China’s state-backed hydrogen vehicle industry struggles to find its feet
The announcement this week that global auto giants Toyota Motor and Hyundai Motor will start selling hydrogen fuel-cell passenger cars in China later this year has jolted the fledgling sector.
Though both emphasized that the sales would be small-scale at first, Toyota’s local partner will start with 50 cars, it could mark a turning point for the local hydrogen vehicle market, which has so far mostly involved commercial trucks, public buses and tractors.
The announcements come months after China’s top economic planner set specific new targets for how many fuel-cell electric vehicles (FCEVs) should arrive on the country’s roads in the coming years. These high-level blueprints have ignited market and investor interest in the emerging technology, which has primarily seen take-up from government-linked entities so far.
The push comes as Chinese policymakers explore new options to meet their ambitious dual carbon goals, as hydrogen cells produce only water as a byproduct. But questions remain about the sustainability of subsidies, overdependence on government support, and weak private sector demand for the pricey products. Meanwhile upstream raw materials, production and storage are presenting challenges.
While hydrogen-fueled vehicles emit only water, how you get the hydrogen matters, especially when it comes to whether shifting to vehicles fueled with the universe’s most abundant element will actually help with China’s carbon emission goals.
Fuel cells make up the majority of investment in hydrogen energy. But only a fraction of the hydrogen produced annually in China, 30 million tons, is actually used in fuel cells. About 99 per cent of the gas is used as an industrial raw material for things like synthesizing ammonia and methanol and in other industrial fields.
Most of China’s hydrogen is cheaper “gray hydrogen” which is either an industrial byproduct or made from coal. Extracting it from coal is a dirty process that produces a massive amount of carbon dioxide and other pollution.
Another option is to use relatively cheap coal power as the source of energy to split water into its components of hydrogen and oxygen, in a process known as hydrolysis. Such processes have been an attractive option for fossil fuel firms seeking to “greenwash” their product.
Producing “green hydrogen,” on the other hand, costs more because the energy source for the hydrolysis needs to be renewable. China’s green goals have given new impetus to the approach, but large-scale and economical green hydrogen production technology is a long way from maturity. Teng said that the current cost of green hydrogen is about 35 yuan per kilogram, versus 10 yuan to 15 yuan for gray hydrogen.
Different from FCEVs that have not yet observed a market driven demand, green hydrogen already has its established customers. The key challenges come down to cost, technology, and power of existing players.
At this stage, green hydrogen production projects are mostly in the pilot phase, led by traditional energy enterprises like the State Power Investment Corp. and Sinopec. The venture capital investor pointed out that this means the green hydrogen market also relies on government and state-owned enterprises. “How to play with the giants in this field is a challenge for entrepreneurs,” they said.
The big players also have large-scale manufacturing capabilities and strong customer resources. However, they do not have advantages in technology, which could still mean opportunities.