European companies could be left behind as China cements its lead in electrolyser manufacturing capacity, warns German technology trade association VDE in a whitepaper presented at the World Economic Forum in Davos this week.

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“The scenario is emerging that Europe — as with photovoltaics and lithium-ion battery technologies — will once again be left behind in an important field of the energy industry,” said Burkhard Holder, VDE’s global director of trends and innovation.

“We want to counter this and our white paper provides the necessary impetus.”

VDE noted in its whitepaper that many of the same companies that killed off the European solar PV sector in the 2010s are now expanding into electrolyser manufacturing, with Europe offering “the greatest market potential for electrolysers up to 2030, with more than 90GW of planned [installed] capacity”.

The association for electrical, electronic and information technologies also cites figures from previous reports by the Hydrogen Council and McKinsey, which put the current global installed green hydrogen production capacity at 1.1GW, of which 610MW has been installed within China, using Chinese-made technologies.

“The current figures for installed electrolyzers... suggest that Chinese manufacturers will continue to dominate in the future,” VDE warned. “It is becoming a realistic scenario that the development we have seen in Germany in photovoltaics and in lithium-ion batteries today, will repeat itself.”

This echoes warnings from European electrolyser makers, as well as Jorgo Chatzimarkakis, CEO of trade association Hydrogen Europe, who told Hydrogen Insight last year that opposition from Germany is preventing the European Commission from introducing rules that would prevent subsidies going towards the purchase of Chinese electrolysers.

Germany’s hold-out could be due to the sheer scale of expected demand in the next decade, with the VDE noting in its whitepaper that the federal government targets 10GW of electrolyser capacity installed by 2030.

“There is a great risk that Europe’s current dependence on energy imports will be replaced by a dependence on technology,” VDE warned.

However, European companies have separately noted that Chinese-made equipment may be cheaper when sold in China, but can come with extra costs for project developers, either due to low quality or having to be brought up to the technical standards of their import market.

The whitepaper also notes that trends in the solar market are likely to drive the development of green hydrogen.

While it cites an increase in the Hydrogen Council’s estimated levelised cost of hydrogen production from $2.90 to $5 per kilogram due to rising energy costs, VDE adds that these same high energy prices have made solar a more attractive investment, “supported by the sharp fall in prices for photovoltaic modules, triggered by high overcapacities at Chinese manufacturers”.

As such, “in sunny regions, electricity production costs of less than [$0.01]/kWh are now possible”, the whitepaper notes, adding that using this power to generate H2 or its derivatives would increase costs to $0.05-0.10/kWh — similar to the $0.05/kWh price of crude oil excluding refining costs and carbon taxes.

VDE argued that “even with an ambitious expansion of the electricity grids, it will not be possible to supply the industrial centres of Europe with sufficient renewable power” with transmission lines, citing estimates that modern high-voltage direct current (HVDC) lines can transmit a maximum of 3GW compared to the 20GW of energy-equivalent that can be transported by a gas pipeline.

“At the same time, hydrogen can take on the essential function of energy storage. This makes it possible to provide a demand-oriented energy supply that does not depend on whether the sun is shining or the wind is blowing,” the whitepaper continued.

VDE also notesthat Europe saw 56GW of solar and 15GW of wind installed in 2023, with Germany alone installing 1GW of photovoltaic capacity a month.

“In conjunction with other electricity generators that can only be regulated to a very limited extent (eg, biogas, run-of-river power plants, nuclear power plants), this leads to a temporary oversupply of electricity, combined with the shutdown of electricity generation from solar energy — just as we have seen in the wind sector for years,” the whitepaper added, pointing out that measures to control the grid during these events cost electricity consumers in Germany €4bn ($4.35bn) in 2022.

“Hydrogen and battery storage play a central role here and also contribute to grid stabilization,” VDE continued.