Key Take Away:
- power utilities are one of the leading role in the current hydrogen investment hype
- in China, hydrogen is considered a potential solution to power curtailment of renewable, nuclear and hydro power
- summarize of activities or strategies of SOEs in hydrogen sector
In just a year, dozens of Chinese state-owned energy enterprises have unleashed their hydrogen business plans on heels of Beijing’s policy to boost investment in the green hydrogen sector.
The participation of these state-owned players is crucial to kick start the nascent hydrogen market. Back by state funding and banking system, the state-owned enterprises (SOEs) could provide low-cost capital and are capable of investing for the long run. With their influence on policymaking, the invovment of SOEs also provides policy leverage from Beijing. Such factors are essential for the kick-start of the hydrogen market, which faces a typical “chicken or the egg” dilemma
The story has another side. Hydrogen is a rare case for the gigantic players to invest and expand. It has a long stretching value chain from upstream production, the transportation infrastructure, charging network to the downstream fuel cell and vehicle. And in China, technology and market development along the value chain still lag, leaving plenty of space for new investment and fresh perspectives.
Energy Investment Opportunities
There are also little energy investment opportunity in China these days, as the country pushed for the “green” energy and environmental transition and against a backdrop of overcapacity in most traditional sectors. In particular, the electricity market has been struggling, a consequence of over-investment in 2010-2016. New builds in coal, hydro, nuclear and most renewable generation has been put on a brake, with offshore wind and energy storage probably the only exception.
In China, hydrogen could be potential salvation for the issues incurred by over-investment in power clusters, which led to power curtailment in most generation business and the swift decline of generation prices. Curtailment means stranded power assets—in the case of coal and nuclear, and the waste of power produced—in the case of renewable. It is the signal of the out-of-sync between supply and demand. While there haven’t been negative power prices in China, more and more renewable units have been traded under coal-fired prices. And Beijing has required onshore wind and PV power to achieve grid-parity by 2020.
Power Utilities are leading Hydrogen Investment
Against the backdrop, it is not surprising to see the power utilities have been leading the current hydrogen hype. Many of their emphasis is to utilize renewable-to-hydrogen gas to reduce wind or solar waste—meaning, to use the otherwise-wasted wind and solar power for water electrolysis hydrogen production. Similarly, nuclear power specialist company have shown interest in the hydrogen market.
For the power players with steep finance backup, the interest to invest in the hydrogen fuel cell, transpiration and charging technology is a natural spillover effect. The examples are State Energy Investment Group (SEIC) and State Power Investment Group (SPIC).
The biggest power utility in the world, CEIC is built upon the merger in 2017 between China Shenhua and China Guodian—the former was China’s leading coal miner and the latter one of China’s “Big Five” generation utilities. Upon the merger, the strategy of Shenhua appears to take a leading role in the new company, of which hydrogen is a key move. Despite born as a coal miner, Shenhua has embarked on a strategy of transition by investing in “cleaner” energy sectors. Besides the effort to step into nuclear power and EV, hydrogen is a new emphasis.
SPIC is another member of the “Big Five,” all of which used to major in coal. But SPIC appears to take a more aggressive approach in term of the clean investment. It is already the biggest solar power producer (in terms of installed capacity) in the world and last month announced to achieve over 50% power portfolio coming from renewable (plus hydro and nuclear). In hydrogen, SPIC appears to take an aggressive move, too, focusing on R&D of key technology along the value chain.
Coal Mining Companies
It is interesting to see the participation of various coal mining companies in the recent hydrogen hype. So far several provincial-based coal miners have revealed plans to develop coal-to-hydrogen pilots. But given the relatively weaker financial position of the coal companies, their commitment in the sector remains to be seen.
Oil & Gas Companies
To compare, oil&gas companies appear to be more cautious in their moves to hydrogen. Two of the three major NOCs in China, Sinopec and China National Petroleum Corp (CNPC), revealed plans to add hydrogen charging into their fueling network in China or develop new charging infrastructure, but no bullish moves to further expand to upstream or further downstream yet.
China Hydrogen Investors – Overview
What are the strategies of China’s energy companies in the hydrogen hype? We summarize the activities and announced strategy of SOEs in hydrogen sector in the following table.
They are likely to become the key developers and driver of the hydrogen market. In short, these hydrogen players include:
- “Big Five” utilities: three of the five largest ones have announced hydrogen plans, CEIC and SPIC most active along the whole value chain
- tiered-two alternative utilities: smaller but specialist power developers like China General Nuclear, China National Nuclear Corp, and China Three Gorges
- grid companies: the two grids are the most powerful players in Chinese electricity market. But so far only State Grid (SGCC) show some hydrogen ambition
- coal miners: provincial base coal mining companies that seek energy transition
- hydrocarbon players: stepping into hydrogen charging appears to be a natural move
- manufacturers: including electricity equipment provider like Dongfang Electric, heavy industrial manufacturing innovator like CSIC 719 Institute, and automotive part supplier Weichai
Download the full overview table: