China’s Electrolysis Market: Would it Repeat Solar’ Success Story? 

Chinese Electrolysis Market Capacity

China’s electrolysis market has experienced explosive growth in the past six months, in the tailwind of green hydrogen bloom. [Read More: Our previous update on the Chinese green hydrogen market]

By the end of Aug 2021, there are already more than 70 power-to-gas projects under development in China, as Energy Iceberg’s green hydrogen database shows. Notably, several regional governments like Hebei and Inner Mongolia have announced more than ten power-to-gas projects in one attempt in the past two months, as Beijing confirmed national fundings for the FCV demonstration. 

The explosive development is primarily due to China’s renewable policy changes, as we repeatedly predicted in our policy analysis. The energy regulator has required new renewable construction to develop matching energy storage solutions, of which power-to-gas is one of the favoured options. This emphasis on renewable-plus-storage has become the key driving factor of the green hydrogen upstream development. 

However, the upstream gas market development still has many unresolved questions, including gas transportation solutions and the downstream gas application scenarios. Uncertainties in these areas remain a hanging cloud over the economics of China’s power-to-gas projects, which could reach 100 by the end of this year. 

The green hydrogen hype provides strong momentum for investing in electrolysis technology and manufacturing, as many equipment suppliers have noticed. As we observe, a significant amount of Chinese energy players—from solar, wind equipment, petrochemical engineering to aerospace technology—have swarmed into the area hoping to get a head-start.

The market shares a shocking similarity to that of photovoltaic manufacturing around 2010 when Chinese OEMs have emerged and eventually became the dominant supplier in the global arena. The participation of Chinese manufacturers has also been a key factor in the global solar price drop. 

Now, the question is whether the electrolysis market will see the same “China effect” in the next decade? 

Green Hydrogen Production 2021

China has the world’s largest hydrogen production market, where the renewable-based gas source has a tiny share so far. In 2020, total gas production is at 25 mt/a, of which less than 3% was renewable-based electrolysis and photolysis.

The total gas supply and the demand for green hydrogen have been significantly increasing. In the first half of 2021, the total hydrogen gas production has jumped 25% YoY, while the share of green hydrogen increased 30%, according to China Hydrogen Energy Industry Promotion Association (CN-HEIPA). 

Besides renewable green hydrogen, China’s gas supply comes from coal gasification, hydrocarbon & methanol reforming, and industry by-product gas. And in terms of high-purity hydrogen gas, industry by-product gas—tail gas from coke ovens, alkaline production and petrochemical projects like propane dehydrogenation (PDH)—is currently a rising solution.

Previously, the industry commonly expected the industry by-products to serve as the primary gas source in the next decade, whilst green hydrogen could bloom after 2030. But the recent development suggests that both sectors are likely to see significant expansion in the coming ten years. 

Check-in with us on our China Green Hydrogen Report Project to be Launched soon

How Big is China’s Electrolysis Market

The electrolyzer market is backed by the tailwind of surging power-to-gas demand.

China has not set up any national policy target for gas production. The future gas demand is highly correlated to Beijing’s policies regarding fuel cell applications, which are not yet fully established. Therefore, it is challenging to predict precisely the gas demand—especially after 2030. 

The BloombergNEF second-quarter outlook recently estimated that the Chinese electrolyzer shipments by the end of 2021 would double the 2020 size. The analysis also believes that the Chinese shipments would reach 1.8GW by the end of 2022. 

The Chinese electrolyzer market would account for 60%-63% of the global installation, the firm predicts.

Still, we believe that this estimation might be on the modest side, based on the power-to-gas project development data that we have registered.

China’s hydrogen gas demand for 2025, 2030, and 2050 are estimated at 35.5 million, 37.15, and 97 million metric tons, according to the Hydrogen Energy and Fuel Cell Industry White Paper (2020) by China Hydrogen Alliance. 

The industry association predicted 2060 hydrogen gas demand could reach 130 million metric tons. 

Electrolysis would contribute 3%, 10%, 70%, and 80% of the total hydrogen production in 2025, 2030, 2050, and 2060, the White Paper published in May 2021 believed. 

Given the explosive new growth in the power-to-gas market this year. The 2025 share of electrolysis could be higher than 3%.  

A more bullish estimation, therefore, points to 1.065 million tons of gas supply coming from electrolysis by 2025 and requires around 8GW electrolyzer capacity.

Predictive data to show China's Electrolysis market's size: 8GW in 2025, 38GW, +600GW and +930GW by the end of 2030, 2050, and 2060.
An estimation of China’s electrolysis market size for 2025-2060 by Shenwan Hongyuan Securities

Electrolyzer Market: Similar to the 2010 PV?

Today, the electrolysis market reminds us of China’s wind turbine and photovoltaic technology development in the past decade. In both cases, the Chinese manufacturers and technology used to be lagging behind substantially. 

Nevertheless, the massive domestic market provided a perfect runway for the Chinese manufacturers to learn and scale. After a decade, the Chinese wind and solar power markets are fully occupied by the domestic suppliers, who are—in some cases— also leading in the international market.

The participation of Chinese manufacturers and investment has, in the past, lead to a significant price reduction in the international wind and solar market.It is critical to follow the Chinese players in the next decade, as the market could evolve in a similar trajectory. 

So who are the Chinese electrolyzer players? And where are they now in terms of technology development? 

Chinese Electrolysis Manufacturers: Now and Then

Before 2021, there were just 8-10 well-known Chinese domestic electrolyzer producers, most of which focused on alkaline-electrolyzer technology.

The three leading manufacturers are China Shipbuilding Industry Corp 718 Research Institute (or Peric), Suzhou Jingli, and Shandong Saikesaisi. The combined market share of the three is around 60%.

In the past six months, the three reportedly enjoyed a quickly surging amount of orders due to the heated investment interest in P2G. These frontrunners have all announced expansion plans for their manufacturing capacity. 

China Electrolysis Market Trend: Moving toward PEM

There are mainly three electrolysis/electrolyzer technologies that see major applications in China and worldwide: 

  • the Alkaline Electrolyzer (AEL, or ALK)
  • the Polymer Electrolyte Membrane Electrolyzer (PEM), and
  • the solid oxide electrolyzer (SOEC)

Right now, the majority of the electrolyzer in the Chinese market is alkaline water-based (or ALK,) which has been a mature and cost-effective technology. Nevertheless, the technology requires the chemical alkaline water. And the ALK method is less efficient and requires a longer responding time compared to PEM. 

PEM technology produced hydrogen based on pure water. It is more efficient and is quick in responding—thus a better match with renewable power. PEM technology is seen as the key solution for power-to-gas in the next 5-10 years. However, PEM electrolyzer consumes precious metals (platinum) and is higher in cost. 

The cost reduction of PEM electrolyzer components, including bipolar plates, GDL, and MEA, is critical. Nevertheless, a growing number of new-build power-to-gas projects in China have begun to embark on PEM technology. 

The Chinese manufacturers are less developed in the PEM technology, while international players like Siemens have decades of experience. Nevertheless, most Chinese electrolyzer manufacturers have brought forth their PEM products.

But the market dynamics could be changing quickly as an array of new players swarm into the nascent market. 

Local government could be a leading factor in that changing landscape. Several Chinese local governments, including Shandong, Tianjin, Shanghai, Guangdong, have set up targets to make breakthroughs in PEM electrolyzer components manufacturing, according to Energy Iceberg’s Hydrogen Policy Navigator. 

New Players in the Electrolyzer Market 

In the past eight months, several significant deals have been announced that mark new players’ participation into the electrolyzer market.  

  • 2020.11: Cummins announced to team with Enze Capital (a Sinopec subsidiary) to develop a joint venture for electrolyzer production and sales in China. 
  • 2021. 02: Shanghai Electric and Dalian Institute of Chemical Physics (DICP) to develop a PEM electrolysis R&D centre. Notably, DICP is a leading hydrogen research institute in China. 
  • 2021.03: Sungrow brought forth its SEP50PEM electrolyzer, which is dubbed as the first large PEM product in China. [More about Sungrow’s green hydrogen moves in China]
  • 2021. 05/06: Solar PV frontrunner LONGi announced several new corporate strategies related to hydrogen business, including investing ¥300m to develop an electrolyzer production centre and set up a LONGi electrolysis business unit in Xi’an for ALK equipment. [More about LONGi regarding green hydrogen investment]
  • 2021. 08: leading fuel cell technology company SinoHytec and Mingtal Group revealed a plan to develop ALK and SOEC R&Ds activities jointly 
  • 2021.09: Lingyang Energy—a listed company in electricity meters and equipment—sets up a joint venture with Shanghai Sunwise to develop and produce electrolyzer equipment
  • 2021.09: materials company Baotailong teamed with hydrocarbon giant CNPC to set up a close-loop hydrogen business, including electrolyzer manufacturing

Among these activities, the interests of solar PV players in the electrolysis market is especially obvious. Besides Sungrow and LONGi, solar power developer GCL Energy also unleashed an ambitious power-to-gas strategy—to ramp up green hydrogen production from zero to 0.4 million t/y in five years and blue gas to 2.3 million tons. 

GLC has concluded several high-level strategic cooperation contracts with Siemens, Toshiba, Peric, and SPIC, all of which are rising players in the electrolyzer market. 

Besides solar companies, other giant energy players, including wind turbine OEMs, battery makers, oil & gas companies are “crossing over” to the nascent market. These giant energy players’ participation in the game would spur competition and speed up the PEM technology R&Ds. 

With new capitals getting into the area, China’s electrolysis market is getting exciting, which demands some serious attention from global investors in the field.

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