China sets green hydrogen production target in national development plan

China has unveiled its long-awaited national blueprint to develop a clean hydrogen industry, setting out a near-term production target while pledging to increase the low-emission fuel's usage across various sectors.

With the world's largest GHG-emitting nation aiming for peak CO2 emissions by 2030 and carbon neutrality by 2060, some Chinese provincial governments—including Sichuan and Hebei—have already published hydrogen development plans for the 2021-2025 period.

On 23 March, China's top economic planner National Development and Reform Commission (NDRC) and energy regulator National Energy Administration (NEA) released a development plan to build a hydrogen supply chain in 2021-2035, laying out a series of policy guidelines at the national level for the first time.

"We are making it clear that we are going to create a system where we will have clean, low-carbon, and low-cost hydrogen production," said Wang Xiang, deputy director of the NDRC's high-end technology department, in a press briefing.

China is aiming to produce 100,000-200,000 metric tons (mt) of the so-called green hydrogen from renewables per year by 2025, which will help reduce CO2 emissions by 1-2 million mt/year, according to the plan. This would be far less than 1% of China's annual emissions of nearly 14 billion mt of GHGs.

Figures from the China Hydrogen Alliance, a Beijing-based trade group, suggest that the country currently produces around 33 million mt/year of hydrogen, nearly all of which is from coal regasification, gas reforming, or various industrial processes. The output is generally categorized as gray hydrogen.

"Our focus is to produce hydrogen from renewable energy and limit production from fossil fuels," Wang said. "We have the largest installed capacity of renewables, so we have great potential in raising our clean, low-carbon hydrogen supply."

S&P Global Commodity Insights data shows 124 MW electrolyzers were commissioned to produce hydrogen in China at end-2021, though it's not known whether they are fully powered by renewable energy. Another 1 GW in electrolysis capacity is due to come online in 2022 and 2023.

China's installed renewable capacity reached 1.063 TW at the end of 2021 and will continue rapid expansion in the coming years, according to the government. Renewable projects generated 2,480 TWh of electricity in China last year, or 29.8% of the power mix. Beijing's goal is for non-fossil fuels' share to reach 39% by 2025.

"There are already enough projects in the pipeline to support the targeted level [of green hydrogen production]," said S&P Global's Megan Jenkins, senior research analyst at ENR, adding that she however observes some demand uncertainty.

Who is to use hydrogen?
Like some other countries, China views the road transportation sector as an initial demand source for green hydrogen.
Last year, the central government it would provide subsidies for the value chains of automobiles powered by hydrogen fuel cells around Beijing, Shanghai, and Guangdong. Each of the metropolitan areas can receive up to ¥1.5 billion ($235 million) for fuel-cell vehicles and ¥200 million for hydrogen supply during a four-year demonstration period.

China is targeting to have 50,000 hydrogen fuel-cell vehicles by 2025, according to the national hydrogen plan. S&P Global's Platts Analytics estimated there were around 7,700 such vehicles last December.

But analysts believe Beijing needs to further refine the current subsidy scheme, which does not favor green hydrogen over gray hydrogen. Matching up green hydrogen production with the vehicle demand centers is also difficult, said Jenkins. "A lot of these green hydrogen projects are located in remote regions on giant renewable energy mega-bases."

In the national plan, the government said it will promote the buildout of logistics infrastructure, set quality and safety standards, and increase the number of refueling stations with a daily hydrogen dispensing capacity of more than 1,000 kg.

China also plans to promote the usage of green hydrogen in the power storage, utility, industrial, aviation, and maritime transportation sectors.

"We will actively explore how to apply fuel cells to vessels and aircrafts, and we will begin research and development of large airplanes that can be fueled by hydrogen," the plan said. "We will promote the low-carbon transition of ammonia and synthetic methanol production with hydrogen."

Stronger capacity
China has more than 300 companies involved in the hydrogen supply chain, mainly in the coastal areas, according to the government. Looking forward, the government wants to enhance the industry's technological capabilities and reduce its electricity costs.

The country's manufacturing capacity for electrolyzers is expected to reach 1.5-2.5 GW this year, but Beijing believes Chinese firms have to enhance their ability in developing critical materials and innovate on fuel cells, with the proton exchange membrane fuel cells highlighted as an area of focus.

"Compared with more advanced standards abroad, China's hydrogen industry lacks the ability to innovate and has lackluster technical capabilities," the plan said. "We will enhance cooperation with countries and regions with better technologies.

"We will actively participate in establishing international standards for hydrogen with overseas partners and explore trade opportunities with Belt and Road countries," it added.
China's central government will also develop more policy instruments to promote the industry and take a leading role in infrastructure planning for local governments, according to the plan. In an ideal scenario, the heavily industrialized provinces will initially use byproduct hydrogen, while the provinces with rich renewable resources start with some pilot green hydrogen projects.

"All local authorities need to take into consideration their supply capabilities, industry infrastructure, and make space when it comes to future development," Wang said.

China has yet to set any quantified targets for hydrogen development beyond 2025. But the country wants to have "a relatively comprehensive supply chain" by 2030 for the peak CO2 target and "a significant increase" of hydrogen's share in final energy consumption by 2035, according to the plan.

Posted 23 March 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.