S&P Global: China’s First Hydrogen Development Plan Focuses on Reducing Costs and Building Capacity

　　In March of this year, China unveiled its first national hydrogen energy development plan, hailing hydrogen energy as a “key component of the nation’s future energy system.” The development plan was jointly issued by China’s top economic planning agency—the National Development and Reform Commission (NDRC)—and the National Energy Administration, the country’s energy regulator. It sets out high-level guidelines for the hydrogen supply chain from 2021 to 2035. This is China’s first comprehensive hydrogen energy industry plan at the national policy level, underscoring the growing importance of hydrogen fuel in the country’s long-term decarbonization strategy.

　　Based on S&P Global Commodity Insights’ long-term tracking of the global and Chinese hydrogen energy markets, we’d like to share three observations on this plan:

　　Observation 1: China’s massive demand will drive the expansion of global green hydrogen production capacity and help reduce costs.

　　China is already the world’s largest producer and consumer of hydrogen, accounting for approximately 20% of global demand. In 2020, 63.5% of China’s hydrogen supply came from coal gasification, 21.2% from industrial processes such as oil refining, and 13.8% from natural gas. Only 1.5% was produced via water electrolysis, and even in that case, the electrolysis process was not entirely powered by renewable energy sources.

　　China’s hydrogen energy development plan focuses on transitioning to hydrogen production based on renewable energy sources while tightening controls over hydrogen production derived from fossil fuels. However, the sheer scale of China’s energy demand means that its hydrogen energy initiative will undoubtedly play a significant role in accelerating the global expansion of green hydrogen production capacity and driving down costs.

　　According to data from the International Energy Agency, by 2030, global electrolysis capacity is expected to reach 54–91 GW. In regions rich in renewable resources, the cost of hydrogen production based on renewables is projected to drop to between $1.30 and $3.50 per kilogram. The China Hydrogen Energy Alliance forecasts that by 2025, the production cost of green hydrogen in China— including capital expenditures—will fall below 25 yuan per kilogram, or roughly $4 per kilogram. By 2030, this cost could further decline to $2.40 per kilogram, while electrolysis capacity will reach 80 GW. If all of China’s projected capacity is brought online, it could significantly boost global projections.

　　Observation 2: China’s industrial sector will become the initial demand center driving growth in clean hydrogen production and reducing costs.

　　Ankit Sachan, a hydrogen analyst at S&P Global Commodity Insights, believes: “The primary factor restraining clean hydrogen production is the coal gasification technology, which has lower costs compared to hydrogen production. Green hydrogen production remains more expensive, and the former is currently the preferred technology for China’s industrial sector.” Sachan added: “China’s industrial sector can serve as an initial demand center to drive the growth of clean hydrogen production. This will facilitate technological advancements and cost reductions, thereby enabling the wider adoption of hydrogen in other sectors.”

　　The China Hydrogen Energy Alliance believes that, depending on the technology used, the cost of electricity generated from renewable energy sources could account for 74% to 89% of the total production cost of green hydrogen in China. According to the Alliance’s projections, China boasts the world’s largest installed capacity for solar and wind power generation, reaching 63.4 GW in 2021 and expected to rise to 160 GW by 2030 and potentially reach 660 GW by 2060. The Alliance forecasts that as green electricity capacity expands, the capacity of hydrogen electrolyzers will also grow steadily, reaching 80 GW by 2030 and 500 GW by 2060.

　　Sachan stated: “Chinese electrolyzer companies, such as PERIC Hydrogen Technology Co., Ltd., Suzhou Jingtli Hydrogen Equipment Co., Ltd. (or Cockerill Jingtli (Suzhou) Hydrogen Technology Co., Ltd.), and Shandong Saikesais Hydrogen Energy Co., Ltd., account for 60% of the Chinese electrolyzer market. Compared to their European counterparts, their electrolyzers are significantly cheaper.”

　　Observation 3: Green hydrogen will help high-emission-intensive industries such as steel and transportation achieve faster decarbonization.

　　The China Hydrogen Energy Alliance predicts that by 2060, 77% of China’s hydrogen demand—amounting to 130.3 million tons—will come from “green hydrogen” or hydrogen produced using renewable energy sources. This corresponds to 100 million tons of hydrogen, which could reduce carbon dioxide emissions by 1.7 billion tons—roughly 16% of China’s total CO2 emissions in 2021. The think tank also indicates that by 2025 and 2030, the production costs of green hydrogen in China will reach levels competitive with those of hydrocarbon steam reforming (SMR) technology and coal gasification with carbon capture and storage (CCS) technology, respectively.

　　Green hydrogen will make a significant contribution to achieving carbon reduction targets. According to data from the China Hydrogen Energy Alliance, by 2060, green hydrogen is expected to reduce carbon dioxide emissions by 1.7 billion tons—of which 1.1 billion tons will come from industrial enterprises and the remaining 460 million tons from the transportation sector. Industry data indicate that hydrogen will play a pivotal role in the decarbonization of China’s steel industry (which accounts for 54% of global steel production) and cement industry (which accounts for nearly 60% of global cement production). The Alliance forecasts that demand for hydrogen in the road transportation sector will grow exponentially: the number of hydrogen fuel cell vehicles in China could rise from 7,729 in 2020 to 1.2 million by 2035 and to 11 million by 2060. By 2060, it is projected that 65% of medium- and heavy-duty commercial vehicles and 15% of passenger cars will be powered by hydrogen.