【Future Trends of Chinese Hydrogen and Fuel Cell Industry】
We have been following and analyzing trends of hydrogen and fuel cells in China, publishing the report of Hydrogen and Fuel Cell Industry in China in 2019. In this blog, as a summary so far, I want to share our thoughts on future market trends based on the issues facing the Chinese FCV market. Although you feel it’s little a bit longer, the contents described here are essential for grasping the future trend of the Chinese FCV market.
Background of the Chinese FCV industry
Since the Chinese central government has designated hydrogen fuel cells as a key development area in 2016, each local government has formulated its own fuel cell vehicle development plan, has established various policy supports, including enhancement of tax incentives, subsidy for purchase of FCV, for fuel cell-related equipment, for new product development, and for construction and operation of hydrogen station, and financing funds for various research projects. With such supports, some Chinese domestic companies, like Sunrise Power and SinoHykey, who develop key components for FC stack, such as MEA or bipolar plate, have begun to grow up. Additionally, construction of hydrogen-related industrial parks is progressing in some cities, and industrial chains and hydrogen infrastructure, such as hydrogen station, have been being formed. In this way, in just three years, the Chinese FCV market has been developing at an alarming rate.
However, China is facing global common issues, including manufacturing cost of fuel cell, cost of hydrogen procurement, and unprofitability of operation of hydrogen station. For instance, nowadays, China's hydrogen stations rely on government subsidies, so many hydrogen stations that have not received construction subsidies are likely to be in deficit. As a result, many investment firms have been reluctant to invest in hydrogen stations. To make matters worse, they seem to have the idea that they will not invest in hydrogen station construction until more fuel cell vehicles are operated than now, causing a vicious cycle. This is because if the number of hydrogen stations does not increase, the number of fuel cell vehicles will not increase
Challenges facing the Chinese FCV industry
There are four issues in the current Chinese FCV market:
Development (dissemination) of hydrogen infrastructure
Reduction of hydrogen procurement cost
Reduction of fuel cell manufacturing cost
Strong government support
1. Development (dissemination) of hydrogen infrastructure
In terms of the infrastructure, it is important not only to construct hydrogen stations but also to establish high-quality and inexpensive methods of hydrogen production, transportation and storage. In the production of hydrogen for fuel cells, in addition to hydrogen production with by-product gas from the coal chemical industry, coal gasification method, natural gas reforming method, methanol or ammonia reforming method, and water electrolysis by renewable energy have been established. In the short term, hydrogen from industrial by-product gas is the cheapest and easy way to procure and will continue to be used. However, its production areas are limited and there are issues of stable supply, difficulty of scaling up, and purity problem as by-product hydrogen derived from coke oven gas has. Consequently, in the medium term, the procurement of high-purity hydrogen by water electrolysis using renewable energy, coal gasification, and natural gas reforming with PSA treatment will be widespread. In the long term, hydrogen supply by water electrolysis using renewable energy is expected to be the major method. Although water electrolysis is costly, hydrogen production by water electrolysis using surplus electricity from renewable energy has economic rationale. In the northern areas such as Zhangjiakou and Liaoning Province, the wind abandoned rate is high, so demonstration experiments on the water electrolysis hydrogen production method with abandoned wind power have already been conducted in these areas. In these regions, even in the short term, the supply of hydrogen from renewable energy is likely to be one of the major ways.
2. Reduction of hydrogen procurement cost
In terms of reduction of hydrogen procurement costs, it is important to establish inexpensive hydrogen transport methods in addition to inexpensive hydrogen production methods. So far various research results on economic analysis of hydrogen transport have been published, among which it is believed in China that in transport of a certain amount of hydrogen, transport by a cryogenic liquid hydrogen tank is the cheapest method. Currently, there is no clear industry standard for liquid hydrogen transportation (it is under formulation), so it is virtually impossible. So, transportation by high-pressure gas tanks has become common but its variable costs caused by distance is higher since the amount of hydrogen that can be carried at one time with this method is small. Moreover, hydrogen from industrial by-product gas is difficult to distribute because its production areas are concentrated in coastal areas and transportation to distant areas is costly. Consequently, formulation of the industry standad of cryogenic liquid hydrogen transport and storage is an urgent issue. Cryogenic liquid hydrogen transport can reduce operating costs of hydrogen station, improving its profitability. (Details on hydrogen transport are described in the report, Hydrogen Supply Chain in China in 2019.)
3. Reduction of fuel cell manufacturing cost
In terms of reduction of fuel cell manufacturing costs, major Chinese fuel cell system manufacturers have already started to reduce costs. Fuel cells in China are highly dependent on foreign imports for stacks, their components, and auxiliary equipment, so cost of manufacturing fuel cell systems is much higher in China than in overseas. It is said to be 10,000 RMB per kW (about US $ 1,400) (Toyota Mirai's fuel cell production costs are said to be around US $ 230 per kW). This too high fuel cell cost squeezes profits of finished car manufacturers. Currently, government subsidies help the businesses exist in spite of the higher price of fuel cells.
According to Mr. Wan Gang, head of the China Association for Science and Technology, the Chinese government will continue to support fuel cells at a certain level, but to make the hydrogen fuel cell industry sustainable, reduction of fuel cell supply costs is an important issue. In the short term, it is difficult to make high-performance parts at low cost in China, so it seems that the trend to procure them from foreign companies will continue.At present, many European, US, and Canadian hydrogen energy-related companies are paying attention to the Chinese FCV market and more and more foreign companies are expected to enter the market.( Some of foreign FC companies are introduced in the blog, Go-to-market strategy of foreign FC makers in China.) The more foreign companies enter China, the lower the purchase price is due to the price competition. Moreover, there are emerging trends of local production of key components of FC stack, like MEA and GDL, and in-house production of bipolar plates and system auxiliary machines. This can further decrease the cost in the future. Also, as the market itself expands with the spread of FCV, the cost is expected to be reduced by mass production. (Some of domestic MEA manufactures are introduced in the blog, Movement of domestic production of MEA in China is accelerating, and newcomers are coming one after another, will it intensify competition in the future?)
4. Strong government support
Although it is stated above that the government has established strong policy support systems, it is not enough. Many local governments in China focus on developing FCV infrastructure and attracting hydrogen-related companies, but policy supports including industry standard formulation are delayed and still behind ,for high-quality and low-cost hydrogen production, transport, storage, and filling and for hydrogen energy dwelling application like stationary fuel cell. On the other hand, in 2019, support policies such as subsidies for the hydrogen and fuel cell industries and development roadmaps have been announced one after another in local cities throughout the country. These include enhancement of tax incentives for companies, financial support for acquisitions, subsidies for FCV purchase, for fuel cell-related equipment, for new product development, for national-level research projects on hydrogen energy, for construction/operation of hydrogen stations (with special subsidies for 70MPa hydrogen stations) and for individuals to attract high-class personnel, and establishment of financing funds for various projects. As well as strengthening support systems in other fields than FCV, these also support the entry of foreign companies and their partnerships with domestic companies.
About China's strengths
In this way, China has some major challenges like the world's major countries have, but China also has advantages that other countries do not have. The first is strong support policies by the government and its system unique to China that can enforce them. The second is China’s huge market. If the number of operating FCV increases in the future, a large reduction in hydrogen procurement costs and fuel cell product costs are expected thanks to economies of scale. Third is China has abundant hydrogen energy resources. Hydrogen can be produced in large quantities by utilizing surplus renewable energy, such as abandoned wind and photovoltaic power. We believe that these three strengths will be the main drivers for the future spread of hydrogen fuel cells in China. If the above-mentioned issues can be solved, it is possible that the ambitious goal for the spread of FCV set by the Chinese government will be achieved.
Chinese fuel cell application fields
Last, but not least, the application range of fuel cells in China will be mentioned. There are already 1.7 million new energy vehicles in China, but they have basically operated within cities. They cannot be applied to long-distance public vehicles, transport vehicles, and trucks due to restrictions on travel distance and charging time. In order to overcome this weakness, the central government notes the great importance of the commercialization of fuel cell vehicles. The number of long-distance public vehicles that travel between cities is far greater than the number of public vehicles that run in the city, and the government considers that FCV applications are suitable in this long-distant area. For this reason, private companies are also focusing on the development of fuel cell systems for commercial vehicles. It is expected that this trend will not change in the short to medium term.
In terms of cost, commercial vehicles such as transport trucks and buses that have longer travel distances have more advantages than passenger cars do. As long as fuel cell procurement costs and hydrogen supply costs do not drop significantly in the future, spread of commercial FCVs will precede rather than passenger FCVs. In areas such as the Yangtze River Delta, constructions of hydrogen expressways with hydrogen stations, which is necessary for long-distance travel of FCV, are also planned. With these plans realized, spread of long-distance commercial FCVs such as city transport vehicles, public buses, and medium-weight transport FC trucks could be boosted. Also, some examples of applications in the field of forklifts and special vehicles are found in Foshan, Guangdong Province. When hydrogen stations spread in urban areas in the medium to long term (2022 ~), the application to passenger vehicles will appear little by little.