–reactingwithoxygen,itproducesonlyheatandwater–producingitcanhaveasignificantCO2footprint.Chinaprimarilyproducesbrownandgrayhydrogenbyusingcoalorgas(respectively60percentand20percentofproduction)4withhighCO2emissions.Tomeetitstargetstoachievepeakcarbonemissionsby2030andthenreachcarbonneutralityby2060,greenhydrogen–currentlyaccountingforabout1percentofproduction–willneedtoreplacegrayhydrogenasfastaspossible(seeExhibit1).TheChineseindustry’soutlookisstrikinglypositive.CurrentforecastsestimateChinawillreach38GWofelectrolyzercapacityby2030,andChina’spremierhydrogenlobbyingor-ganizationhascalledonthegovernmenttoinstallasmuchas100GWbythen.5WithonlyExhibit1Source:MERICS©MERICSWhatisgreenhydrogenandhowisitmade?DifferenthydrogenproductionmethodsandcolorassociationGRAY/BROWNHYDROGENGREENHYDROGENBLUEHYDROGENNoCO2producedCO2storedorreusedCO2emittedtoatmosphereCO2ProducedfromcoalorgasCO2ProducedfromcoalorgasElectricityfromrenewablessplitswaterintohydrogenandoxygenO2H2H2H25MERICSCHINAMONITORJune28,2022around1GWinoperationandaround10GWplannedtoday,thisillustrateshowindustryinsidersandinvolvedofficialsarebettingonamassiverampingupofelectrolysiscapacityoverthecomingdecadeandbeyond.China’splansforhydrogencomeontheheelsofthoseofothermajoreconomiesthathaveadoptedhydrogendevelopmentstrategiesinrecentyears.Althoughhydrogenwasdis-cussedasastrategicemergingtechnologyforyears,theEuropeanUnion’scleanhydro-genstrategyandGermany’snationalstrategywereissuedonlyin2020.China’sMediumandLong-termPlanforHydrogenEnergyIndustryDevelopment(2021-2035)wasissuedinMarch2022.ComparedtotheEUandGermanstrategies,whichprioritizegreenhydrogen,China’sstrategyiscolor-agnosticfornowandonlyplansforgreenhydrogentoovertakegrayandbluehydrogenafter2030.Atthesubnationallevel,however,China’slocalgovernments,researchinstitutes,andin-dustriesareracingtodevelophydrogentechnologyandmarkets.Provincialpolicytargetsaremoreambitiousthantheonesofthenationalstrategy.Aflurryinpolicy,researchanddevelopment(R&D)activities,andindustrydevelopmentsshowhowtheraceforgreenhy-drogenhasstarted.Asseeninthecaseofthesolarphotovoltaics(PV)andbatteryindus-tries,China’sgovernment-steeredapproachtocreatingmarkets,fosteringtechnologicalin-novation,andpromotingindustrialscalingcanbeveryeffective.Althoughstillinitsearlystages,thecountry’spushintogreenhydrogenalreadyshowsthatitwillbecharacterizedsimilarlybystrongstate-ledsupportateachstageofthevaluechain,fromresearchtotech-nology,production,andapplications–andthatChinesecompaniesareeagertobecomemajorglobalplayersintheindustry.Exhibit2Sources:NationalDevelopmentandReformCommission(China),FederalMinistryforEconomicAffairsandEnergy(Germany),EuropeanCommission©MERICSGreenhydrogeninselectedhydrogenstrategiesTypeofhydrogenproduction:Gray/brownhydrogenBluehydrogenGreenhydrogenNationalplanH2colorsupportedStatedtargetsforgreenH2InvestmentvolumesexpectedMediumandLong-termPlanforHydrogenEnergyIndustryDevelopment(2021–2035)TheNationalHydrogenStrategyCHINAGERMANY100,000-200,000tonsgreenhydrogenby2025NotargetsAHydrogenStrategyforaClimate-neutralEuropeEUROPEANUNION6GWby2024,producing1milliontons;and40GWby2030,producing10milliontonsElectrolyzerinvestmentsby2030:EUR24-42billion.Totalinvestmentsby2050:EUR180-470billion5GW(14TWh)by2030EUR9billionpledged6MERICSCHINAMONITORJune28,2022Exhibit3Source:MERICS©MERICSGreenhydrogenclusterstakeshapeinNorthChinaMajorplayersandprojectsinChina'sgreenhydrogenindustryTOPPROJECTSBaofeng,NingxiaSolarHydrogenProjectSinopec,OrdosSinopec,KuqaHuaneng,DaanSPIC,UlanqabBeijingJingneng,OtogBannerShell,ZhangjiakouDICP,LanzhouLiquidSunshineProject1718192021222324TOPELECTROLYZERCOMPANIESPERICHydrogenTechnologiesCockerillJingliHydrogenTianjinMainlandHydrogenEquipmentBeijingSinoHyEnergyChinaNewGasEnergyTechnologyShandongSaikesaisiHydrogenEnergyLONGiCumminsEnze12345678TOPRESEARCHINSTITUTESHandanCenter718ResearchInstituteChinaEnergyInvestmentHuanengCleanEnergyTechnologyResearchInstituteStateGridSmartGridResearchInstituteDalianInstituteofChemicalPhysicsTsinghuaUniversityXi’anJiaotongUniversityNankaiUniversity9101112131415161819202122242815723245682685771113165411101412DalianInstituteofChemicalPhysicsDalian,LiaoningPartoftheChineseAcademyofSciences,involvedinnumerousgreenhydrogendemonstrationprojects.PERICHydrogenTechnologiesHandan,HebeiSubsidiaryofChinaStateShipbuildingCorporation.Leadingalkalineelectrolzyerproducerwith35percentmarketshareinChina.1319Baofeng,NingxiaSolarHydrogenProjectNingdong,NingxiaTheworld’slargestgreenhydrogenprojectinoperationasofFebruary2022(150MWalkalineelectrolyser+200MWsolararray).1767MERICSCHINAMONITORJune28,2022TheprovinceofInnerMongoliaaloneaimstoproduce500,000tonsofgreenhydrogenayearby2025,morethandoublethetargetinthenationalstrategy.Between2020and2022,provincesannouncedtheyaimedtodevelopahydrogenindustryvaluedatCNY756billioninthecomingfivetotenyears.Morepolicies,projectannouncements,andlargecapacitytargetsarecurrentlyissuedalmostweekly.ThesedevelopmentscomeoffthebackofyearsofheavystateinvestmentintohydrogenR&D,whichisincreasinglyfocusedongreenhydrogentechnology.Publicresearchinsti-tutes,universities,state-ownedenterprises(SOEs),andforeignfirmsallcontribute,andtheyformpartnershipstodevelopanddemonstrategreenhydrogentechnologies.Thenumberofrelatedpatentsandacademicarticlesisballooningandthetechnologicalcapa-bilitiesofdomesticfirmsaregrowing.Exhibit4Provincialhydrogenstrategies:GreenhydrogenfocusedstrategyColor-agnostichydrogenstrategyNostrategyissuedyetNumberofpolicies:0–1011–2526–50>50LocalgovernmentsarepushinghydrogenacrossChinaNumberoflocalhydrogenandFCVrelatedpoliciesSource:MERICSPolicyDatabase(coversperiodfrom2000untilMay1,2022)©MERICSHebei442530BeijingBeijingTianjinTianjin8MERICSCHINAMONITORJune28,2022Chinaalreadymakesupaboutathirdofglobalelectrolyzermanufacturingcapacity.Itcanproduceallkeypartsdomesticallywithfewexceptions(notablyhydrogenvalves)andlocalproducersareverycompetitiveonprice.6Buttheyarenotyetuptointernationalstandardsintermsofefficiencyandreliability,especiallyforlargesystems,accordingtoindustryin-siders.Asthenumberofdemonstrationprojectsgrows,furtherinvestmentsarepouringintotheupstreamsegmentsofthevaluechain.ThiswillallowChineseelectrolyzermanu-facturerstoscaleup,refinetheirtechnologies,andposeanincreasingchallengetoforeignfirmsformarketsharewithinandoutsideofChina.2.INDUSTRIALPOLICYADDSMOMENTUMTOTHECREATIONOFCHINA’SHYDROGENECONOMYIndustrialpolicy–encompassingdevelopmentplans,innovationtargets,publicfinance,etc.–isakeydriverofthedevelopmentofChina’senergyindustry.Statesupporthasbeeninstrumentaltothesuccessofpastattemptstofosternewgreentechnologyindustriessuchassolarandwind.Thecountry’seconomicandindustrialscale,governmentbacking,andlowproductioncostshaveenabledChineseproducersof,forexample,PVandbatteriestosqueezeglobalcompetitors,onpriceandcapacityifnotalwaysonbest-in-classquality.TheincreasingpolicysupportandgrowingvolumeofR&DinvestmentsprovethathydrogenisanindustryinwhichChinaaimstokick-startasimilarprocess.AsteepincreaseinthenumberofpolicystatementsbycentralandlocalgovernmentsshowshowmuchattentionhasshiftedinChinatowardsdevelopingtheindustryinrecentyears.Afterfirstbeingincludedinthe2006nationaltechnologydevelopmentplan,hydrogenwasrecognizedintheEnergyLawasanenergysourceforthefirsttimein2019.In2020hydro-genwasfurtherdeclaredastrategicemergingindustrybyChina’smainindustryplanner,theNationalDevelopmentandReformCommission,whichcalledto“acceleratethedevel-opmentofthenewenergyindustry”includinghydrogen.7Fuel-celltechnologiesandvehi-cles(FCVs)havereceivedthemostattention,withChinatodayamongtheleadingnationsinthisfield.Fuel-cellvehiclesfeatureprominentlyinChina’searlyhydrogenpushMuchofChina’sindustrialpolicyinthehydrogenindustrysofarisfocusedondevel-opinganddemonstratingfuel-cellvehicles.Theylooklikelytoplayastrongroleinthedecarbonizationofthecommercialvehiclemarketinparticular,whilebatteriescouldbemoresuitableforpoweringpassengervehicles.SeverallocalhydrogenplanshavesettargetsforthenumberofFCVstoberolledoutintheshortterm.Beijing,Shanghai,andtheprovincesofHebei,InnerMongolia,andShandongeachaimtohave10,000FCVsontheirstreetsby2025.Central-governmentfundingalsosup-portsthegrowthofFCVs,includingviaaprogramofferingfinancialrewardstocityclustersfortheindustrializationofcorefuel-celltechnologies.UptoCNY1.7billionwillbeawardedtolocalgovernmentsthatmeetspecifictargets.ButthecontributionofFCVstoChina’senergytransitiondependsonthesupplyoflow-carbonhydrogen.Today,mostofthehydrogenusedtopowerthemisproducedusingfossilfuels.Statesupporthasbeenkeytofosteringnewgreentechnologyindustries9MERICSCHINAMONITORJune28,2022Exhibit5Source:MERICS©MERICSThe"eraofhydrogen"iscomingTimelineofkeyhydrogenpoliciesinChinaAugust2020:NDRCdesignateshydro-genasstrategicemergingindustryPolicymilestonesOtherstatementsandpoliciesApril25,2019:ResearchinstituteCCIDannounces"theeraofhydrogeniscoming"January5,2017:NDRCproposesdevel-opmentofprimaryresearchprojectsinhydrogenMarch13,2021:National14thFive-YearPlanidentifieshydrogenasfrontiertechnologyNovember29,2021:14thFive-YearPlanforEnergyInnovationsetsR&DprioritiesforhydrogenOctober11,2019:LiKeqiangurgestoexplorethecommercializationofhydrogenenergyOctober18,2019:MOEdesignatesaspecializationfor"hydrogentechnology"forvocationalcollegesDecember21,2020:Energywhitepaperpromotesdevelopmentofhydro-gentechnologyJanuary26,2022:XiJinpingcallstospeedupthedevelopmentofhydrogenenergyOctober23,2021:HydrogenbecomespartofnationalcarbonpeakingandneutralityplanMarch23,2022:NDRCreleasesnationalhydrogendevelopmentplan10MERICSCHINAMONITORJune28,20222.1NationalpolicyremainsvagueongreenhydrogenfornowFornow,nationalpolicysupportforhydrogenremainsmainlyfocusedongeneralindustrydevelopmentfirstandgreeningitsecond.ThisispartofChina’sbroaderpushforindustrialupgrading,technologicalinnovation,andlong-termtransitiontowardscleanenergy.Com-paredtoEuropeanstrategies,whichaimtoleveragegreenhydrogenforrapidanddeepde-carbonization,China’snationalpoliciesaremarkedbytheabsenceofopen,market-basedmechanismstodrivedevelopment.Instead,theemergingpatternresemblesthecountry’spreferredstate-capitalistapproachofrelyingonlocalgovernments,R&Dcenters,andSOEstoestablishanindustryaroundstrategicpolicytargets.China’snationalhydrogenstrategyisconservativeonquantitativetargets.Itsaimof100,000to200,000tonsofannualgreenhydrogenproductionby2025isdwarfedbytheEU’sannualtargetofonemilliontons.Germany’splanfora14terawatt-hours(TWh)pro-ductioncapacityin2025ismorethantwicethatofChina’sstatedmaximumgoalof6.7TWh(seeexhibit6).Suchconservativetargetsarepuzzling,giventhatindustryinsidersestimatethatitsexistinggreenhydrogenproductioncapacityhasalreadyreached100,000tonsayear.8However,amorespecificpolicyfordecarbonizingtheexistinghydrogenin-dustryisplannedaspartofChina’snationaldecarbonizationstrategy(knownasthe1+Nframeworktoreachthe2030and2060targets).Thiswilllikelyintroducemoreconcretetargetsforhydrogenapplicationsandintegrationintheenergysystem.Lastly,moretarget-edfinancialmechanisms,suchassubsidies,havebeenusedinothersectorsinthepast,andcouldbeusedtofurtherdrivethedevelopmentoftheindustry.Exhibit6Note:Year-to-dateasofJune20,2022.Source:MERICSPolicyDatabase©MERICSPolicymakersarefocusedondevelopinghydrogentechnologiesfirstandgreeninglaterMentionsofhydrogen,greenhydrogenandfuel-celltechnologiesinChinesepolicydocumentsHydrogentechnologiesFuel-celltechnologiesGreenhydrogentechnologiesNumberofmentionsperyear700600500400300200100020112012201320142015201620172018201920202021202265311MERICSCHINAMONITORJune28,20222.2ProvincesaredrivingdevelopmentbeyondBeijing’stargetsWhileChina’snationaltargetsareconservative,localgovernmentshavebeenextremelyactiveindrivingthedevelopmentofhydrogenindustries,includingincreasinglygreenhy-drogen.About30localgovernmentsmentionedhydrogenintheir14thFive-YearPlansandover50citieshaveissuedpoliciestogrowtheirlocalhydrogenindustry.Nineprovinceshavesofarissuedmajordevelopmentplansforhydrogenandrelatedindustries.Provincialdevelopmentplansvaryintheirindustryfocusandthedegreetowhichtheyprioritizegreenhydrogen.Tenprovinceshavealreadyadoptedspecifichydrogenstrategies(notcountinghydrogenfuelcellandFCVplans).Hebei,InnerMongolia,andSichuanfocusongreenhydrogenspecifically.Thereisanemergingpatternofprovincesrichinrenewableenergyintegratingtheirsolar,wind,andhydroresourcesintotheirhydrogenstrategies.Theseprovincesfeaturethedevelopmentofgreenhydrogenandrelatedindustriesmoreprominently.Bycomparison,thecoastalprovinceswiththeiradvancedindustriestendtoremainmorecolor-agnostic.Theseoftenfocusonhydrogen-relatedapplicationssuchasFCV,downstreamapplications,andtechnologicalinnovation.Exhibit7MediumandLong-termPlanforHydrogenEnergyIndustryDevelopment(2021–2035)Targetsfor2025Source:NationalDevelopmentandReformCommission©MERICS100,000–200,000tons/yeargreenhydrogen(3.3–6.7TWh)PRODUCTION50,000FCVs(fromabout10,000today)H2FUELCELLVEHICLESPROMOTER&Dinkeycoretechnologies,participateininternationalstandardizationandcooperation,andeducateahydrogenworkforceENCOURAGElowcarbonandrenewablesbasedhydrogenproduction,steadilyconstructhydrogenstorageandtransportsystemsHYDROGENINFRASTRUCTUREINNOVATIONADVANCEdemonstrationprojectsintransport,storage,urbandistrictsandthemetalluryandchemicalindustriesDEMONSTRATIONPROJECTS12MERICSCHINAMONITORJune28,2022Thetrend,however,isclear:entrepreneurialofficialsinlocalgovernmentsandSOEsarebeginningtoviewgreenhydrogenasanattractivemeanstoachievedecarbonizationtar-getsandarealsoeyingthebullishmarketexpectationsforgreenhydrogentechnology.Stricterregulationandrisingpricesforcarbon-intenseoperationsfurtherprovideincen-tivesforlocalofficialstolookfornewandsustainablesolutionssuchasgreenhydrogen,hopingtospurorprotecteconomicdevelopmentwithintheirjurisdiction.Exhibit8Note:Year-to-dateasofMay1,2022.Source:MERICSPolicyDatabase©MERICSProvincialgovernmentsaredrivingthegrowthofChina'shydrogenindustryNumberofpoliciesmentioninghydrogenorfuelcellsissuedatthenationalandprovinciallevelNationallevelpoliciesProvinciallevelpolicies20114182201221201361201413201517201683201775201851020192421202011782021845202213MERICSCHINAMONITORJune28,20223.THEINNOVATIONLAUNCHPADFORCHINA’SHYDROGENTAKEOFFChina’sleadershipiscommittedtodevelopingstrongtechnologicalcapabilitiesinallareasofthehydrogenvaluechaintoprofitfromtheeconomicandenvironmentalbenefitsthatitpromisestodeliver.Theraceisontoinnovateandcreatetheemergingtechnologiesthatwillsustainthegreenhydrogenindustryofthefuture.Thegovernmentcallsonpublicandprivateinstitutionstoworktowardstechnologicalinnovationinstrategicareas.StatefundssupportpublicuniversitiesandresearchinstitutestoconductresearchwhileSOEsandpri-vateenterprisespursueR&Dinhigh-priorityareas.China’sinnovationpushintohydrogenhasledtoasteepriseinrelatedpatentsandacademicarticlesinrecentyears.Butitstillhasawaytogobeforeitcanmatchthecutting-edgetechnologybeingdevelopedinotheradvancedeconomies,particularlyinEurope.3.1BeijingrampsupnationalR&DfundingChina’sexpenditureonhydrogen-relatedR&Dhassurgedsince2015.AccordingtotheIn-ternationalEnergyAgencyandMissionInnovation,itsinvestmentinthisfieldincreasedsixfoldbetween2018and2019.Intheprocess,China’sspendingsurpassedthatoftheUnitedStatesandEuropecombined.9ThedevelopmentofgreenhydrogentechnologybenefitsfromtheclusteringofR&Dfunding,localpolicysupport,andcollaborationwithindustries.TheNationalKeyR&DPrograms(NKPs)areChina’shighest-levelR&Dfundsforappliedtechnologyandthesecond-largestchannelforpublicR&Dfunding.10NKPprojectsareusuallyawardedtoaconsortiumunderaresearchinstitution(university,stateresearchinstitute,orcompany).Since2016,thegovernmenthasannounced66NKPprojectsfocusingonhydrogentechnol-ogies,withatotalestimatedvaluebetweenCNY1.75andCNY5billion.11Ofthese,14NKPsBecomingagreenhydrogenleader:InnerMongoliaRapidcapacityexpansionaroundmajor,oftenSOE-backed,projectsillustrateshowprovincesrichinrenewableenergypartnerwithenergycompaniestoleveragetheirresources.Theyfollownationalpolicyimpulsesbutsettheirownambitioustargetsinanattempttodevelopnewgrowthopportunitiesandtorespondtoexpectationofgrowingdemandforcleanenergyandgreentechnologies.InnerMongoliahasvastsolarandwindresources,makingitanidealplaceforgreenhydrogenproduction.In2021,itannouncedsevenlargegreenhydrogenprojectsintheprovince,totaling2.2GWcapacitypoweredbywindandsolar,producing67,000tonsgreenhydrogenannuallyuponcompletionaround2023.Theprov-ince’sproductiontargetfor2025is500,000tons,fargreaterthanthenationaltargetof100,000–200,000tons.China’scorporatesectorhasrespondedtothefavorablepolicyenvironmentintheprovince.TheenergySOEJingnenghasannouncedplanstobuilda5GWsolar-windpowerbasetoproduceadditionalgreenhydrogeninexcessof400,000tonsannually.China’sinnovationpushintohydrogenhasledtoasteepriseinrelatedpat-entsandacademicarticles14MERICSCHINAMONITORJune28,2022haveanexplicitfocusongreenhydrogen,withacombinedestimatedvaluebetweenCNY400millionandCNY1.25billion.12Greenhydrogenhasonlyjustrecentlyreceivedsub-stantialsupportthroughthischannel.ElevenofthegreenhydrogenNKPswereannouncedin2021,whiletheotherthreewerelaunchedin2018.Theseprojectspromoteresearchintoestablished(alkaline)andemerging(proton-exchangemembrane–PEM)electrolyzertechnologies,andtheyaimforadvancesinthecost,efficiency,power,andscalabilityofrenewablehydrogenproduction.TherecipientsofNKPfundingforresearchintohydrogentechnologiesareconcentratedinthenorthernandcoastalregions.SeveraloftheresearchinstitutesinvolvedhouserelevantStateKeyLaboratories,whichalsocontributetothedevelopmentofhydrogentechnolo-gies.13Forinstance,in2019thelaboratoryoncatalysisattheDalianInstituteofChemicalPhysics,partoftheChineseAcademyofSciences(CAS),developedandtrialedanewgen-erationofcatalystforhighlyefficientalkalineelectrolysis.14AlmostalltheleadinginnovatorsinChina’sgreenhydrogensectoraredirectlyfundedorcontrolledbythegovernment,betheypublicuniversities,theCAS,15orSOEs.China’spol-icymakersfacilitatethegrowthofthedomesticinnovationecosystemthroughactivelyen-couragingcooperationamonguniversities,enterprises,andinternationalactors.TheCASactsasacentralnodeofcross-institutepartnershipsinacademicpapersongreenhydro-gen,anditcollaborateswithenterprisesonpatents.16IthasworkedwiththelikesofPetro-China,Boeing,andShelltodevelopmultiplepatentfamilies.17SOEsarethemainforcebehindthedemonstrationprojectspromotingnewhydrogentech-nologies.Forexample,inDecember2021amegawatt-scalePEMpure-waterelectrolysishydrogenproductionsystemandfuel-cellsystemweresetupinLuan,Anhuiprovince,byasubsidiaryofStateGridCorporationofChinaworkingtogetherwiththeDalianIn-stituteofChemicalPhysics.ThiswasallegedlythefirstprojectinvolvingsuchequipmentinChinawithindependentintellectualpropertyrights.18Amonthearlier,HuanengEner-gyannouncedithaddevelopedtheworld’slargestsingle-cellalkalineelectrolyzer,withacapacityof1,300–1,500normalcubicmetersofhydrogenperhour.TheprojectinvolveditsCleanEnergyTechnologyResearchInstitute(HCERI)andtheBelgian-ownedCockerillJingliHydrogen.193.2ChinaemergesasapotentialchallengerinhydrogenresearchR&DsupportforhydrogenhasledtoasharpincreaseinpatentapplicationsinChina,tothepointwherethenumberofChinesepatentsexceedsthatoftherestoftheworldcombined.Butpolicymechanismshavealsoledtoanincreaseinthenumberofjunkpatents,meaningthatChina’stechnologicalcapabilitiesarenotasadvancedastheyseem.AccordingtotheInternationalRenewableEnergyAgency,thenumberofpatentsrelatedtogreenhydrogenproductionfiledinChinahasshotupsince2015.Asaresult,China’sglob-alshareofpatentsinthefieldofgreenhydrogen(waterelectrolysis)hadrisentoalmosttwo-thirdsby2019(seeExhibit9).20Developmentsinacademiahavefollowedthesametrend,withthenumberofresearchpapersongreenhydrogenpublishedinChinasteadilyincreasingbetween2010and2019.21Chinaaccountedforalmost40percentofacademicpapersongreenhydrogenpublishedbetween2010and2020.Almostallthelead-inginnovatorsinChina’sgreenhydrogensectoraredirectlyfundedorcontrolledbythegovernment15MERICSCHINAMONITORJune28,2022However,thegrowthinhydrogen-relatedpatentsreflectsabroadertrendinChinesepat-ents.ThenumberofpatentapplicationsandpatentsgrantedinChinahasskyrocketedoverthepasttwodecades,tothepointwheretheynowfaroutnumberthoseregisteredintheEUandtheUnitedStates.22Governmentincentivesprovidedirectfinancialsubsidiestopatentfilersinadditiontotaxbreaksandothersocialbenefits.Thishascausedcompaniesandindividualstoregisterpatentstotakeadvantageofsubsidiesandotherrewardsratherthantoprotectvaluableinnovation.23Between2015and2019,onlyaboutsixpercentofChinesepatentswerefiledabroad,com-paredtoalmosthalfofEuropeanpatentsandaboutathirdofUSpatents.24Thislikelyreflectsthelackofqualitypatentsandareducedneedtoprotectthemabroadaswellasdo-mestically.Thebelow-averagecitationrateofChinesepatentfilingsabroadalsoindicatesthattheyareoflowerqualitycomparedtoforeignpatents.25Internationalpatentfamilies(IPFs)–acollectionofpatentapplicationsrelatingtoaspe-cificinventiontakenoutindifferentcountries–areastrongindicatorofhigh-qualityin-novationactivity.OECDdataonpatentsfiledinatleasttwolocationsshowsthatChinahasregisteredfarfewerhydrogen-relatedinternationalpatents(notincludingfuel-cellrelatedExhibit9Note:DataarebasedonEPOPATSTAT2021AutumneditionandontheClimateChangeMitigationTechnologies(Y02)classification.Dataforthemostrecentyearsarenotcompleteduetoalagbetweenthefilingdateandthetimeatwhichthepatentsareofficiallypublished.Source:IRENAINSPIRE©MERICSChinaFranceGermanyJapanRepublicofKoreaUSOtherChina'sR&Dintogreenhydrogenproductionsurges,butqualityofinnovationisquestionableNumberofpatentsingreenhydrogen(waterelectrolysis)filedeachyearbycountry3,0003,5002,5002,0001,5001,0005000'04'05'06'07'08'09'10'11'12'13'14'15'16'17'18'192000'03'02'0116MERICSCHINAMONITORJune28,2022patents)comparedtootherestablishedleaders.In2019,Chinaregisteredjust40suchpat-ents,farlessthantheEU(193),theUnitedStates(138)andJapan(110).26Europehasledthedevelopmentofhydrogenproductionandstoragetechnologies,includ-ingelectrolyzers,overthepastdecade.Itaccountedfor40.2and31.3percentofglobalIPFsinthefieldsofhydrogenstorageandproductionrespectivelybetween2010and2019,comparedtoChina’ssharesof1.5and4.6percent.27Behindtheappearanceproducedbyitsartificiallyboostedpatentnumbers,Chinaisplay-ingcatch-upandwillstillrequireseveralyearsifitistomakerealbreakthroughsandde-velopcompetitivesolutionsthatareentirelydomesticallyproduced.Ina2021survey,themajorityofChineseindustryexpertsestimatedthatitwouldtakefiveyearsormoreforthecountrytocatchupwithinternationallyadvancedtechnologiesinhydrogenandfuelcells.284.CORPORATESBEGINBUILDINGCHINA’SGREENHYDROGENFUTUREThecorporatesectorisdrivingChina’stechnologicalcatch-upingreenhydrogen.Withdecarbonizationlockedinforthemediumtolongterm,thegreenhydrogenindustryispoisedtoundergomassiveexpansion,andenergySOEswillplayakeyroleintheplan-ningandfinancingofrelatedprojects.Interestissurging,fueledbyChina’srapidrolloutofrenewableenergy,itsgrowingelectrolyzermanufacturingcapacityaswellasthereducedcostsofelectrolysisinstallations.BloombergexpectsChinawillmakeupover60percentofglobalelectrolyzerinstallationsin2022.294.1Testingthewater:SOEslaunchfirstmajorgreenhydrogenprojectsTherearecurrentlyover120greenhydrogenproductionprojectsatdifferentstagesofdevelopmentinChina,withseveralgigawatt-scaleprojectsannouncedoverthepasttwoyears.30Theseareprimarilylocatedininlandregions–suchasInnerMongolia,Ningxia,andXinjiang–whererenewableenergypotentialisabundant.MostgreenhydrogenprojectstodatehavebeenfinancedbylargeenergySOEs.31China’sSOEsdominatetheenergyandheavyindustrysectorsandarepushingintoallsegmentsofthehydrogenvaluechain.32AccordingtoChina’sSOEwatchdog,theState-OwnedAssetsSupervisionandAdministrationCommission,asof2021one-thirdofSOEshadplanstoex-pandtheiroperationsinthehydrogenindustry,whetherinproduction,storage,refueling,orrelatedbusinesses.33Forinstance,Sinopec,whichisalreadyadominantplayerinthehydrogensector,hasannounceditaimstobecomeChina’sleadinghydrogencompanyby2025andwillreachnet-zerocarbonemissionsby2050(tenyearsaheadofthenationaltarget).34Itexpectstoproduce500,000tonsofhydrogenayearfromrenewableenergysourcesby2025andplanstoexpanditsnetworkofhydrogentransportpipelines.35SinopecisbuildinggreenhydrogenproductionfacilitiesinOrdos,InnerMongolia,andKuqa,Xinjiang,withplannedannualoutputsof10,000and20,000tonsrespectively.TheseprojectsarescheduledtobeoperationalbyJune2023.36Privatecompaniesintherenewable-energyindustryarealsoincreasinglyintegratinggreenhydrogenintotheirbusinessplans.ThesolarprojectdeveloperGCLNewEnergyhasan-nounceditaimstobuild100energystationsby2025withanannualproductioncapacityThecorporatesectorisdrivingChina'stechnologicalcatch-upingreenhydrogen17MERICSCHINAMONITORJune28,2022of400,000tonsofgreenhydrogen.IthasalsopartneredwithtwofinancialcompaniestocreateaCNY10billionhydrogeninvestmentfund.374.2China’selectrolyzermanufacturingindustryissetformorecompetitionElectrolyzersaretheprimarytechnologythatmakestheproductionofzero-emissionshy-drogenviarenewableenergypossible.Theyunderpintheentirelow-carbontransitionthatgreenhydrogenpromisestoenableacrossmobility,industry,andothersectors.Asof2021,Chinaaccountedfor35percentofglobalelectrolyzermanufacturingcapacity,andEurope60percent.38Estimatesfor2022suggestEuropehasalreadyreached2.5GWwhileChinacouldexpandcapacityto1.5-2.5GW.39ThreecompaniesdominatetheChinesemarketforalkalineelectrolyzers:PERICHydrogenTechnologies(affiliatedwith718ResearchInstituteofChinaShipbuildingIndustryCorpo-ration),CockerillJingliHydrogen,40andTianjinMainlandHydrogenEquipment.41ThesecompaniesstraddlethepublicandprivatesectorandhavesignificantR&Dcapacities.Theyarewellplacedtogrowintonationalchampionsandreapthebenefitsofsurgingdemandforgreenhydrogenequipment.Butcompetitionwillincreaseasthemarketgrows,andad-vancesinothergreenhydrogentechnology,notablyPEM,couldalsoshiftdemandinotherdirections.AlthoughPEMtechnologytodayissignificantlymoreexpensiveandmakesupasmallershareoftheChinesemarket,potentialperformancebenefitsandalackofestablishedsup-pliersinthisfieldmeanthatmostnewentrantstotheelectrolyzermarketarepursuingPEM.42China’slargeststate-ownedpowercompany,StatePowerInvestmentCorporation(SPIC)43hasannounceditwillinvestCNY10billioninaprojectbasedinChangchuntode-velophigh-endPEMequipment,includingamanufacturingbasewithanannualoutputof40GW.44TheleadingsolarPVinvertersupplier,SungrowPowerSupply,setupadedicatedhydrogensubsidiaryinJune2021.Inrecentyears,China-basedproducersofgreenhydrogentechnologyhaveprogressivelyincreasedtheshareofcomponentssourcedlocally.Chinaisactivelyseekingtoreplaceim-portedpartswithdomesticalternativestoincreasesupply-chainsecurityacrossallsectors.Gapsexistinareasassuchhydrogenvalvesandlocalproducersstilllagbehindmanufac-turersinEuropeandtheUnitedStateswhenitcomestoPEMelectrolyzers.45Butonthewhole,domestichydrogentechnologyhasbecomemorecompetitive,especiallyinfuelcells,membranes,andalkalineelectrolysis.Despitepastconcernsabouttheirqual-ityintermsofreliabilityanddurability,themanufacturingcapabilitiesofChineseproduc-ersareimproving.ThisincreasesChina’sabilitytoleverageindustrialclustersandecono-miesofscaletodrivecostsdown.46WhatChinesetechnologycannotprovideinefficiency,itcanmakeupforinprice.Chinese-madeelectrolyzersarealreadysignificantlycheaperthanforeignequipmentandfurtherscalingupproductionintheyearsaheadwillworkinChina’sfavor.474.3Companiesflockforapieceoftheequipment-supplierpieDomesticmanufacturersarepouringinvestmentintoexpandingelectrolyzerproductionfacilities,leadingtoagrowingnumberofdemonstrationprojectsforelectrolysistechnol-ogy.Allmajorexistingproducersarescalingupcapacityandnewplayersarelookingtoenterthemarket.ThesolarpanelmanufacturerLONGiintendstoexpanditselectrolyzerChinaisactivelyseekingtoreplaceimportedpartswithdomesticalternatives18MERICSCHINAMONITORJune28,2022productioncapacityfrom500MWto2GWbytheendof2022,andfurtherto5–10GWinthecomingyears.48SPICplanstobuild10GWofelectrolyzermanufacturingcapacityby2027.49Thisisinlinewithothergigawatt-scaleelectrolyzerfactoriesannouncedbyleadingmanufacturerssuchasThyssenkrupp,Siemens,McPhy,orCummins.China-basedelectrolyzermanufacturersarenotonlyfocusedondomesticdemand,butalsoeyingtheoverseasmarket.PERICHydrogenTechnologies,CockerillJingliHydrogen,andShandongSaikesaisihavealreadybegunexportingequipment.50Itispossiblethatadelayedtransitionfromgraytogreenhydrogen,forexample,duetoresistancefromexist-ingproducersoffossil-basedhydrogen,willfurtherpushChinesemanufacturerstofindcustomersoverseas.51Otherconstraintsontheexpansionofthedomesticmarketcouldbetheslowrolloutoftransportinfrastructureorthelackofcapacitytoturnhydrogenintoeasiertohandlemoleculessuchasammonia,suchthatconsumptionremainsrestrictedtolocationsclosetoproductionsites.ForeignfirmsaredeeplyinvolvedinChina’semerginggreenhydrogenindustryassuppli-ers,R&Dpartnersandjoint-venturepartners.AmongthemostimportanthasbeenBel-gium’sCockerillJingliHydrogen,whichhelpedHuanengproducetheworld’sfirst1,300normalcubicmetersperhouralkalineelectrolyzer.52TheBelgiancompanyhaspreviouslyworkedwiththeDalianInstituteofChemicalPhysicstodevelopelectrolysistechnology.53In2021,CockerillJingliHydrogensuppliedelectrolyzersfortheBeijingOlympicGamesaswellasforBaofeng’sNingxiaPV-hydrogenpowerplant.54Similarly,SiemensEnergysup-pliedelectrolyzerstoamegawatt-scaleproductionfacilityconnectedtoahydrogenfuelingstationnearBeijingintheleaduptothe2022WinterOlympics.55KeyChineseplayershaveestablishedjointventureswithforeignfirmstodevelopadvancedtechnologiesandeventargetexportmarkets.SinopecreachedanagreementwiththeUSfirmCumminstosetupa50/50jointventuretopromoteCummins’PEMelectrolysistech-nologyinChina.ThepartnerswillbuildafactoryinFoshan,Guangdong,with500MWofannualcapacityby2023,rampingupto1GWoverfiveyears.56Norway’sdesignerandsupplierofhydrogenplants–HydrogenPro–isteamingupwithTianjinHQYHydrogenMachinery.ThisjointventureintendstosetupanelectrolyzerproductionfacilityinTianjinwithanannualcapacityof300MWandtoexportelectrolyzersglobally.57ThelureofincreasedsalesandChina’sstrengthsinmanufacturinghasalreadyenticedseveralEuropeanelectrolyzerfirmstojoinforceswithlocalplayersandproduceinthecountry.ThiswillhelpChinaprogresstowarditslong-termgoaltobecomealeaderingreenhydrogentechnology.However,foreignfirmsandgovernmentsoughttotakeprecautionarymeasurestoensurethattheydonotsacrificetheirlong-termcompetitivenessforshort-termgain.5.CHINA’SGREENHYDROGENINDUSTRYSTARTSSMALLBUTONTRACKFORFASTGROWTHChinahassetitssightsonthehydrogeneraandwantstobepartoftheglobaldevelopmentoftheindustry.Atthisstage,nationalpolicyisconcentratedonindustryandtechnologydevelopmentratherthangreenhydrogenspecifically,butthatissettochangeinthemedi-umterm.Atthesubnationallevel,themarketoutlookforgreentechnology,R&Dactivities,anddemandforclimate-friendlyenergysolutionsaredrivinggreenhydrogenbeyondtheconservativenationalpolicytargets.Chineseplayershaveestablishedjointventurestodevelopadvancedtechnologiesandtargetexportmarkets19MERICSCHINAMONITORJune28,2022Sofar,thecentralgovernmenthasrefrainedfromusingsubsidiesorothersignificantfinan-cialsupporttopushgreenhydrogen,leavingitwithapotenttoolinreservetofurtherdrivetheindustryonceprioritiesshiftfromdevelopingthehydrogenindustryatlargetogreenhydrogen.Thepreoccupationwithenergysecurityandstablepowersupplymeansthataclearpolicypreferenceforgreenhydrogeniscurrentlyunlikely.YetthreefactorscouldquicklyacceleratedemandinChinaandgloballyforelectrolyzersandgreenhydrogentechnologyinthenearfuture:First,thecountrytakesitsclimatetargetsseriouslyandgreenhydrogenissettobeacentralpartofthelong-termsolutionforasecureandsustainableenergysystem.Chinamustswitchtogreenhydrogenasfastaspossibleifitwantstodecarbonizeitsgrayandbrown-hydro-gen-guzzlingindustries.Second,therisingcostoffossilfuelsandthevariouscarbonpricingsystemsunderdevel-opmentinmajoreconomiesarepushinggreenhydrogentowardspriceparitywiththestillcheapergrayhydrogen.Third,growingenergy-securityconcernsprovideadditionalmomentum.Theshiftawayfromimportedfossilfuel,including“transitional”gas,isacceleratinggloballyasaneffectoftheUkrainewar.Greenhydrogenlooksincreasinglyattractiveandneededgiventhead-vancedtimelineofdecarbonizationnowdiscussedintheEU,China,andelsewhere.China’scapabilitieswillevolveinanindustrythatseestremendousgrowthpotential,globalcompetitionforgreentechnology,andlocalgovernmentslookingfornewsourcesofgrowththatalignwithBeijing’sdecarbonizationandinnovationobjectives.Thereisagroundswelloflocalpolicysupportforgreenhydrogen,alongsideR&DanddemonstrationprojectsledbySOEsandpublicresearchcenters.Theevolvingecologyisalreadyleadingtoadevelopmentalsurgeindomestictechnology.WhilenotyetcompetitivewithtechnologyleaderssuchasSiemens,ThyssenkruppandCummins,Chinesecompaniesarecatchingup.Forthetimebeing,thedangerofChinasurpassingEurope’stechnologicaledgeappearslimited.EuroperemainsattheforefrontofhydrogentechnologyandtheambitioustargetssetwithintheEUandnationalstrategiesforhydrogenhaveestablishedasoundenviron-mentforcontinuedinnovationandindustrialgrowth.ButasChinascalesupitsproductionofgreenhydrogentechnologies,itwillbecomeaseriouschallengertoEurope’stechnologyleadersandattempttoreplaceforeignsupplierswithdomestictechnologyinitsgrowingmarketforelectrolyzers.GivenChina’svastconsumptionofhydrogen,overcapacityiscurrentlynoissue.Becauseofthecurrentgapbetweenitsoveralldemandforhydrogenandlow-carbonproduction,itisunlikelyChinawillbecomeamajorexporterofgreenhydrogen,noristhisplannedinnationalpolicy.Demandwillincreasefurtherasbroaderindustrialandresidentialappli-cations,aswellastransportsolutionstogethydrogenfromthelargeproductioncenterstoplacesofconsumption,aredeveloped.MassadoptionofgreenhydrogenforcommercialapplicationsinChinaisexpectedtobeginwithinthenextdecade.58Bythetimegreenhydrogenbeginstoestablishitselfasanimport-antpartofChina’senergysupplyfrom2030onwards,Chinawillhavechampionsinrelatedtechnologiesallalongthevaluechain,leadingtoincreasedcompetitionwithinChinaandinthirdmarkets.Growingenergy-securityconcernsprovideadditionalmomentumforgreenhydrogen20MERICSCHINAMONITORJune28,2022EuropeanfirmscanbenefitfromparticipatinginChina’sburgeoningnewindustry.Thecountrywillbeakeymarketfortheirtechnology,anditpresentsopportunitiesforcollabo-rationonresearchandstandardsetting.ButtheyalsoneedtomanagetheassociatedrisksandtakemeasurestoavoidoverrelianceonChinesesales,protecttheirintellectualproper-tyandmaintaintheirtechnologicaledge.China’sambitionsinhydrogencanbeviewedasbothablessingandacurse.Chinesetech-nologydevelopersandproducerswilllikelymakeavaluablecontributiontoglobaleffortstocombatclimatechangebydrivingdownthecostofrelatedtechnologies,buttheywillalsoincreasecompetitionforforeignplayers.Europeanpolicymakersandbusinessleadersoughttopaycloseattentiontotheevolvingpolicy-aidedecosystemaroundgreenhydrogeninChinaandconsideritsimpactonEuropeanindustriesaswellastheenergytransitioninEuropeandabroad.ENDNOTES1KevinJianjunTu(2020).“ProspectsofaHydrogenEconomywithChineseCharacteristics.”Étudesdel'Ifri,Ifri.https://www.ifri.org/en/publications/etudes-de-lifri/prospects-hydrogen-economy-chi-nese-characteristics.Accessed:June14,2022.IRENA(2022).GeopoliticsoftheEnergyTransformation:TheHydrogenFactor.AbuDhabi:Internation-alRenewableEnergyAgency.2Currentlyfourmaintypesofelectrolyzertechnologiesexist,withdifferentlevelsoftechnologicalmatu-rity.Alkalineandproton-exchangemembrane(PEM)technologiesarewellestablishedandwidelyusedbyindustryleaders,whilesolidoxidecellsandanionexchangemembranesarenewertechnologiesunderdevelopment.ChineseeffortscurrentlyfocusondevelopingmoreefficientandcheaperalkalineandPEMtechnologies,butalsosupportresearchintothenewertechnologies.3IEA(2021).GlobalHydrogenReview2021.Paris:InternationalEnergyAgency.4HaitongSecurities(2021).“氢能源：痛点和机会——"能源变革"研究系列一(HydrogenEnergy:PainPointsandOpportunities-'EnergyTransformation'ResearchSeriesI).”December28.https://www.htsec.com/jfimg/colimg/upload/20211229/31011640762851799.pdf.Accessed:June14,2022.5EnergyIceberg(2021).“China’sElectrolysisMarket:WoulditRepeatSolar’SuccessStory?”September22.https://energyiceberg.com/china-electrolysis-market/.Accessed:June14,2022.H2weilai氢启未来网(2021).“中国氢能联盟发布《"可再生氢100"行动倡议》(ChinaHydrogenAllianceIssues"RenewableHydrogen100Initiative").”September23.https://h2weilai.com/cms/index/shows/catid/32/id/3290.html.Accessed:June14,2022.6Polaris北极星(2022).“国产氢能阀门“突围战”(DomesticHydrogenValve"BreakoutWar").”May6.https://news.bjx.com.cn/html/20220506/1222624.shtml.Accessed:June14,2022.7NDRC(2020).“关于扩大战略性新兴产业投资培育壮大新增长点增长极的指导意见(GuidingOpinionsonEx-pandingInvestmenti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