China Taking Crown in Low-Cost Electrolyzers

Much like China-made solar panels took the world by storm and helped to accelerate the global energy transition, the country might also hold the keys to large-scale green hydrogen deployment seen as crucial for attaining net-zero emissions. China is acknowledged as having the lowest cost for manufacturing the electrolyzers needed for what's known as the alkaline electrolysis process — currently the most common means of extracting green hydrogen from water. The country is able to produce alkaline electrolyzers at a cost that is one-fifth to half that in Europe or North America, according to the International Energy Agency (IEA) in its recently released Global Hydrogen Review 2022.

Questions remain over the quality and efficiency of Chinese-made alkaline electrolyzers. Yet this was the case with China-made solar products in their early years — and China demonstrated its ability to upgrade and improve on quality while still retaining cost competitiveness in that sector. Among the new entrants into the electrolyzer manufacturing business is LONGi, a well-established Chinese solar equipment brand name looking to capitalize on the synergy between renewable electricity and green hydrogen production.

China Plays Catch-Up

Global manufacturing capacity for electrolyzers stood at 8 gigawatts per year in 2021, dominated by Europe and China, which together accounted for 80% of the total, says the IEA. China alone makes up about a third of global electrolyzer manufacturing capacity and it can produce most key parts domestically. But China is deemed “not yet up to international standards in terms of efficiency and reliability, especially for large electrolyzer systems,” observes German think tank Mercator Institute for China Studies (Merics) in a recent analysis. However, as the number of green hydrogen demonstration projects grows in China, further investments would pour into the upstream segments of the value chain and “this will allow Chinese electrolyzer manufacturers to scale up, refine their technologies, and pose an increasing challenge to foreign firms for market share within and outside of China,” Merics notes.

Cost Advantage

The current cost of installing an alkaline electrolyzer (including equipment, gas treatment, plant balancing, and engineering, procurement and construction) is around $1,400 per kilowatt using equipment made in Europe or North America. But alkaline electrolyzers produced in China can be had for just $750/kW, with even claims of as low as $300/kW, the IEA report notes. Chinese manufacturers such as LONGi have pegged current costs at around 2,000 yuan ($281)/kW.

Shanghai-listed LONGi ranks among the world’s top solar panel manufacturers and has diversified into the hydrogen equipment business in 2021, promoting itself as a “green power and green hydrogen” solution provider. It set up a hydrogen equipment manufacturing plant last year in Wuxi, Jiangsu province, and expects to reach a 1.5 GW of alkaline electrolyzer production capacity by the end of this year. By end-2025, the company expects to more than triple its electrolyzer manufacturing capacity to 5 GW.

According to LONGi’s projections, the domestic cost of alkaline electrolyzers could fall to 700 yuan-900 yuan ($94-$126)/kW by 2030. LONGi expects costs to further tumble to 530 yuan-650 yuan ($74-$91)/kW in 2050. The Chinese producer’s cost forecast is significantly lower than what the IEA has projected under its Net-Zero Emissions scenario by 2050. Assuming a globally installed market size of 725 GW by 2030 en route to reaching net-zero emissions, the IEA expects electrolyzer costs would fall to “slightly above $300/kW.”

LONGi has already grabbed an electrolyzer supply deal with China's top hydrogen producer Sinopec, which is aiming to complete what would be the world’s largest solar-powered green hydrogen project in Xinjiang by mid-2023. Sinopec also picked two other electrolyzer suppliers, the 718th Research Institute of China State Shipbuilding Corporation as well as Belgium-based John Cockerill’s wholly owned subsidiary in China.

Pushing Into PEM

Notably, Sinopec’s green hydrogen ambitions extend into the entire production chain, including electrolyzer manufacturing. While sourcing the initial batch of electrolyzers for its Xinjiang green hydrogen project from external suppliers, Sinopec is at the same time making preparations to become equipment self-sufficient in the future. It has entered into a 50-50 joint venture with New York-listed power technology provider Cummins to manufacture proton exchange membrane (PEM) electrolyzers in China.

PEM water electrolysis is a more costly technology than alkaline electrolysis but has the advantages of higher efficiency and better adaptability to fluctuating conditions, which makes it highly suited for pairing with solar or wind generation. In 2021, almost 70% of globally installed electrolyzer capacity was based on alkaline electrolysis, followed by PEM which accounted for 25%, according to IEA data. But the IEA is predicting that PEM electrolysis could rise to an equal share with alkaline electrolysis by 2030. The Sinopec-Cummins PEM plant sited in Guangdong province is designed to have an initial capacity for making 500 megawatts of electrolyzers per year upon completion in 2023, doubling to 1 GW over the next five years.

Another player betting on the PEM technology is Chinese utility State Power Investment Corporation (SPIC), which has announced plans for investing up to 10 billion yuan ($1 billion) to establish a PEM equipment manufacturing base in Changchun, Jilin province. SPIC is eyeing a production scale of as high as 40 GW to be built over three phases.