China’s National Hydrogen Development Plan

China’s fast-tracking hydrogen industry has finally met with the first national-level planning, as the top economic and energy planners established the long-awaited national hydrogen industry mid-to-long-term development plan.

How do we See the National Hydrogen Development Plan: a Summary

The plan offers important clarity on the development trajectory of China’s hydrogen economy for the next 5-10 years to come.

Two industry targets are laid down in the plan, regarding “green” hydrogen gas production and hydrogen fuel cell vehicles in 2025. The fact that the regulators only established tangible targets for the two areas underscores the development priorities in the current stage. There is a slight shift from the former infrastructure-focused approach, as no target is made for the fuel cell vehicle filling stations.

Nevertheless, the two targets are arguably conservative compared to the hydrogen goals set by the local level governments in the past two years. It sets a cautious tone on developing the hydrogen economy, different from the highly bullish view of the state-owned companies and private sector.

China’s Hydrogen Industry Development Plan: the Highlights

The plan set down two tangible targets for the whole hydrogen industry for 2025, which are

  • Hydrogen fuel cell vehicles in the country would reach 50,000. The nation will develop “a bunch of” hydrogen fuel cell vehicle filling stations. 
  • The renewable hydrogen production capacity of the nation would be between 100,000 and 200,000 tons per year. “Green” hydrogen will be a significant part of China’s incremental H2 production. 

Moreover, the regulators laid down critical “principles” regarding the upstream gas market and the H2 applications approaches: 

Regarding China’s Hydrogen Gas Production: By-Product Gas & Renewable H2 to Lead

  • Consumption near Production” Principle: China will set up a hydrogen gas market where H2 utilisation will be near the production locations. The gas supplies will mainly come from industrial by-product gas (recovery) and renewable hydrogen. 
  • Diversified Gas Sources Principle: Hydrogen production will embark on diversified clean technologies—fossil-fuel-based grey hydrogen production will be restricted, the official of the energy regulator later confirms.
  • “By-product Gas to Lead; Renewable Gas to Develop” Approach: From now to 2025, the most prioritised areas are industrial by-product gas (from Coke Oven, Alkaline production, and PDH projects.) and renewable electrolysis power-to-gas. 
  • Advanced Technology Innovation: The plan also paves the way to pilot the more advanced technologies, including seawater electrolysis, nuclear hydrogen production, SOEC hydrogen production, Photocatalysis, and Thermocatalytic decomposition. 

Regarding Hydrogen Applications: Mobility First, But Industry Decarbonization is the Future Focus

The policy indicates that, in the current stage, China’s green hydrogen application will focus on the mobility market. The policy emphasises an “orderly” development of the hydrogen fuel cell vehicle market. That means the central government regulator hopes to limit overheated investment in the sector and the tendency of manufacturing overcapacity. 

Meanwhile, the regulator encourages to explore various downstream market demands for low-carbon hydrogen—such applications will first be demonstrations during the 14th Five-Year Plan period (2021-2025) before the nation commits to large-scale commercialisation rollover. 

Low-carbon hydrogen will be utilised as one of the new energy storage solutions for the nation’s rapidly expanding renewable market; hydrogen fuel cell modules are encouraged to serve the growing telecommunicate infrastructure and other remote location power generation demand; demonstrations of hydrogen in heavy industries—steelmaking, petrochemical, and chemical industries—will be carried out in the 14th Five-Year Plan period (2021-2025.) 

Implications on China’s Hydrogen and Fuel Cell Industries

Energy Iceberg has been actively tracking policy development, green hydrogen project & deals in the past two years. Based on our understanding of the market and the policy dynamics in China, we believe that the national hydrogen development plan would have the following implications for the nascent but quickly-evolving market: 

Clarity = Less Risk

Beijing’s action of establishing a national plan for an embryonic market by itself sends a significant policy signal, indicating the growing importance of the hydrogen market for the nation’s energy system and the decarbonization roadmap. Thus, the release of the national hydrogen plan i positive, regardless of the specific goals or strategies proposed in the plan. 

The plan provides more clarity and visibility of the industry trajectory from now to 2025 and 2030. Despite the speedy increase in investment in the hydrogen value chain in the past years, the lack of such clarity had been an underlining risk for investors and developers. 

The plan provides solid strategies and goal settings for the Chinese hydrogen market. Previously, the market has been mainly driven by the regional government’s local investment demands and, thus, facing growing over-investment risk. The local-driven development will face some changes.

Beijing’s emphases or key intentions are:

  • 1) sustainable development of the hydrogen market
  • 2) the industrial by-product H2 and renewable H2 strategy
  • 3) orderly development of FCVs market
  • 4) exploring hydrogen’s diversified industry decarbonised applications

These principles and strategies pave way for the sustainable development of the nascent hydrogen economy.

Cautious Goals

The central government goals are more conservative than the industry’s general expectations. However, such expectations are built mainly based on bullish targets and the aggressive approach of the regional government that we have been accustomed to in the past few years. 

100,000-200,000 tons/year of green hydrogen production is a reachable goal for the sector, we believe. In the past years, a handful of local governments have released their local green-hydrogen production targets for 2025. Inner Mongolia province alone—which will undoubtedly become China’s main green hydrogen producer—suggested building a 500,000 ton/year renewable hydrogen production capacity. 

Energy Iceberg has been tracking China’s green hydrogen deals and project development in our “Green Hydrogen Database.” By 2022 Feb, China has over 120 renewable hydrogen projects. Most are small-scale pilots, but a dozen of commercial-scale projects have emerged. We observe that some 3-5 new projects are emerging every month. Such green hydrogen investment enthusiasm suggests that Bejing’s target could be secured by 2025.

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As for fuel cell vehicles, Beijing’s target (50,000 FCVs) suggests that the central government intended to first test the water before fully rolling over hydrogen development. Such an approach is common in China’s industry policymaking. That means the regulator hopes to, at the current stage, restrict development in a handful of locations—specifically, in the 5 Hydrogen Fuel Cell Vehicle Demonstration Application city alliances and one hydrogen community demonstration region–before it commits to a national commercialization roll-over.

[Do not know what is China's "Hydrogen Fuel Cell Vehicle Demonstration Application Program" and the Subsidy Set up? Click here for more information]

Notably, the 5+1 city alliances and regions supported by the national finance–Beijing, Shanghai, Guangdong, Hebei, Henan for FCV Demo program, and Shandong for the”Hydrogen Community” program–together look to embark on 48,000 hydrogen fuel cell vehicles by the end of 2025.

Our research shows that, in a high scenario, China could adopt 80,000 to 100,000 FCVs by 2025, if all of the local governments could achieve their FCV targets. But following the release of the national plan, it is clear that some of the local targets will fall short or fail to materialize.

While more than a dozen of local governments are still preparing to apply for national funding to support its hydrogen fuel cell market development, we believe that several will not be able to secure a slot in the national FCV demonstration program in the next 4 years.

Political Signals of China’s Hydrogen Development Plan

Why does Beijing set up such hydrogen targets? 

The set up of a long-term plan signals a growing commitment of the central government to the hydrogen economy, while the two regulators used to be sceptical of the embryonic technology,

Notably, the release of the national plan has been through some delays, initially expected to come online by the end of 2020. The delays show the debate and inconclusiveness regarding the role of hydrogen in China’s decarbonisation roadmap.

Now that the plan has come to light, the top authority has made the near-term decision. 

It is clear that Beijing is trying to avoid some of the “lessons” learnt in its early-stage solar PV and battery markets. One such lesson is an overheated investment rushing into a young industry that lacks infrastructure and technology foundation, which has led to stranded investment, inefficient use of national subsidies, and safety risks. 

Beijing is trying to steer a “healthy development” of the hydrogen industry against regional governments’ eager push for more hydrogen investment. 

Our Projections of the China’s Hydrogen Economy Development

Overall, we expect that the local government’s effects to attract sustainable and clean-tech investment will continue to drive China’s green hydrogen development in the coming years, despite the slightly conservertive national targets. 

Nevertheless, the market will find a new balance between the bullish local targets and the cautious approach set down by the central regulators.  

We will share our detailed projections of the industry development in the coming issue of Hydrogen Policy Navigator to our premium subscribers. Stay tuned.