Will China capture the electrolyser market?

For Preliminary Examination:  Current events of national and international Significance

For Mains Examination: GS III - Enviornment and ecology

Context:

In the clean energy market, the limelight has recently shifted from solar and wind towards green hydrogen. Hydrogen is widely used in industries for oil refining and ammonia and methanol production, but most of it is currently produced using fossil fuels, which add to carbon emissions. Green hydrogen technologies used in production, storage, transportation and application are rapidly advancing, with electrolysers at the core of this transformation. Electrolysers are central to its production, much like photovoltaic (PV) modules are to solar power. And just as no discussion on solar PVs is complete without examining China’s dominance in its supply chain, a similar story seems to be unfolding with electrolysers

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Photovoltaic (PV) modules 

Green hydrogen technologies

Key takeaways:

In the global clean energy sector, attention has been shifting from traditional renewables such as solar and wind to green hydrogen. While hydrogen already plays a critical role in industries like oil refining and the production of ammonia and methanol, the majority of it is generated from fossil fuels, adding to carbon emissions. The focus now lies on developing green hydrogen technologies across production, storage, transport, and application stages. Electrolysers, in particular, have emerged as the backbone of this transformation, much like photovoltaic (PV) modules are for solar energy. Just as debates on solar PVs cannot overlook China’s dominance in the supply chain, a similar trend is now unfolding with electrolysers.

China’s position in green hydrogen

• By 2024, China had become the leading producer of hydrogen globally, generating around 36.5 million tonnes annually. Of this, nearly 1,20,000 tonnes was green hydrogen—accounting for close to half of the world’s total.
• In the electrolyser market, China commands almost 85% of global production capacity for alkaline (ALK) electrolysers. Currently, both Alkaline (ALK) and Proton Exchange Membrane (PEM) electrolysers are used commercially.
• ALK systems, being an established technology, are cheaper but less efficient in handling renewable power fluctuations. PEM electrolysers, though costlier, perform better under variable loads and yield hydrogen of higher purity.
• For the moment, China’s edge lies in its mass-scale ALK electrolyser production, catering both to domestic use and exports.
• China’s rapid build-up of electrolyser capacity, alongside its rollout of large-scale green hydrogen projects, has raised global concerns about its growing influence over the sector’s supply chains.

How China gained this advantage

• China replicated in electrolysers the strategy it had earlier applied in solar PVs: subsidised pricing, tightly integrated supply chains, control over raw material inputs, and speedy expansion of manufacturing capacity.
• ALK electrolysers from China are priced significantly lower than international averages, offering up to 45% cost savings for hydrogen plants in Europe. Price declines continue due to supply chain maturity and increased competition.
• In 2024, a 5 MW ALK electrolyser system cost about six million yuan (~$167/kW), 20% cheaper than in 2023. A 1 MW PEM system was also priced at six million yuan (~$838/kW), reflecting a 32% drop within a year.
• China benefits from abundant domestic supplies of nickel and steel, essential for ALK electrolysers. However, PEM electrolysers depend on scarce and expensive metals such as iridium, platinum, and titanium, which China imports heavily.
• Since hydrogen production requires specific system integration depending on its intended use and purity requirements, competition may increasingly depend on providing integrated solutions rather than price alone.