Rapid Expansion of Hydrogen Production for New Energy Use Hits Bottlenecks (AI Translation)

【周刊提前读】新能源制氢大量上马 推广应用卡在哪里？

The world’s farthest mountain system from the ocean is the Tianshan Mountain range. At its northern foot in Xinjiang's Aksu region, near Yaha Town in Kuqa City, a vast Gobi Desert lies, home to an extensive array of almost 9,700 acres of photovoltaic panels forming part of Sinopec's photovoltaic green hydrogen smart factory [para. 1]. This green hydrogen plant is China's first major demonstration project generating hydrogen directly from photovoltaic power at a scale producing 20,000 tons a year [para. 2]. However, high electricity costs account for nearly half of green hydrogen production costs, making projects like this essential to reduce expenses [para. 3].

The solar power station involved has a capacity of 300 megawatts, delivering electricity at 0.1681 yuan per kilowatt-hour, significantly cheaper than grid electricity which costs about 0.47 to 0.48 yuan per kilowatt-hour [para. 4]. Electrolytic water hydrogen production decomposes water into hydrogen and oxygen through electrolysis, wherein green hydrogen is produced using renewable sources like solar and wind power, while gray hydrogen is derived from fossil fuels [para. 5][para. 6]. Currently, gray hydrogen prices in China range between 10 RMB and 20 RMB per kilogram, while green hydrogen costs around 20 RMB per kilogram in regions with abundant renewable resources like Xinjiang [para. 7][para. 8]. The “dual carbon” goals aim to incorporate hydrogen energy into the national energy system by 2035 through a nationwide energy transition, encouraging green hydrogen development [para. 9].

In 2023, China approved numerous renewable energy hydrogen production projects, planning investments exceeding 200 billion yuan [para. 10]. A significant price reduction in photovoltaic modules has enhanced the attractiveness of green hydrogen plants, falling to about 0.82 yuan per watt by 2024 [para. 11][para. 12]. For instance, Inner Mongolia approved many integrated wind-solar hydrogen production projects and saw a massive surge in investment [para. 13]. However, green hydrogen projects still face profitability issues, primarily due to insufficient downstream demand and higher costs compared to gray hydrogen [para. 14][para. 15][para. 16].

The Sinopec green hydrogen project in Kuqa is designed to produce 20,000 tons of green hydrogen annually, utilizing photovoltaic electricity to cut costs [para. 17][para. 18]. However, profitability remains challenged due to high green hydrogen production costs and low market prices [para. 19][para. 20][para. 21]. Nevertheless, the project succeeded in driving significant advancements in the green hydrogen supply chain and electrolyzer manufacturing capacities in China [para. 22][para. 23]. Sinopec, as China’s largest hydrogen consumer, finds this project crucial for its carbon reduction mission aligned with the “dual carbon” goals [para. 24][para. 25].

To overcome the economic hurdles, increasing the capacity utilization and finding ways to use by-products like oxygen are essential; otherwise, projects like these face economic inefficiency [para. 26][para. 27]. Promoting green hydrogen faces challenges similar to early photovoltaic development, with downstream application hindered by high costs and underdeveloped customer bases [para. 28][para. 29]. National hydrogen production is predominately gray hydrogen, with green hydrogen only accounting for 1% [para. 30]. The scalability and operational efficiency disadvantages of green hydrogen compared to gray hydrogen hinder its wider acceptance [para. 31][para. 32].

To resolve these issues, the industry needs policy support to break storage and transportation bottlenecks and align supply with demand geographically [para. 33][para. 34]. With ongoing investment, the total planned renewable hydrogen production capacity aims to exceed 100,000 tons annually by mid-2024 [para. 35]. The rise in new players due to the low market entry barriers has led to an oversaturation in electrolyzer production [para. 36][para. 37]. Moreover, European competition has introduced constraints due to significant cost advantages held by Chinese manufacturers [para. 38].

China’s hydrogen energy policies and strategies are thus in a race with global standards. Although leading global deployments, China’s cost advantages in manufacturing lay challenges from regions like Europe and the United States, which have stringent application standards and clearer usage paths [para. 39][para. 40][para. 41]. Competitive improvements and technological advancements will be key to overcoming these hurdles, balancing investment costs, and achieving sustainable profitability in the green hydrogen industry [para. 42][para. 43].