China’s Green Hydrogen Effort in 2020: Gearing Up for Commercialization

In China, “green” or renewable-based hydrogen’s commercialization may be getting closer to become a reality, with a growing number of solar and wind power-to-gas (P2G) projects emerged in the past few months.

Still, the renewable-based green hydrogen cannot compete in cost with the cheap grey and blue gas sources—from coal synthesis or petrochemical process. 

And, for most power developers in the country, renewable power-to-gas (Renewable P2G, or Renewable H2) projects are far from becoming an attractive investment, of which the internal rates of return are still below the 8% threshold needed for a final investment decision.  

However, a series of factors have been different, leading to a change of green hydrogen economics. 

The fact that renewable is moving to zero-subsidy territory is a critical factor. And Beijing’s fuel-cell subsidy package might have just provided some extra kick.  

As a result, industry players show a growing appetite for renewable P2G investment. 

Beijing Shifting Gear for Green Hydrogen 

Just a year ago, the green hydrogen economy appeared to be a distant future in China and a “hype” of the industry. [READ MORE: our analytical piece on China’s green hydrogen hype recently cited in the Guardian.]

However, some of the conditions have changed. 

Most important, Beijing signals a stronger commitment in hydrogen development, with the first national fuel cell subsidy scheme unleashed last month and a national strategy on the way.  

As a result, the energy industry has put up serious efforts in hydrogen development. 

And, notably, “green” or renewable hydrogen—despite as a frontier area—has already attracted growing investment interest and political support. 

Subtle Policy Change Regarding Green Hydrogen 

China has not yet established a national-level guideline regarding the “colour”—the production methods or the carbon emission of—hydrogen production.

However, “green” hydrogen—renewable power-to-gas—has already appeared in Beijing’s final draft of the fuel cell subsidy policy, which is introduced on Sep.  

[READ More: our breakdown of the city-based fuel-cell demonstration subsidy scheme.] 

In the policy, the Ministry of Finance and four central regulators would provide up-to ¥1.7b funding to ten “fuel cell demonstration” regions (cities or city alliances). In the coming months, at least some 20 cities would to compete for the funding. 

Green hydrogen is not a critical metrics in this competition—or Beijing’s selection of the ten demonstration region. Nevertheless, areas capable of providing “low-carbon” hydrogen could enjoy a higher score in the contest and a chance of higher amounts of funding.

Notably, “low-carbon” was not a consideration in Bejing’s former subsidy draft (feedback-asking version released at Apr). But the final subsidy set up has incorporated the concept. 

The subtle change marks a growing awareness of the significance of the “colour” of the hydrogen gas source. 

Locals Leading the Renewable Hydrogen Policymaking

Prior to Being’s subtle change of position, in fact, several local governments have established hydrogen that encourages the use of green hydrogen and the adoption of renewable P2G. 

Local governments, in that sense, have been one step ahead. The key regions with a clear interest in green hydrogen application:

  • Guangdong province: released a “New Energy Industry Fostering Plan” for the coming 14th Five-year plan period (2021-2025). The province promised—despite in vague terms—to promote chemical by-product hydrogen source and “clean-energy-based” H2 production. 
  • Hebei province: the renewable rich province is home to four renewable P2G projects, all of which have been listed in the provincial “priority” energy project list.  
  • Ningxia: the coal-heavy province set down a policy to transform its coal mining and coal-to-chemical industry. Notably, blue/grey hydrogen is considered as a “bridging” step in its energy transition strategy, while green hydrogen is the end game.  
  • Guangzhou city: unleashed a hydrogen development plan of ten years span (2019-2030) where the capital city promised to build up over 10 green-hydrogen power peakers.
  • Baicheng city: the wind-abundant city in Jilin province is keen to establish itself as a “northern hydrogen value” powered by its wind power projects. The ambition is supported by major wind players like SPIC and Goldwind.  
  • Ulanqab: the inner Mongolian city is building a world-leading wind complex totalling 6GW capacity. Wind power curtailment is a long-term concern and the city is approaching Heibei Construction Corp and others to explore the possibility to utilize wind power for hydrogen production.  

Industry Efforts on Green Hydrogen 

2020 clearly witnessed a surge of renewable P2G projects announced in the Chinese market. 

While previously research institutes are the key initiator for renewable P2G. A growing number of industry heavyweights have involved in such projects. The active involvement signals the interest in green hydrogen has moved from the academic to the commercial territory.  

The players that take part are also different now. In the past months, especially, more and more state-owned energy firms—such as power utility SPIC and national oil company CONNC—have joined the game. While, previously, most projects are led by private renewable developers (such as PV leader Sungrow). 

We believe that the involvement of the “mega” players is significant, as these players are more capable of committing in investing in a long run–short term return is often not the key focus. 

(READ MORE to understand China’s current political commitment to hit carbon neutrality in 2060 and the likely impact on its renewable policymaking. )

“Mega” Chinese Companies with Renewable P2G 

  • State Power Investment Corp (SPIC): inked a deal with Siemens Energy to explore green-hydrogen cooperation in the coming years, besides purchased the German company’s skid-mounted proton exchange membrane (PEM) electrolysis system “Silyzer 200.” Also, the firm concluded a cooperation agreement with the Hainan provincial government to invest in hydrogen production facilities that are based on the offshore wind projects in the south China sea. 
  • China Huaneng: the second-largest power company in China has cemented a deal with Jilin Baicheng government to develop a 2GW wind farm with P2G system. 
  • Meanwhile, the firm is approaching the Tianjin government to explore the potential of building a P2G project which would adopt carbon capture devices. Notably, Huaneng is a leader in China in adopting carbon capture and utilization with the first demo built up.  
  • China Datang: the smallest of the “big-5” major power utility, Datang announced to invest in a 6MW Solar-based hydrogen production demo project in the Datong City of Shanxi Province.
  • China Huadian: one of the “big-5” power conglomerate, Huadian announced to jointly develop a 100MW solar project with hydrogen automotive company Weichai in Weifang of Shandong. The power generation will be used to green hydrogen production. 
  • China General Nuclear (CGN): the wind and nuclear power producer inked a framework agreement in Oct with Ningxia East to establish renewable P2G projects in the region.  
  • China National Offshore Oil Co (CNOOC): the national oil company quietly issued an R&D tender to seek technology partner to explore the possibility of building an offshore electrolysis system for its offshore wind farms.  
  • Power China: the electricity engineering leader plans to build a 200MW “poverty-alleviation” solar farm that will integrate with fish farming and electrolysis devices