Green hydrogen is hailed as a transformative solution for the global energy transition, offering a pathway to decarbonize hard-to-abate sectors such as steel, chemicals, and heavy transportation. However, despite ambitious projects and substantial investments, the green hydrogen sector remains stuck in limbo, plagued by financial, regulatory, and infrastructural challenges. This blog delves into the sector’s promise, the hurdles it faces, and the actions needed to unlock its potential.

The Promise of Green Hydrogen

Green hydrogen, produced via hydrogen production electrolysis using renewable energy, has a unique advantage: zero greenhouse gas emissions throughout its lifecycle. This positions it as a vital solution for industries that cannot easily switch to renewable electricity. Nations worldwide have embraced the promise of green hydrogen, with the global pipeline of projects representing $570 billion in pledged investments and a target capacity of 45 million tons (Mt) annually by 2030.

• China’s Leading Role: China added 301 GW of renewable capacity in 2023 alone, driving its green hydrogen ambitions. With over 30 large-scale projects and 7 GW of installed capacity, it has become the world’s leader in green hydrogen.
• India’s Potential: India aims to trade $3–5 billion worth of green hydrogen annually by 2030, leveraging its abundant renewable energy resources.
• Global Targets: Europe and the U.S. have set aggressive targets to integrate hydrogen into their decarbonization strategies, with dedicated policies and funding initiatives. However, progress remains uneven across regions

Why the Sector is Stuck in Limbo Despite its immense potential, the green hydrogen sector has struggled to gain momentum due to several interconnected challenges:

1. Lack of Final Investment Decisions (FID):
   • Only 7% of the announced green hydrogen capacity worldwide has reached FID, with most projects stalled by financing, regulatory, or market uncertainties
   • For example, Project Cavendish in the UK and Nutrien’s Geismar project in the U.S. were shelved due to unclear government support and economic risks

2. Investor Hesitancy:
   • Investors are reluctant to commit without long-term off-take agreements. The limited emergence of new hydrogen markets beyond traditional applications, such as refining and ammonia production, adds to their apprehension

3. High Production Costs:
   • Electrolyzers—a key component of hydrogen production—remain expensive. Chinese systems cost around $343/kW, while European and U.S. alternatives exceed $1,200/kW, creating significant cost disparities

4. Policy and Regulatory Delays:
   • Ambitious hydrogen targets are often undermined by slow-moving policies. Delays in subsidy approvals, like those seen in the EU and U.S., hinder developers from achieving financial closure

5. Macroeconomic Challenges:
   • High inflation, increased capital costs, and economic slowdowns have raised the cost of green hydrogen projects, making them less financially viable

6. Infrastructure Gaps:
   • Hydrogen is predominantly produced and consumed on-site due to limited pipeline infrastructure. Transporting hydrogen to end-users, such as steel mills or chemical plants, remains a logistical and financial challenge

7. Market Fragmentation:
   • Global hydrogen strategies vary significantly. China’s reliance on economies of scale contrasts with Europe’s focus on advanced technology and government-backed incentives. This divergence limits global collaboration and standardizatio

The Four Pillars of Competitiveness A nation’s ability to lead in green hydrogen depends on four key factors:

1. Renewable Energy Resources:
   Abundant, low-cost renewable energy is essential for competitive hydrogen production
2. Manufacturing Capabilities:
   China’s mature supply chains for electrolysers have allowed it to dominate production, reducing costs significantly compared to Western manufacturers
3. Electricity Ecosystem:
   Efficient grid infrastructure ensures reliable and affordable electricity for electrolysis, a critical component of green hydrogen production
4. Cost of Capital:
   Lower financing costs enable the large-scale deployment of hydrogen infrastructure. Europe and the U.S. struggle with higher financing costs compared to self-funded projects in China

China has successfully mastered all four pillars, making it a formidable leader in the global green hydrogen race. By leveraging its vast renewable energy resources, efficient manufacturing capabilities, well-developed electricity ecosystem, and lower cost of capital, China has created a green hydrogen ecosystem that is both scalable and cost-effective, positioning hydrogen fuel for the future as a cornerstone of its energy strategy. This dominance not only enables rapid project deployment but also exerts significant competitive pressure on other nations striving to establish their own hydrogen industries.

China’s Competitive Advantage and Its Threat to Other Markets China’s dominance in the green hydrogen sector is not just a success story but also a growing concern for other markets. Its competitive edge, built on cost leadership and scale, presents a significant challenge to Europe, the U.S., and other players.

1. Price Disparity:
   • Chinese alkaline electrolysis systems cost approximately $343/kW, compared to $1,200/kW in the West. This stark difference is driven by China’s mature supply chains, vertical integration, and lower labor costs
   • Notable projects, such as the Energy China tender for a 5 MW ALK electrolyser in December 2023, showcased Chinese pricing as low as $219/kW, including balance-of-plant (BOP) costs. This pricing was nearly a third of what Western counterparts offered
2. Vertical Integration:
   • Chinese companies, such as LONGi and Sinopec, control multiple stages of the production process, from manufacturing electrolysers to generating renewable electricity. This vertical integration reduces costs and ensures supply chain efficiency
3. Scale and Speed:
   • China’s ability to rapidly deploy projects gives it an edge. For instance, in Q1 2024, over 80% of planned green hydrogen investments exceeded 2023 levels, with 1 GW of electrolysis capacity already operational and more projects on the horizon
4. Global Market Impact:
   • Europe’s hydrogen industry fears a repeat of the solar industry collapse, where cheaper Chinese imports led to the downfall of major players. Protective measures, such as EU’s hydrogen bank pilot auction, aim to safeguard local technology but may not fully counteract China’s cost advantage
   • The growing dominance of Chinese manufacturers may discourage investments in Western technologies, further widening the competitive gap
5. Focus on Domestic Growth:
   • While China’s current focus remains domestic, its growing capabilities could disrupt international markets if Chinese manufacturers decide to export aggressively. Already, global interest in lower-cost Chinese electrolysers is rising

The Way Forward To unlock the potential of green hydrogen and address competitive threats, stakeholders must:

1. Scale Demand:
   Governments and industries should prioritize creating demand in emerging sectors like shipping, aviation, and long-duration energy storage
2. Streamline Regulations:
   Simplified permitting processes and clear policy frameworks are critical to accelerate project timelines and reduce developer uncertainty
3. Drive Cost Reductions:
   Innovations in electrolyser technology, along with strategic investments in renewable energy, can make green hydrogen more competitive
4. Enhance Collaboration:
   International cooperation on standards, technology transfer, and supply chains can foster a more cohesive global hydrogen economy
5. Secure Financing:
   Long-term off-take agreements and innovative financing models, such as green bonds, are essential to attract investments and de-risk projects

Green hydrogen holds the key to a sustainable, decarbonized future. While the sector faces significant challenges, these are not insurmountable. China’s cost advantage and rapid progress pose a serious threat to Western markets, but with coordinated efforts, nations can safeguard their industries and accelerate the hydrogen transition. The world stands at the brink of a hydrogen revolution—it is time to take the decisive steps needed to turn ambition into action