China’s industry decision-maker has launched the country’s first-of-this-kind hydrogen demonstration subsidy scheme. Deadline of the subsidy application was on last Sunday (2020/Nov/15).
Following the policy release, regional governments have been under a hectic schedule to form alliances and to set up policy infrastructure, in a bid to fight for a cut of the national subsidy.
Success in applying for the hydrogen demonstration subsidy could be a game-changer to many regional governments that had high hope to boost local energy transition and economy development through hydrogen business.
To keep update on the success or failure of different region is also critical to hydrogen companies, to determine their local business strategy and partners.
And finally, for hydrogen investors, understanding different regionals’ subsidy potential and dynamics may be essential for selecting the correct partner and projects.
So which regions are likely to win the first batch of fuel cell subsidy? Here is an update of what we know so far.
China’s Hydrogen Demonstration Subsidy
To access the full breakdown of the subsidy policy, please check our previous analysis.
Or you can download our recent seminar presentation to a group of investors.
Which Regions Have Applied
Energy Iceberg’s observation on regional fuel cell subsidy application strategies:
- 16 Regional Alliances: 16 alliances have been formed or are under development to apply for the subsidy; it is possible to see new alliances pop up later on. But the subsidy winners are most likely come from the 16
- +75 Cities Involved: as of now, the 16 regional alliances involve some 75 cities, but we expect more to join these alliance
- Intra-provincial Alliance: there are at least three alliances involved cities from 2-3 provinces. This is a unique phenomenon, underlining the highly unusual cross-provincial-border cooperation. Beijing’s regulators highly favour such collaboration. We expect, in the end, there would be four intra-provincial alliances, and they have a higher chance of securing the subsidy.
To access to information of the 16 regions, +75 cities, their hydrogen policies overview, leading regional hydrogen companies in these regions, please subscribe to our exclusive information product: Hydrogen Policy Navigator.
Alliance is the Answer
The main strategy to compete for the subsidy is to form a city alliance.
Energy Iceberg understands that at least four cities have made an attempt to apply for the subsidy as a stand-alone case—without teaming with other cities.
However, Beijing shows a clear preference for multi-city cooperation, evidently rejecting some of these stand-alone proposals.
While we previously expect Shanghai city—the most advanced region of hydrogen industry development in China—to apply and secure the subsidy through a single city approach. That appears to be no longer the case. The city faces pushback from Beijing of its proposal and is now seeking to form a new team.
Nevertheless, the city remains the most promising hydrogen market in China with national subsidy support.
Likely Winners of China’s Hydrogen Demonstration Subsidy
Our observation remains that the regional economic centres are the most promising regions to win the national subsidy.
The most obvious or highly-expected winning regions are:
- Beijing-Hebei Alliance
- Guangzhou-based Alliance
- Chengdu-based Alliance
- Jiaxing-based Alliance
- Shangdong provincial Alliance
The six are way ahead of other regions. The leading cities in these regions already met the critical requirement imposed in the subsidy policy.
On fuel cell vehicles (FCVs), six leading cities in these regions already had about 3000 fuel cell vehicles in operation, which accounts for over 44% of China’s total FCVs in process —6500 by the end of June 2020.
On refuelling stations, the six leading cities have some 28 stations up and running, which is also +40% of China’s total.
More Winners, but Less Money for Each City
Several key questions remain regarding the subsidy policy:
- How many of these 16 regions would success?
- Would more regions be applying for or securing the subsidy?
- What would the financial package mean to each city or regional company?
Fewer Regions to Succeed in the “First Batch”
We expect only less than half of these regions to secure a cut of the subsidy. Indeed Beijing encourages cities to form alliances and, therefore, effectively lowers the entry barriers for regions to apply for the demonstration and secure the subsidy. However, the regulators may limit the scale of the first-batch demonstration regions to test the water.
There Will be More Batches
However, we expect that there is a high chance to see second/following batches of demonstration regions. The exact timeline for choosing more demonstration regions is unclear. It will depend on when could more regions formalize their industry development plans and set up industry structure.
However, other than the 16, it is unlikely to see a lot more regions taking part in the subsidy competition right now. Regional governments faced a narrow time window–2 months–for preparation. And most cities with basic hydrogen development have already applied.
Less Money to Each Cities
The subsidy scheme provides a larger amount of funding to each demonstration regions. However, as we witness now, all the alliances involve more than four cities. In one case, ten cities form one alliance. That means the funding distributed to each city would be less than expected.
Regulators have set up the subsidy set up clearly on purpose to provide funding for more players, but limit the spending on each city.
Capacity Dash Remains a Concern
The set up aims to limit regional governments’ tendency to embark similar industry strategies and reckless capacity building.
However, we do not expect that the policy could effectively solve the overcapacity and overplanning issue.
Meanwhile, the setup would prevent the “lesser-developed” regions from taking part. Business and investments would also avoid new regions.
Leading Fuel Cell Firms Benefit
So many cities hope to gain from the subsidy, but there is only a limited amount of leading fuel cell companies available in the market.
As a result, technology leaders could highly benefit from the policy setup. Although we remain cautious on foreign investors’ chance in the market, the subsidy set up would lead to a more open market climate for the international hydrogen players.
To access to more subsidy information of the 16 regions’ hydrogen policies and industry strategies, please subscribe to our exclusive information product: Hydrogen Policy Navigator.