Chinese electrolyser manufacturers have begun exporting systems to the US and Europe that are four times cheaper than Western equivalents, according to a new report by analyst BloombergNEF (BNEF).
Similar price discrepancies in the solar industry in the 2010s saw the previously world-leading European solar manufacturing sector collapse in the space of a few years as cheaper Chinese modules flooded the market.
According to BNEF's new report, 1H 2022 Hydrogen Market Outlook, Chinese alkaline electrolyser systems cost $300 per kW in 2021, compared to $1,200/kW for Western equivalents, with proton exchange membrane (PEM) electrolysers even more expensive, at $1,400/kW (see panel below).
However, that price gap will slightly shrink slightly this year, with improved automation and economies of scale at Western factories driving down alkaline electrolyser costs by 17% to $1,000/kW, with PEM systems falling 14% to $1,200/kW. By comparison, Chinese alkaline electrolysis set-ups will fall by just 10% to $270/kW.
BNEF puts the cost of a Chinese alkaline electrolyser system at $220/kW in 2021, with onsite installation at an additional $50-60/kW and another $20-30/kW for civil engineering by developers — giving a total cost of $300/kW.
The analyst adds that “new products with more compact designs” have sold for even less, pointing to a 13MW project won by Chinese manufacturer Jingli for 19.55m yuan ($3.08m) — including all equipment and installation — which works out at $237/kW. Two of Jingli’s 6.5MW electrolyser stacks take up less space than the 5MW machines that are popular in China, it explains.
BNEF also suggests that the prices of Western electrolysers are likely to fall faster than Chinese ones due to factory automation.
“The cost of designing and building an automatic [production] line could outweigh savings on relatively cheap labour,” the report says.
The price difference between Chinese and Western systems has not been significant until now, as Chinese electrolysers have almost exclusively been sold inside China. But, as the report explains: “Chinese suppliers are starting to sell electrolysers abroad, to take advantage of higher prices.”
In November, the longest-standing Chinese electrolyser maker, PERIC, delivered a 1MW system to an undisclosed US energy firm for a solar-powered green H2 project, and has previously sold products in Europe via a Swedish company. Longi, a solar company entering the electrolyser market, says it expects to sell machines in Europe and the US in the next two to three years.
BNEF does point out, however, that these exported Chinese electrolysers sell at a premium compared to systems installed in China, “but the final price is still less than half of Western brands”.
In December, analyst S&P Global Platts reported that Chinese electrolyser makers were ramping up manufacturing capacity to meet demand from both domestic and overseas customers.
Ma Jun, general manager of Cockerill Jingli Hydrogen (CJH), a joint venture between Belgium's John Cockerill Group and Jingli, told the BNEF Shanghai Summit in December: “The prices that we offer in the European market are likely to reach one-third of local suppliers’ prices,” adding that he expects the company's electrolyser prices to fall by a further 30% in the next two to three years.
Some Western manufacturers are now planning to build electrolyser factories in China to take advantage of cheaper labour costs and a more established supply chain, the report points out.
For instance, US-based Cummins has established a new manufacturing hub in Shanghai, and formed a 50-50 joint venture with Chinese oil giant Sinopec, called Cummins Enze, to produce PEM electrolysers in the city of Foshan, near Hong Kong.
Two Western companies have gone one step further by buying majority stakes in Chinese alkaline electrolyser manufacturers, with the aforementioned John Cockerill Group buying a 56% share in Jingli, while Norway’s Hydrogen Pro has bought a 75% stake in Tianjin HQV Hydrogen Machinery, according to BNEF.
Western manufacturers also believe that their electrolysers are more reliable, offering a better value proposition over the lifetime of a green hydrogen project — and some Chinese developers agree, with Germany’s Siemens Energy and France’s McPhy having both sold electrolysers in China.
But CJH’s Ma disagrees. “Our prices differentiate significantly from competitors overseas, while our products do not have significant weaknesses in terms of quality and features,” he said.
Both alkaline and PEM electrolysers use an electric current to split water molecules into H2 and oxygen, but alkaline systems have been around for decades.
The newer invention, PEM, may be more expensive at the moment, but the technology is said to be more efficient when handling the ups and downs of variable wind and solar power.
So, while the initial cost of a PEM system might be higher than an alkaline one, the levelised cost of green hydrogen produced over the 20-30-year lifetime of a project might well be lower.