Chinese companies are at risk of building far more electrolyser manufacturing capacity than the world’s green hydrogen industry can absorb over the next two years — and are likely to have to either reduce production or close down their facilities, a major US investment bank has told Hydrogen Insight.
Maggie Xueting Lin, a Hong Kong-based global commodities researcher at Citigroup, also raised the alarm about Chinese companies’ focus on getting as many alkaline electrolysers to market as possible, at the expense of research and development (R&D) work on more advanced proton exchange membrane (PEM) technology.
Lin pointed out in a Citigroup report she recently co-authored, A Reality Check on the Hydrogen Craze, that China is now “significant[ly] overspending on electrolyser capacity, far exceeding foreseeable demand,” — as well as overbuilding green hydrogen production capability.
According to statistics from research house BloombergNEF (BNEF) and Citigroup, China is expected to have more than 40GW of electrolyser manufacturing capacity by the end of 2024 — well over half the projected global capacity of 71GW — which will far outstrip global demand for electrolysers in 2025, which BNEF expects to be around 10GW.
This means that China will have four times’ the electrolyser factory capacity required by global green hydrogen projects over the next two years, and almost all of it for one particular type of kit — unpressurised alkaline electrolysers — which may not be the most suitable type for all renewable H2 projects.
As a result, factories may be forced to close their doors, or at least reduce the number of electrolysers on the production lines, Lin said.
“I would expect low utilisation rates at some of these manufacturing facilities or possibly closures as well,” she told Hydrogen Insight.
Commentators in China are also becoming increasingly concerned that the focus on quantity is leading to a lack of research and development on “next generation” green hydrogen technology such as proton exchange membrane (PEM) electrolysers, Lin reported.
“A lot of the new manufacturing capacities are focusing still on alkaline,” she told Hydrogen Insight. “[There are concerns] that there is not enough investment in R&D but rather just a lot of companies just jumping in and doing the same thing and expanding the manufacturing capacity without taking the time to upgrade, or honing their technologies.”
Unpressurised alkaline models are generally cheaper than either proton exchange membrane (PEM) or solid-oxide (SOE) electrolysers, with an installed stack cost of around $270/kW, according to the International Renewable Energy Agency’s 2020 estimates, compared to $400/kW for PEM equivalents and $2,000/kW for SOEs.
But PEM models and pressurised alkaline electrolysers have the advantage of faster ramp-up and ramp-down time, making them easier to operate with variable renewable power sources, while SOEs can be used in a vast array of industrial applications where waste heat can dramatically reduce electrolyser operating costs.
“If you look at Europe and also the US, they are prioritising the PEM electrolyser, the next generation technology,” Lin told Hydrogen Insight. “Within China there is there is an acknowledgment that technology-wise, they are still behind, particularly with regards to the next generation technology.”
Chinese manufacturers have been pushing to develop PEM manufacturing capability. Earlier this year, Cummins and state-owned giant Sinopec began production at a 500MW PEM electrolyser factory in Foshan, Guangdong province.
And last month, a Chinese public-private consortium announced a $4.5bn investment into what it claims will be the largest green hydrogen project using PEM electrolysers, in a move that is likely to stimulate investment in PEM electrolyser manufacturing in the country.