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How China’s Hydrogen Industry Benefit from Regulatory Flexibility on Hydrogen Production?
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1. The notable expansion of FCEVs highlights a challenge related to the scarcity of hydrogen supply. In China, this issue stems from the shortages of national regulations, which makes hydrogen refueling station (HRS) operators to bear the costs associated with transporting hydrogen from chemical industrial parks.
2. With Guangdong taking the lead in relaxing regulations for building on-site hydrogen production sites at HRS, more cities will participate in this form of relaxation, aiming to establish a 'hydrogen supply corridor' within the transportation sector.
3. Meanwhile, Hebei and Jilin pioneered in extending their relaxation policies beyond the transportation sector to foster green hydrogen production, aiming to ramp up the production capacity and incentivize downstream investment; other cities with similar pursuits are likely to adopt this regulatory flexibility.
Key words: #Regulation #Greenhydrogen #Onsitehydrogenproduction 
If you like this article, please also refer to our comprehensive analysis report "2023 Hydrogen Supply Chain in China" and "2023 Hydrogen and Fuel Cell Industry in China"

The use of hydrogen energy in fuel cell vehicles has experienced significant growth in China largely due to central government’s promotion. China's policy initiative, beginning in 2021, focused on the demonstration of FCVs in model city clusters, particularly in long distance application.
The Challenge posed by Limited Hydrogen Availability
Despite the strong subsidy and ambitious roadmap in this hydrogen application sector, there are uncertainties surrounding the practical operation of these vehicles. On a global scale, the lack of profitability has led to the potential closure of numerous hydrogen refueling stations. This phenomenon has been acknowledged as "growing pains" in certain regions of China as well. Guangdong, the province in China with the most ambitious goals for advancing FCEVs, aims to set up 200 hydrogen refueling stations and put 10,000 FCEVs on the road by 2025. However, for a time, nearly one-third of logistics vehicles and buses are seen to be unable to operate normally due to a tight supply of hydrogen, leading to them being forced to stop or remain parked in parking lots (Figure 1).
Figure 1: FCEVs are in idle due to lack of hydrogen supply
Source: CCTV
In Guangdong, there is neither adequate hydrogen energy sources nor enough hydrogen refueling stations (HRS) so far provided for the operation of these vehicles. Hydrogen production is within limited provincial energy primary source such as coal and natural gas. The land-based renewable sources are constrained, while off-shore wind farms are too early to take off. So far, most of the hydrogen supply is based on the by-product hydrogen supplied from petrochemical enterprises located in the eastern (Huizhou) and northwestern (Zhanjiang, Maoming, Shaoguan) areas. But the downstream applications of hydrogen energy industry there are however underdeveloped. Although regions such as Foshan and Guangzhou have commercial demand regarding downstream FCEV logistics application, under the restriction of national regulation, they need to transport the hydrogen by tube trailers across cities from chemical industrial parks to make local sufficiency of hydrogen supply which leverage the cost.
Under current national regulatory framework, hydrogen as a fuel or energy source hasn’t gain emphasis. Although hydrogen is categorized as an energy product in National Energy Law, there is a lack of precise regulatory details. Meanwhile, hydrogen energy is under the label of "hazardous chemical" categorized by “Catalogue of Hazardous Chemicals (2015 Edition)” due to its lower flammability and higher probability of deflagration. The follow-up restrictions are to make hydrogen production activities equals to manufacture basic chemical raw materials. Their production should strictly locate within the chemical industrial parks and follow designated operational management to minimize the environmental safety risks. The transportation of hydrogen, according to Regulations on the Administration of Road Transport of Dangerous Goods, transportation routes need to obtain approval from the traffic management authorities, together with strict regulations regarding transportation methods, safety management, and transit times. This current national regulatory system results in the immature hydrogen storage and transportation system becoming an indispensable part in the domestic hydrogen supply chain. Due to the significant self-weight of the hydrogen storage containers on long-tube trailers, the actual weight of transported hydrogen constitutes only 1%-2% of the total transport weight. Also, transportation costs increase significantly with longer distances.
The cost burden of hydrogen transportation in distance has fallen on the shoulder of operators of hydrogen refueling stations. Subsidies targeting the operation of hydrogen refueling station is according to its sales price. For example, in Jing-Jin-Ji model city cluster, the policy noted that, “a subsidy of 10 yuan/kg will be granted for hydrogen operation for those who provide hydrogen services and commit to selling hydrogen in the market at a price not exceeding 30 yuan/kg”. Shanghai city cluster is 35 yuan/kg. But according to real investigations, the out-of-factory price of hydrogen to refuel vehicles are probably much higher than this price ceiling (60~70 yuan/kg). To qualify for subsidies, many operators of hydrogen refueling stations have to cut the sell price of hydrogen, but the subsidy received may not fully compensate for the operational losses. This situation leads to many hydrogen station operators rechoosing to forgo subsidies and instead sell hydrogen to end-users at original high prices. For end-users, those vehicles can only benefit from one-time subsidies at the initial stage for purchasing, but they are unable to obtain lower hydrogen prices in actual operation. As a result, this significantly diminishes the enthusiasm of prospective buyers and leads to the purchased vehicle in idle once it’s fulfilled the requirements for operating mileage.
Regulatory Relaxations targeting Hydrogen Refueling Station (HRS)
The uneven distribution of the hydrogen energy sources in Guangdong made this cost burden issue more outstanding. To bridge the gap between ambitious policy objectives and the bleak reality of operation, local government officials and experts realized it’s not enough to just secure the hydrogen production capacity. In June 2023, “Interim Measures for the Construction and Management of Hydrogen Refueling Stations for Fuel Cell Vehicles in Guangdong Province” published by twelve departments in Guangdong. The published document has eased 3 aspects as follows:
  1. Land: supporting the on-site hydrogen production at HRS and existing gas station to transform into combined station. New gas stations are encouraged to plan and construct hydrogen facilities concurrently.
  2.  Scale: the scale of hydrogen production at on-site hydrogen production station ≤ 3,000 kg/day, the total capacity of hydrogen storage tanks ≤ 3000kg. Construction of on-site hydrogen production station is permitted outside of chemical industrial parks.
  3. License: Hazardous Chemical Production Safety Permit is not required. HRS for external business activities shall obtain Filling License of Gas Cylinder before operation.
Hydrogen production for the first time receives targeted support to extend beyond chemical industrial parks, relying on the establishment of hydrogen refueling stations with downstream hydrogen utilization confined to FCEV scenarios. Thus, this form of relaxations is viewed as a support to boost local FCEV industrial growth. The selection of hydrogen refueling station locations is expanded to be closer to driving routes of vehicles. By integrating hydrogen production and refueling on-site, significant cost reduction room could be achieved, illuminating path to profitability.
Figure 2: Announced relaxation policies of on-site hydrogen production
Source: Integral summary based on published policies
It is worth noting that this is not a single case happened in Guangdong. The regulatory flexibility has been observed in several localities this year (Figure 2), and the ongoing trend of constructing on-site hydrogen production facilities aligns with the strategic framework of a large-scale hydrogen transportation demonstration plan. The emphasis of this plan lies in the deployment phase of FCEVs. The layout, explained by automotive expert Wan Gang, involves initially connecting the trunk lines of "two verticals and four horizontals" and subsequently establish "hydrogen supply corridors". Currently, with more than 40 cities scattering in the 5 model city clusters which are mainly located in the eastern and southeastern regions. But through future connection of these cities, transportations spanning vertically and horizontally within cross-regional highways. For heavy duty trucks fueled by hydrogen fuel cell, they primarily operate on fixed routes and are suitable for long-distance logistics along controlled-access highways. In the future, hydrogen refueling stations can be constructed at transportation hubs within the high-speed networks. For instance, using slopes along the highways or utilizing zones that are rich in industrial by-product hydrogen to establish regional hydrogen supply corridors. In this sense, the cities along the hydrogen corridor are most likely to relax first under the regulations for on-site hydrogen production (Figure 3).

Figure 3: Prospects of relaxing on-site hydrogen production
Source: Integral summary
(Note: On the map, Form 1 relaxation refers to hydrogen refueling stations, while Form 2 relaxation refers to hydrogen safety management.)
Regulatory Relaxations targeting Hydrogen Safety Management
But is innovation in regulatory systems limited only to FCEV industry?  Many largest-scale green hydrogen projects are currently under construction in Inner Mongolia and other northwest region of China, and downstream applications are no longer limited to the operation of FCEVs but extend beyond to chemical production industry. However, under current national regulation, green hydrogen production is unable to construct nearby industrial hydrogen end-users in some cases.
Figure 4: Announced relaxation policies of green hydrogen production
Source: Integral summary based on published policies
The trend of regulatory relaxation is also observed in the realm of hydrogen production in Hebei and Jilin (Figure 4). Different from Guangdong, Hebei at almost the same period, announced Hebei Province Hydrogen Energy Industry Safety Management Measures (Trial) targeting the entire chain of hydrogen energy safety management. Compared with Guangdong’s relaxations focused on refueling station, the encouragement differs in the following 3 dimensions:
  1. Land: encourages both green hydrogen production and on-site hydrogen production at HRS outside chemical industrial parks.
  2. Scale: Not specified.
  3. License: For green hydrogen projects, Hazardous Chemical Production Safety Permit is not required. For on-site HRS, they are managed according to the model used for natural gas refueling stations. While operation need to obtain Operating License of Gas and License of Gas Supply Station.
These measures seem to target fostering the development of hydrogen production which also include on-site hydrogen production at HRS, particularly green hydrogen, by providing regulatory flexibility and streamlining permit requirements.
Over the years, Hebei has seen a movement in plans to broaden downstream hydrogen applications beyond transportation sector. With great PV and wind renewable potential in Zhangjiakou city, Hebei seize the chance to become an early mover in hydrogen development. By being selected to co-host the low-carbon 2022 Winter Olympic Games in Beijing and being a member of Jing-Jin-Ji model city clusters for FCV demonstration application, Hebei got direct support from central government to initiate a bunch of pilot projects. Also, Hebei have built the world largest 200MW/800MWh hydrogen storage power generation project for peak modulation in grid side. The relaxation of hydrogen production this year enable a more flexible geographical requirement for the hydrogen production site according to its local hydrogen storage needs.
Jilin is another province similar to Hebei Province in the regulatory relaxation by releasing the "Jilin Province Hydrogen Energy Industry Safety Management Measures (Trial)" in November 2023. Despite not having the first-mover advantage like Hebei, Jilin is more committed to realizing ambitious plans for green hydrogen production. Being one of the heartlands of China’s heavy industries, with years of supply-side structural reform, Jilin’s economy reaches the stage of restorative growth for their GDP. But the province still relies on new business generated for economic vitalization and hydrogen energy became the strategic focus of the province’s Fourteenth Five-year development plan. Jilin proactively establishes the provincial plan of “Hydrogen Driving Jilin” in Nov 2022 to exploit the abundant renewable energy resources, as well as engage in advanced R&D and equipment manufacturing. Their focus in downstream is on utilizing green chemical as a significant avenue for consumption and building export capabilities. A recent document "Implementation Plan for Preemptively Laying out a New Track for the Hydrogen Energy Industry" in Dec 2023 shows that Jilin's 2025 green hydrogen production target has been raised to 200,000 t/y, at least 2.5 times compared to the “Hydrogen Driving Jilin” Initiative. They are in need of such an encouragement to promote green hydrogen production projects without restricted scales.
What we can foresee is that relaxations targeting green hydrogen production appears to be a precondition for regions aspiring to achieve their green hydrogen production goals and promote downstream green hydrogen consumption (Figure 3).
Although subsidies can alleviate the initial costs of industrial development, the unseen costs mitigated through regulatory flexibility may hold greater significance. Above, we've outlined how regulatory relaxations targeting different sectors could potentially create a conducive environment at the local level. The spread of relaxed regulatory trends is set to pave the way for future hydrogen industrial development.
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