Commentary: Hydrogen’s Cash Problem

Hydrogen energy plays a pivotal role in China’s ambition for a green, low-carbon transition, tied closely to the country's energy strategy and “dual carbon” goals. Hydrogen is anticipated to become an essential component of the future energy mix and strategic industries, but its development is challenged by technological constraints and limited commercial application, highlighting the need for increased financial support to spur innovation and adoption [para. 1].

The hydrogen value chain covers production, storage, transport, and application, with each segment offering various technical solutions. In production, conventional alkaline and proton exchange membrane (PEM) electrolysis are dominant, while advanced methods like solid oxide electrolysis are emerging. Similarly, mainstream transport methods include high-pressure gas and cryogenic liquid hydrogen, with newer technologies such as solid metal hydrides being developed [para. 2][para. 3].

Hydrogen technologies generally exhibit two development patterns: mature and widely adopted options tend to be lower-cost but have drawbacks—for instance, alkaline electrolysis is cheap but prone to corrosion or leakage. In contrast, advanced alternatives can address these weaknesses but are less mature and more expensive due to technical limitations, energy intensity, or material costs [para. 4][para. 5]. Overall, rapid commercialization requires advances in technology optimization, cost reduction, and coordination across the hydrogen value chain, as well as synergies between upstream innovation and downstream adoption [para. 6-9].

Hydrogen financing in China has grown, driven by supportive policies like the “Medium and Long-Term Hydrogen Industry Development Plan (2021–2035)” introduced in 2022. That year, fundraising hit 10.31 billion yuan ($1.44 billion), although investment levels dipped slightly afterward, yet remained on an upward trend overall. The number of deals has doubled in the last five years [para. 10]. Equity financing dominates due to high industry risk and uncertainty, while debt and green bonds are rare. Around 70% of deals occur at the earliest stage (Series A or before), with modest deal sizes typically in the tens of millions of yuan, reflecting investor caution and long fundraising cycles [para. 11-14].

Investment polarization has emerged: most funding targets upstream (hydrogen production, 36%) and downstream applications (48%), with midstream (storage/transport) underfinanced (16%) [para. 15]. Investors prefer mature technology—alkaline electrolysis secures about 80% of green hydrogen deals, while solid oxide electrolysis receives only 3% [para. 16]. This reveals fragmented, risk-averse, and narrowly targeted capital allocation [para. 17].

Four main equity financing models are identified: state-guided capital (Model 1), market-driven venture capital (Model 2), local capital (Model 3), and strategic industrial capital (Model 4) [para. 19-28]. Each plays a unique role; for instance, state and VC funds mobilize capital and signal policy, while regional and corporate investors foster practical applications and industrial clusters [para. 30]. Effective hydrogen sector financing requires integrating all four models to support R&D, pilot projects, scaling, and commercialization, and to align capital with industry needs for sector-wide coordination and synergy [para. 31-36].

In summary, no single equity financing model suffices. Only by combining the strengths of all four models can China’s hydrogen industry attract diverse investment, bridge gaps across the value chain, and realize the transition from innovation to commercial application, supporting the country’s broader low-carbon development goals [para. 37-40].