In the mid-2000s, European and Japanese solar panel makers dominated the then-emerging industry — yet within a few years, they were being undercut by a wave of cheaper PV modules emerging en masse from China.
Former market leaders such as Q-Cells, SolarWorld and Isofoton had to file for bankruptcy, and by 2011, eight of the world’s top ten solar manufacturers were Chinese.
History may well repeat itself in the emerging world of hydrogen electrolysers, according to research house BloombergNEF.
“The chance is high that the same or similar story would happen in the hydrogen industry as what we saw in solar,” BloombergNEF energy specialist Xiaoting Wang tells Recharge, pointing out that Chinese alkaline electrolysers are currently 75% cheaper to buy than Western equivalents — with little difference in quality.
And while the geopolitical situation is very different today, with European and American politicians wary of the dangers of relying on nations not sharing their value systems for key goods and raw materials (eg, Russian gas and oil), this would only serve to postpone Chinese dominance of the electrolyser industry, Wang explains.
“All the [Western] politicians are very nervous as they do not want to see the same story happening, like as for solar. They really consider hydrogen to be an important component in the future energy picture,” she tells Recharge.
Does this mean that Western governments will seek to place restrictions on Chinese electrolyser imports, in the same way that the European Commission slapped anti-dumping tariffs on Chinese PV equipment from 2013-18?
“I think they could either use local-content requirements or make a less apparent method, for example, if they're still allocating subsidies by evaluating individual applications, they could choose systems that only use local brands, even if they are not saying so [publicly].
“Politicians can always be very creative in terms of making trade barriers. I mean, it needs to wait for some time if they want to use the term ‘anti-dumping’ — because they need to see enough dumping behavior before they can do this.”
But she says, ultimately, placing tariffs on Chinese PV panels only served to increase the price of solar energy and slow the fight against climate change — which is why the EU scrapped import tariffs in 2018. And the same would be true of attempts to slow the import of cheaper Chinese electrolysers, so any Western protectionism would be likely to be short-lived.
“For the past few decades, the world was run in such way that it would optimise economy efficiency —what cost the least to achieve the same target? But at this moment, it seems that factors other than economy efficiency is determining how things are getting done. But I would say economy efficiency cannot be ignored. For example, [former US president Donald] Trump set up so many tariffs for products made in China, but [President Joe] Biden, at this moment, is trying to remove some tariffs in order to lower commodity prices.”
Today, electrolysis systems using Western equipment cost about $1,200 per kilowatt — compared to $300/kW for systems in China that use local apparatus, according to BNEF figures.
But by 2030, both Chinese and Western electrolysis systems would be about $0.10/W (in 2020 prices) — largely a result of Chinese electrolysers being widely available in Europe and the US, says Wang.
“If we only focus on the electrolyser, or electrolyser stack, at least for alkaline electrolysers, I don’t think Chinese manufacturers are doing a worse job than European or US players,” she explains. “And actually, I would say they are quite advanced — or they are moving fast, in terms of developing new products.”
The analyst points to the 5MW stacks that are popular in China today — compared to the 1-2MW electrolysers seen in Europe — which reduces capex, particularly in the balance of plant.
A recent report by the Beijing-based trade association China Hydrogen Energy & Fuel Cells Industry Innovation Strategic Alliance — which claimed that cheap Chinese electrolysis systems would actually result in a higher levelised costs of hydrogen due to their lower efficiencies and shorter operating lifetimes — was not entirely accurate, she says.
“That was based on very limited sampling — that industry research was not representing the whole industry.”
However, Western electrolysis systems are still superior in terms of the balance of plant. Chinese valves and meters, for example, are poorer quality than Western counterparts, requiring more maintenance and pushing up operational expenditure (opex). This is a less serious problem in China, with cheap labour costs. But the negative impacts from more frequent maintenance would be magnified in developed countries with more expensive labour.
In fact, Wang suggests that the West’s move towards Chinese electrolysers might have already begun, she suggests, pointing to a 220MW green hydrogen project in Utah that has Norwegian brand Hydrogen Pro as the electrolyser provider.
“That company acquired a 75% share of a Chinese alkaline electrolyser manufacturer. So basically they're going to use a Chinese company's technology, although the production could occur in a factory located in Europe to avoid any barrier targeting goods originating in China [at the Utah project].”
She also points out that Chinese electrolyser manufacturers such as Peric have been selling equipment in Europe via local distributors for the past two years — a move that is only likely to grow in the coming years as developers try to drive down costs.
