Last week I had the privilege to moderate a panel discussion for DNV GL’s Energy Transition Outlook 2019 (ETO19). There are two conclusions (out of hundreds) in the report that I was greatly intrigued:
- on solar PV: the report placed heavy emphasis on the roles of solar photovoltaic in the future electricity mix (33% of the power mix by 2050, compared to 30% of wind in the mix), meaning a stronger solar than wind and certainly a much higher growth rate in the PV sector
- on electric vehicle & hydrogen fuel vehicles : the report sees EVs remains the dominant choice in the clean transportation sector; it is far from bullish on fuel cell vehicles, forecasting “no hydrogen (FCEV) uptake in the passenger segment, but limited uptake in heavy transport in OECD countries and China where decarbonization policies will be strong, and in shipping. “
The current “status quo” of China’s solar and EV market, however, seems to be nowhere near the future painted by the report. Until now, wind power is by far the loudest voice in renewables. By 2018, the grid-connected wind has exceeded 180GW and more than ten times of solar PV capacity.
On the electric vehicles, China has been leading in EV development, but now a massive amount of investment is looking to get into the hydrogen sector. And the sunset of national subsidy for EVs is arriving, plus the promises of subsidy to hydrogen fuel cell vehicles, leading to believes that China will shift direction in energy storage and new energy vehicles. READ MORE about the coming of China’s hydrogen hype
The reasoning of the ETO19 report is cost: solar promises comparably cheap renewable energy acess, and the commercialization of hydrogen requires massive green-field investment.
Not all projections will come true, of course. And often they do not. This is because energy policy is not always the perfect-market rational and economical decisions. But as China soon to step into the 14th Five Year Plan period (2021-2025) where new energy strategies will establish in the coming two years. It is certainly interesting to take note of the sober analysis based on cost–ETO19 being a perfect example–and to gauge the risks for taking big moves in developing new energy solutions.
On that, I notice that Beijing’s policymakers and industry leaders have some “second thoughts” on the risks of going big on hydrogen and fuel cell vehicles. The hydrogen boom may be facing risk with the absence of a clear national policy.
Hydrogen in China: Local Governments Bullish in Their Plans
More local governments in China have unleashed their hydrogen policy plans, since the last time we wrote about the matter. Currently, there are around 40-50 regional governments—including city and provincial governments—that have established hydrogen industry local development plans.
The targets set by local governments indicate bullish views on the future of hydrogen— way more optimistic than the typical industry expectation.
On hydrogen fuel cell vehicles, for instance, we may conclude that the number of hydrogen fuel cell vehicles (FCVs) in China would easily exceed 15,000 by 2020 and 120,000 by 2025, respectively, only by summing up seven local hydrogen industry development plans.
However, the industry’s conventional wisdom is to see just 5,000 FCVs by 2020 and at best 50,000 FCVs by 2025 in China, according to China Hydrogen Industry Infrastructure Development Blue Paper (2016).
Notably, in China Manufacturing 2025 drafted by the Ministry of Industry and Information Technology (MIIT)—one of the few national policies that set targets for FCVs—the expectation is only to see 1000 FCVs in China by 2020, less than a tenth of the collective goals laid by the seven regions.
On hydrogen charging stations, we could find a similar discrepancy between local government targets and industry expectations.
The sum of seven local government targets alone already points to over 100 and 400 charging stations to be launched by 2020 and 2025. But the 2016 industry research is shy from that view, which expects 100 and 300 charging stations for China as a whole.
We broke down the detailed figures of the seven local government targets and compared them with the national projection, as shown in the following charts.
Raising Doubts on Current Hydrogen Hype in China?
We could draw different conclusions from the discrepancy. But one of the key conclusions, in my opinion, is that the local policymakers are the key promoting factor of the current hydrogen hype. However, not all energy policymakers in Beijing support that message. READ MORE on Local Subsidy Scheme Details Fueling China’s Hydrogen Hype
A clear indication is the absence of any national-level energy strategy regarding the role of hydrogen. The top political leader in the State Council is indeed vocal of his interest and support of hydrogen and FCVs, but note that it is not yet a strategy supported by the majority of the industry players and the national regulators.
On the contrary, many policymakers in Beijing remain skeptical about the role of hydrogen in China’s energy-transition path. A speech of the Ministry of Finance (Department of Economic Development) official recently summarizes the key arguments behind the skepticism/objections and the H2 investors in China should take notes:
- The official point out concern of the lack of infrastructure for commercialization success: “We do not have enough conditions to scale hydrogen commercialization… due to the lack of core-technology and equipment breakthroughs, the nascent infrastructures, and the absence of standardization and regulations, the development of hydrogen,” the official said.
- And she also spoke about the concern of the competition between EVs and FCVs for financial and other policy resources: China has taken a decade to grow the EV industry, hoping to forge a world-leading sector with technology and manufacturing export potentials. A switch to support FCVs—where China is lagging in technology—may be counterproductive to that target and its previous effort.
Another recent thesis of policy researcher of the China Center of the International Economics Exchange [*a think tank with strong government background and founded initially by former vice premier] point to a similar direction, adding another concern being:
- Foreign dependence over key technology: “(China) currently lags in the core technology of FCVs—the fuel cell stakes, for which foreign players have been investing for years, yet to harvest financially and look for options to share the cost. If we are opening up our market completely now, we may risk losing (opportunity) to develop our industry and spending money to nourish external technology.”
These arguments are commonly shared by major energy companies and policymakers. That means the current booming scene of hydrogen on the local level may be very fragile and subject to policy changes from Beijing. The speech of the Ministry of Finance (MOF) is especially telling, as the MOF is the ultimate decision-maker of national subsidy allocation.
Industry Still Awaits A Clearer National Subsidy Support
Indeed some national subsidy has already been in place. In the past October, MIIT has confirmed national subsidy to two companies and their 134 FCVs.
However, the duo has been listed as new energy vehicles supported by the MIIT since 2017 and the subsidy announcement is confirmation of that support.
Moreover, the industry is waiting for the policy clarification of the national subsidy scheme on FCVs. The said policy was initially expected to come out around June but has yet to be released until now. Though some believe it will come soon.
Without the national policy, many critical questions such as the detailed format of the subsidy or the sunset clause of the subsidy remain unanswered.
Currently, Foshan has already kicked off a plan to develop 1000 FCVs by the end of this years. 4-5 local companies are expecting to gain from the first local market. But as more than hundreds of players are rushing to the market, caution on the policy change is necessary.