Commentary: Hydrogen’s Cash Problem

Hydrogen energy is recognized as a cornerstone in China's ambition to transition toward a greener, low-carbon future, forming a crucial part of the country's evolving energy strategy and dual carbon goals. Although hydrogen's potential is widely acknowledged, the industry in China is at an early stage, facing significant technological and application-related obstacles—particularly in terms of production, storage, transportation, and market adoption—which highlights the urgent requirement for robust financial support to drive innovation and commercialization[para. 1].

The hydrogen value chain includes diverse and often competing technical approaches for each segment, such as alkaline and proton exchange membrane (PEM) electrolysis for production, and high-pressure gas or cryogenic liquid for transportation. Established technologies like alkaline electrolysis or high-pressure storage, while relatively mature and cost-effective, present challenges such as corrosion and leakage. Conversely, innovative solutions such as solid oxide electrolysis and organic liquid carriers address some of these issues but bring new ones, including higher costs and lower technological readiness[para. 2][para. 3][para. 4][para. 5]. Advancing hydrogen commercialization will require progress in three main areas: optimizing technologies to reduce costs and reliance on rare materials; achieving cost reductions in production and infrastructure to foster market adoption; and ensuring development is coordinated across the value chain to minimize risk and promote industrial synergy[para. 6][para. 7][para. 8].

Policy guidance has played a pivotal role in shaping hydrogen financing in China. The 2022 release of the Medium and Long-Term Hydrogen Industry Development Plan (2021–2035) led to peak fundraising of 10.31 billion yuan ($1.44 billion) in that year, although investment slightly tapered off afterward. Over the past five years, the number of hydrogen financing deals has doubled, but financing remains fragmented and focused on early-stage projects[para. 13][para. 14]. Equity dominates as the preferred financing instrument since high uncertainty and substantial R&D costs make debt or bond issuance unattractive for most companies at this stage. About 70% of deals are Series A or earlier, and only a minority reach later or public offerings. Average investment sizes are modest, rarely surpassing 100 million yuan, reflecting investor caution[para. 15][para. 16].

Investment also shows polarization across the value chain and technology types: 36% of funds target upstream production and 48% go to downstream applications, with midstream storage and transport receiving only 16%. Within green hydrogen production, mature technologies like alkaline electrolysis dominate (80% of deals), while advanced methods garner little investment[para. 18][para. 19][para. 20]. Despite catalytic policy support, funding remains risk-averse and narrowly focused, indicating a mismatch between innovation needs and capital allocation[para. 22].

Four models outline approaches to early-stage hydrogen equity financing: 1) State-guided capital provides policy signals and attracts private investment but is cautious; 2) Market-driven venture capital seeks promising technologies but leans toward mature solutions; 3) Local capital nurtures regional industry clusters but is hard to scale; 4) Strategic industrial capital aligns with corporate interests and industry needs at later stages. Each model has strengths and limitations, and no single approach suffices for the industry's multidimensional demands[para. 24][para. 25][para. 27][para. 29][para. 32].

Optimal advancement would synthesize these models: state guidance for credibility and direction, regional and corporate involvement for ecosystem development, and venture capital for market dynamism. This blended approach can offer both the direction and financial support necessary for all segments of the hydrogen value chain, fostering innovation, industrialization, and sustainable scaling of the sector in China[para. 38][para. 39][para. 40][para. 41].