Stepping on the Gas
A push for hydrogen fuel cell vehicles at the local level because of anticipated government subsidies might stall due to high costs, technological obstacles and lack of infrastructure
In early March, Liupanshui, a city in southwestern Guizhou Province, started its first pilot bus route for two hydrogen-powered buses. At the same time, the city opened its first hydrogen refueling station. Many cities across the country are itching to develop hydrogen-powered vehicles, particularly after the central government released a subsidy policy in September 2020 promoting the development of hydrogen-related technology and the industrial application of hydrogen.
By the end of 2020, over 40 policies targeting the industry had been released in more than 20 cities.
“Local authorities are enthusiastic about hydrogen because it involves energy, materials, equipment manufacturing and so on, which not only motivates the upgrading of traditional industry but also generates new industrial chains,” Jing Chunmei, vice director of the information department of the China Center for International Economic Exchanges, told Newschina.
Brakes and Hurdles
But after formulating ambitious plans, offering subsidies for buyers of hydrogen-powered vehicles and building refueling stations, some experts are asking if this will be another example of local authorities burdening themselves with yet more white elephant developments.
The central government started offering subsidies for hydrogenpowered vehicles in 2009, but the process has been slow. The major issue is that hydrogen power is yet to be fully recognized as energy, having always been treated as a volatile element. Only in April 2020 was hydrogen defined as a source of energy in a draft Energy Law. Although not yet legislation, the draft was seen as a green light for expanding the hydrogen gas sector. Still, the production and use of hydrogen, though included as part of the vision for new energy vehicle manufacturing, has no overall strategic plan at the national level.
China has hastened the development of hydrogen-related industry through incentives, particularly since 2019. First there were subsidies for purchasing fuel cell cars. In 2020, the subsidies were replaced with awards for cities that do well in making breakthroughs in core parts, introducing skilled personnel and setting good examples in industrial application. But the difficulties start when these places try to source sufficient supplies of hydrogen.
A byproduct of the fossil fuel sector, 96 percent of hydrogen in the world is derived from coal or natural gas. In China, hydrogen at refueling stations is mainly a byproduct of industrial processes, previously seen as waste. Even though some places, like Shandong and Sichuan provinces, claim to be big producers of hydrogen, the amount available for fueling vehicles is limited.
Transporting hydrogen is a big problem. It is usually transported via tube trailers – long tanks filled with compressed gas hauled by
trucks. But hydrogen made from industrial processes is not suitable for long-distance transportation. “Using tube trailers for long-distance transport is uneconomical, but building pipelines costs too much,” said Ouyang Minggao, an academician of the Chinese Academy of Sciences and vice president of the China Electric Vehicle Association. He said that current transportation methods are inefficient and costly, and the technology needs upgrading.
In cities that aim to develop fuel cells to power vehicles, hydrogen supply is the priority. However, anxiety over refueling is hindering development, Jing said.
Infrastructure development also faces challenges. By the end of 2020, China had built 118 refueling stations for hydrogen, 101 of which are operational, according to the Orange Group, a research institution specializing in hydrogen fuel cells. The number is expected to reach 1,500 in 2035 and 10,000 in 2050, according to a 2019 prediction from the China Hydrogen Alliance, a national-level think tank dedicated to promoting the development of the hydrogen industry.
Gao Huiqiang, chief manager of the fuel cell platform of Maxus, a subsidiary of the Shanghai-headquartered SAIC Motor, told Newschina that an electric vehicle battery charging station costs from tens of thousands up to hundreds of thousands of yuan, but a hydrogen refueling station costs much more.
Gao Dingyun, chairman of Shanghai-based Sunwise, a company engaged in hydrogen-related technology, said that maintenance costs exceed 2 million yuan (US$306,000) a year. Most refueling stations do not make money due to the high cost of gas and lack of demand. There are fewer than 10,000 hydrogen-powered cars on the road.
The cost of running hydrogen-powered vehicles is daunting too. In Weifang, Shandong Province, a refueling station dropped the price of hydrogen to 50 yuan (US$7.7) per kilogram (usually 80-100 yuan per kilogram) with subsidies from the local government. But operating costs are still higher than traditional vehicles. “The price needs to drop more, to at least 35-40 yuan (US$5.4-6) per kilogram, to be as competitive as traditional vehicles. But no city can achieve that yet,” said an employee at Weichai New Energy, a new energy technology firm in Weifang.
When it comes to the middle of the industrial chain, China has to import hydrogen fuel cells, which help transfer the chemical energy produced by hydrogen and oxygen into electricity. Lu Bingbing, general manager of Shanghai Hydrogen Propulsion Technology, a SAIC subsidiary producing fuel cell technology, told Newschina that the core of a fuel cell is a fuel cell stack, and the heart of that is the membrane electrode assembly, which decides service life and performance. The membrane electrode assembly accounts for 70 percent of the cost of fuel cell stacks.
He said that after years of efforts, the auxiliary parts of fuel cells can be produced domestically. But China relies on imports for three core materials to manufacture membrane electrode assemblies. “Domestic companies are striving to fill the gap, but the technology lags behind,” Lu said.
In recent years, domestic fuel cell technology has largely improved. Gao Huiqiang said that when Maxus were developing their first hydrogen fuel cell car five years ago, it was hard to find even an air compressor supplier and they had to import them in the end. “Now there are many choices and the products have improved in both quality and cost.”
Ouyang Minggao agreed that the products have improved a lot in terms of main indicators, including service life. A domestic chain to produce fuel cell parts has taken shape and the next step is to reduce the cost of fuel cell systems by 80 percent.
But Jing said there are still gaps with international manufacturers. “The core technology and materials for fuel cells are still in the hands of developed countries such as Canada, the US, Japan and South Korea,” Jing said. She suggested enterprises focus on improving the weak points in core technologies and materials to break the bottleneck, instead of hurrying to expand the market.
Application Dilemma
Overall, the development of the hydrogen energy industrial chain is uneven, with weak links at different levels. The chain covers a range of industries from energy and vehicle manufacturing to transportation. Upstream is hydrogen supply, from production and transportation to refueling. With fuel cells in the middle, downstream are applications, with automobiles the main user for the time being. Ouyang said the overall automation of the hydrogen energy chain and technology falls behind that for fuel cells, and every link involving hydrogen technology requires an uplift to keep pace.
Hydrogen-powered vehicles require high purity hydrogen, no lower than 99.97 percent, with a low cost and stable supply sourced within 200 kilometers. “After production, there are a series of links, such as purification and transportation, before hydrogen is eventually
put into vehicles. It's a long industrial chain,” said the employee at Weichai, who added that for now, making all these links run smoothly rather than simply building refueling stations for a few vehicles is essential if the industry is to develop.
Jing suggested local governments enhance coordination between supply of hydrogen to application and explore new methods and technologies for better long-distance transportation.
While there are bottlenecks in hydrogen supply and demand is low, in the middle there is already danger of overcapacity. The fuel cell industry, for instance, is highly competitive as players flooded in. Data from Tianyancha, an enterprise data provider, shows that in 2015 there were only 1,500 companies related to fuel cell production. By March 2021, the number exceeded 8,000. “Excessive competition is a waste of resources,” said Lu Bingbing. Even worse, some companies are not developing proprietary technology but just assembling imported parts, he said.
Jing shares these worries. She said that total production capacity of hydrogen fuel cell stacks planned by local governments has reached over 1,500 megawatts, and planned capacity for hydrogen-powered vehicles totals nearly 10,000. But the industrialization of hydrogen is just getting started in China. Given the existing challenges in core technology, the high price of hydrogen and infrastructure, it will be difficult to actually apply the planned capacity of fuel cells, resulting in overcapacity, Jing said.
“Developing hydrogen energy and fuel cell vehicles requires a Statelevel plan from the government to link the whole chain together,” said Yu Zhuoping, director of the expert committee of China Hydrogen Alliance.
In these circumstances, encouraging the use of hydrogen-powered vehicles is often proposed to motivate the overall industry, using experience from other industries which pushed market demand to boost upstream development. But reality shows this solution is not realistic in this sector.
China is expected to have some 100,000 hydrogen fuel cell vehicles on the road by 2025, and private car ownership is forecast to be 1 million between 2030 and 2035, as stated in an energy saving and new energy vehicle development plan released by authorities in October 2020.
In 2020, however, the production and sale of fuel cell cars dropped sharply from 2019, affected by the pandemic and the scrapping of subsidies for hydrogen-powered cars. By the end of 2020, only 6,002 hydrogen-powered cars were registered with the State monitoring center of new energy vehicles. Half are logistics vehicles and nearly 40 percent are buses.
The high cost of domestic hydrogen-powered vehicles partly explains the difficulty in promoting their use. Wei Changhe, deputy chief engineer of car manufacturer Foton's new energy system integration, said that the price of a finished hydrogen-powered vehicle is more than twice that of a traditional petrol or electric vehicle. At present a hydrogen-powered bus costs about 2 million yuan (US$306,000), while an electric bus costs half that. Many places rely on government subsidies to buy hydrogen fuel cell buses for demonstration purposes. “It's fine for local governments to purchase a few for demonstration. But large-scale use would be a financial test,” Jing said.
Local governments also have to subsidize hydrogen refueling, as the price is otherwise unaffordable. If hydrogen-powered buses go into widespread operation, refueling subsidies will cost even more than buying the vehicles, estimated Jing. “It is a question of whether this mode of development will prove sustainable,” she said.
Many industry insiders believe that hydrogen-powered cars could follow the example of electric cars and reduce costs by promoting widespread application first. “The point is to find better application scenarios,” said Yu Zhuoping.
But a question hangs over what pace the commercialization should take. It seems the government is not encouraging the manufacturing of hydrogen-powered vehicles either, seen from the adjustment of policies in September 2020 that scrapped subsidies for purchasing hydrogen-powered vehicles.
“It is urgent to make breakthroughs in core technologies,” Jing said. She suggested local governments focus on developing commercial vehicles and the commercialization of fuel cell trucks first, before turning to passenger vehicles, as this approach could ultimately stunt the domestic sector and see money going overseas instead.
“If they promote large-scale use [of hydrogen-powered vehicles] right now, domestic enterprises will rely on foreign technology and lack motivation to develop their own technology, which will lead to the outflow of huge profits along the overall industrial chain,” Jing said.