The electrolyzer has come a long way in the nearly 250 years since a pair of Dutch scientists first used electricity to split water into hydrogen and oxygen. Over the decades, European and American scientists refined and commercialized this technology, yet it is China that now accounts for nearly 70% of global electrolyzer manufacturing capacity, churning out the machines that make clean hydrogen from water at a fraction of Western costs. Its factories are building far more equipment than its domestic hydrogen market can absorb, and exports are climbing. On paper, China looks poised to dominate the global electrolyzer and green hydrogen markets, much as it already has solar panels and batteries.
“It stands to reason that the Chinese would want to capture the market just like they did everything else,” Rinaldo Brutoco, a hydrogen investor and founder of the think tank World Business Academy, told me. Beijing’s latest Five-Year Plan certainly lends credence to that ambition, repeatedly calling for the development of green hydrogen, hydrogen-derived fuels, and electrolyzers, even as other nations lag behind their once-ambitious clean hydrogen targets.
But it’s not actually obvious that the technology will go the way of solar. For one, Western governments are increasingly wary of dependence on Chinese energy technologies and are trying to bolster domestic manufacturing and limit foreign competition through measures like tariffs, domestic-content bonuses, and subsidy eligibility restrictions. The West also specializes in its own electrolyzer tech, which relies on proton exchange membranes. Though more expensive than China’s typical alkaline electrolyzers, PEM systems pair better with intermittent renewable power.
China’s tech is improving, though, and its electrolyzer stacks — the pile of cells where water splits into hydrogen and oxygen — cost about 60% less than Western alternatives. But the stack only accounts for about 6% to 9% of the total levelised cost of clean hydrogen production; most of the expense comes from electrical and process equipment, labor, and, most importantly, clean electricity. That single-digit cost advantage may not be enough to sway foreign buyers, especially since some cheaper designs come with trade-offs in efficiency, lifecycle, and warranty coverage.
“When the project as a whole is considered, there’s a lot less deviation between the Chinese technology and the rest of the world’s,” Thomas Koller, regional hydrogen lead at the Norwegian energy and maritime consultancy DNV, told me. But China is working on that, he added. “They’re very competitive already on the stack. But now they know that they also want to be competitive on how that stack can integrate with the wider electrolyzer system.”
Cracking that system-level cost issue could bring China much closer to achieving global market dominance. DNV calculates that to meet the Paris Agreement’s targets, clean hydrogen would need to supply around 15% of global energy demand by 2050 — and the production equipment and resultant clean molecules would have to come from somewhere.
China Builds Its Own Demand
In the meantime, however, the analysts I spoke with agreed that China’s domestic green hydrogen market is positioned for a near-term boom, as the government pushes adoption across fertilizer, chemicals, oil refining, steel, and transportation. “Demand is really the key takeaway that I see from this new Five-Year Plan — shifting from production to thinking about demand,” Koller told me.
And while the plan was pretty much complete before the Iran war broke out, the ongoing disruption in the Strait of Hormuz has underscored the logic behind China’s hydrogen push, as the country previously relied on the Strait for up to half of its crude oil imports. “It’s placed them in a pretty good position — in respect of hydrogen at least — to try and strengthen one of these areas that can reduce dependence on imported oil,” Koller said of the Five-Year Plan.
China is already the world’s largest hydrogen producer and consumer by a wide margin, using the gas as a key industrial feedstock for its vast chemicals and heavy industry sectors. But today, the industry makes nearly all of that hydrogen with fossil fuels.
Beijing made clear in its latest Five-Year Plan, released in March, that it wants to change that. According to an unofficial translation, the state promised to “expand applications of hydrogen energy in transportation, electricity, industrial, and other domains,” while improving “renewable energy hydrogen production equipment” and advancing “the hydrogen energy industry chain toward green ammonia, methanol, and sustainable aviation fuels.” (China has not published an official English translation of the plan.)
The country certainly has the manufacturing capacity to support these ambitions. After hundreds of manufacturers poured into the electrolyzer industry earlier this decade, China now produces about 35 gigawatts worth of this equipment annually, compared with less than 2 gigawatts of domestic demand. The resulting glut has even led some producers to sell their equipment below cost, echoing the dynamics of the solar industry in the early 2010s. Now, Beijing is trying to build a green hydrogen market to soak up the surplus, elevating production of the fuel — and derivatives like ammonia, methanol, and SAF — to a national priority.
“They’re talking about nationwide pipelines for hydrogen. They’re talking about a regionalized cluster strategy; they have very hard targets for green hydrogen sales,” Brutoco told me.
China is targeting 2 million metric tons of renewable hydrogen production annually by 2030, an eightfold increase from roughly 0.25 million metric tons today. The government has also designated five city clusters as green hydrogen demonstration zones, each eligible for up to about $240 million over four years to scale up the fuel’s use across sectors including transportation, metallurgy, and green ammonia and methanol production — and to build the pipelines required to move it.
“Hydrogen has clearly moved up in political visibility,” Qi Qin, a China analyst at the Centre for Research on Energy and Clean Air, told me back in March.
All of this stands in stark contrast to Western markets, where low-carbon hydrogen projects continue to be delayed or scrapped amid weak demand and waning political support. Clean hydrogen is still far more expensive than its fossil fuel-based counterpart; buyers remain reluctant to pay a green premium, and policy uncertainty over the past few years has clouded the industry outlook. In the U.S., the rollback of Inflation Reduction Act incentives has weakened the economic case for green hydrogen, while in Europe, delays to regulatory decisions and missed deadlines for implementing hydrogen mandates have added to the uncertainty.
“Many companies were really thinking that the hydrogen economy was going to take off, and in the end, this has not been the case,” Anne-Sophie Corbeau, a researcher at Columbia University’s Center on Global Energy Policy, told me. “The cost of the whole electrolyzer system is actually much higher than what we thought at the beginning.” That, combined with advances in batteries and other electrification technologies like industrial heat pumps, has arguably narrowed the range of applications where green hydrogen makes sense.
The Export Question
But perhaps the problem is simply a failure of imagination. After all, no country has yet demonstrated what a scaled-up clean hydrogen industry could look like, either physically or economically. The next few years, however, could offer a decent preview.
“When China wants to do something, boy, they move fast,” Brutoco told me. And there’s no doubt Beijing wants to capitalize on its burgeoning hydrogen economy. “They need more export markets because their housing boom — which busted — ain’t coming back in the near future,” he argued, explaining that new export opportunities could help revive Beijing’s sluggish economy. He sees electrolyzers and hydrogen as “low-hanging fruit,” given the country’s existing domestic buildout.
As for the argument that cheap Chinese electrolyzer stacks do comparably little to reduce the overall installed cost of a clean hydrogen project, Brutoco doesn’t buy it. He doubts developers would forgo potential savings — and the additional revenue that could generate — simply to align themselves with their administration’s protectionist preferences. “Did you ever know a business person that would like to shave 5% to 10%?” he asked.
Then there’s the question of performance. China’s alkaline electrolyzers have historically been slower to ramp up and down in tandem with variable renewable power compared with PEM systems. But Brutoco argues that today’s improving alkaline tech is more than capable of serving utility-scale renewable projects in areas with relatively consistent sun or wind. Koller likewise sees Chinese alkaline manufacturers as credible contenders for a range of overseas projects.
“I would expect that all of the European projects that are electrolyzer-driven, they will be considering Chinese electrolyzers, among others,” he told me. The case could prove even stronger elsewhere in the APAC region, including India, Japan, South Korea, and Australia. “All of the projects that I can recall having seen for Asia Pacific [...] at least some Chinese technology has been considered.”
But since Amy Ouyang, a senior hydrogen associate at the Clean Air Task Force, has been tracking the industry, she told me that “the narrative has shifted.” Just three years ago, many analysts expected Chinese electrolyzers to follow the trajectory of solar panels, with rock-bottom prices eventually squeezing Western manufacturers out of the market. But today’s more protectionist trade environment has made her reconsider that assumption.
“Maybe in the 2010s, the European countries and the U.S. were not really prepared to say, ‘We’re going to turn away Chinese solar panels just because they’re made in China,’” she told me. But Washington in particular has soured on its earlier laissez-faire approach to trade, perhaps regretting that while the U.S. and allied nations pioneered technologies such as solar cells and lithium-ion batteries, China ultimately scaled them — capturing millions of manufacturing jobs in the process.
Energy shocks from Russia’s invasion of Ukraine to the Iran war have further pushed Western policymakers toward a focus on domestic manufacturing, energy security, and even food security, Corbeau, the Columbia researcher, told me, given that about a third of globally traded fertilizer passes through the Strait of Hormuz. Now, she said, more countries are likely thinking, “What if we use our hydro, geothermal, maybe cheap renewables, in order to produce hydrogen domestically and produce ammonia domestically and produce fertilizer domestically?”
It all adds up to an environment where Ouyang sees “a lot more willingness to protect their own domestic industries from the low price of the Chinese electrolyzers,” she said.
The problem is, there simply isn’t much of a Western clean hydrogen industry to actually protect right now. Spurring demand will require political will and economic incentives to persuade hydrogen end users to make deals and help the nascent industry move down the cost curve. But with wholesale electricity prices rising and the Trump administration dismantling renewable energy legislation, the U.S. in particular looks unlikely to invest in much manufacturing capacity anytime soon.
But if the West does decide to double down, it might be better off conceding the price war from the outset. “A Western electrolyzer stack would probably struggle to match China’s lowest bid on an electrolyzer stack,” Koller explained, advising against trying to replicate China’s commodity-scale manufacturing model. “I would see their stronger position being if they can demonstrate different performance, different integration, offer a different type of service, an improved lifecycle emissions statement.”
That is, the answer probably isn’t to beat China at its own game. The U.S. and Europe might never win on cost, but that doesn’t mean they can’t build and scale a superior technology before yet another industry slips out of their reach.
Which way? Nir Keidar/Anadolu via Getty Images
