Hydrogen Germany, China, the Central Asian country can count, in addition, on its low-cost RE, on its potential abundance compared to Germany, as well as on the possibility to achieve economies of scale directly on its domestic market. On the other hand, as far as electrolysis is concerned, although Chinese electrolysers are the cheapest and most widespread, they are not the most technologically viable. Germany still stands out in this respect, but is this enough to maintain its leadership in green hydrogen worldwide?
Hydrogen Germany, China: who is the leading producer?
China is the world’s leading producer of grey hydrogen
At present, China is the world’s largest producer ofhydrogen, accounting for 1/3 of production. The country produces nearly 20 million tons of hydrogen per year, mainly from the industrial and petrochemical sectors. Hydrogen is thus mainly used in the production of ammonia for fertilizer and comes from fossil fuels.
This type of hydrogen is called grey hydrogen. It represents nearly 95% of the world production. Unlike grey hydrogen, which is particularly polluting, green hydrogen only accounts for 3% of the world market. In China, most of the hydrogen is produced from coal and is therefore a very important factor of pollution in the country.
But Beijing wants to go green with hydrogen
Under these conditions, the Chinese government is placing increasing emphasis on the production of carbon-freehydrogen from renewable energy sources (RE). Two methods are used today to decarbonize production. The first is to place a carbon capture and storage (CCS) unit along the production line. The second is based on electrolyzers that produce hydrogen from the separation of water.
In 2015, Beijing included decarbonized hydrogen production in its Made in china 2025 plan. However, it wasn’t until 2019 that China really got into the global game. The country’s plan includes tax cuts and massive subsidies for the sector.
China accumulates competitive advantages
World’s leading investor in renewable energy
In order to produce greenhydrogen, manufacturers will need a very large amount of electricity from renewable sources. Indeed, the availability and cost of these will play a decisive role in the deployment of hydrogen. In this respect, China has a major comparative advantage over Germany.
The country can indeed count on its status as the world’s leading producer of renewable energy. China accounts for nearly one-third of the world’s installed solar and wind capacity. Conversely, Germany suffers from a low solar energy endowment with limited wind power potential in the north of the country. This is why Berlin is investing in Morocco to compensate for its low solar production, which has the effect of increasing costs.
The advantage of economies of scale
In addition to this advantage in terms of RE endowments, China has the major advantage of economies of scale. Taking advantage of a huge and highly protected domestic market, Chinese companies will be able to quickly become competitive in the export of hydrogen. Remember that for solar and wind power, Beijing had used these economies of scale to catch up.
For Germany, this is reminiscent of the traumatic experience of the solar industry crisis. Long ahead in the manufacture of photovoltaic panels, the country had seen the Chinese literally flood the European markets. Within a few years, economies of scale had enabled Chinese producers to liquidate almost all German manufacturers. All indications are that Beijing intends to use the same strategy to dominate the hydrogen market.
The competition for electrolysers
China’s advantage in alkaline electrolyte
In the future, electrolysers will represent a major technological challenge in the global competition for greenhydrogen. Today, these electrolyzers are divided into three technologies: proton exchange membrane electrolyzer (PEM), alkaline electrolyte and solid oxide electrolyte. The latest EMPs on the market. Conversely, the alkaline electrolyte is the most widely used technology and has been used for a long time in water electrolysis.
However, China has a huge comparative advantage in this technology in terms of cost. According to BloombergNEF, Chinese electrolyzers are 80% cheaper than their foreign competitors. In fact, Beijing can boast of controlling nearly 50% of the world’s alkaline electrolyte market.
Germany’s advantage in PEM and solid oxide electrolyte technologies
Germany, on the other hand, can count on a certain lead in PEM and solid oxide electrolyte technologies. In the PEM market, it alone accounts for nearly 20% of world production. It also benefits from having on its soil the main leaders in the sector such as Siemens, ThyssenKrupp or Sunfire.
This technological advantage could prove to be crucial in the years to come. Indeed, PEM technologies allow for a better integration of the intermittency of RE in the electrolysis process. This is due to the ease with which it is possible to stop or restart the machine. In other words, MEPs facilitate the reduction of costs associated with the variability of RE production.
This is why Germany still has a head start on China in the production of greenhydrogen. Despite recent interest, China’s specialization in alkaline electrolyte does not favor the integration of RE in hydrogen production. However, Germany will have to secure a low-cost, low-carbon electricity supply in order to remain competitive in the long term. The recent agreement with Morocco could play a decisive role in this regard.