The three new productive forces identified by China to boost its economy: solar panels, electric cars, batteries, are also the pillars of the European green transition; whose supply chains and exports are entirely monopolized by Beijing. Soon, Chinese companies could dominate another critical sector for the European Green Deal: electrolyzersthe water splitting machines that make green hydrogen from clean electricity.
Green hydrogen is a CO2-free fuel produced from zero-emission sources that the European Commission intends to use in the decarbonization of industry, transport and energy storage. The objectives are ambitious: By 2030, the EU will have to produce ten million tons and import the same amount; By 2050, green hydrogen should cover approximately 10% of energy needs of this political community. However, taking into account that 60% of the electrolyzer manufacturing capacity is concentrated in China, and considering that this percentage is increasing, Western companies fear that European objectives will not be met with machinery manufactured in their territory, but imported from the Asian country.
European companies fear China
Last summer, twenty companies wrote a letter to the President of the European Commission, Ursula von der Leyen, expressing their fears and asking for guarantees. With the bankruptcy of the Swedish battery giant Northvolt, the EU is in danger: the car industry is struggling to compete in the electricity sector, and the battery industry could die before developing. Even wind turbine manufacturers risk being unable to cope with Chinese competition.
“Once a technology or its supply chain is lost, it is impossible to recover it. Chinese electrolyser manufacturers receive state subsidies that distort competition, placing European distributors at a considerable disadvantage,” warn the signatories of the the letter. Especially since the euphoria over clean hydrogen has passed and the market is struggling to take off, held back by buyer uncertainty due to high prices. A kilo of hydrogen from renewable sources can cost six times more than a kilo from fossil sources. Under these conditions, the attractiveness of Chinese electrolyzers, which cost about a third less than European ones, is understandable.
The US Department of Homeland Security is concerned that Chinese investment in lithium batteries threatens the security of the US supply chain.
The limits of Chinese devices
The fears of European companies have come true. In the second auction of the European Hydrogen Bank (BEH), held in early December, restrictions were imposed on the use of Chinese components in hydrogen projects financed with EU resources: Electrolyzers made in China cannot account for more than 25% of the plant’s production capacity.
“When you resort to defensive measures like this, it means that you are already at a disadvantage in the supply chain, that is, at the market level you cannot walk alone. Therefore, it is an uphill journey, which only can be effective to a certain extent, since the only way to overcome certain challenges lies in production and technological capabilities,” explains Luca Picotti, lawyer, expert in commercial law and author of the book La legge del più forte (The Law of the Strongest). He adds that it has already been confirmed that dispersed financing and subsidies, when not accompanied by national priority clauses, end up benefiting foreign companies that are ahead in those sectors.
Amazon and others big tech have proposed the use of nuclear energy as a solution to the growing energy demand of data centers.
The two electrolyzer technologies
In the report on the future of European competitiveness, the former Prime Minister and current President of the European Central Bank, Mario Draghi, states that “the Union holds technological leadership in electrolyzers but, unlike China, it does not yet produce on a large scale “. Between Western and Chinese production there is not only a difference in volumes and prices, but also in quality. China mainly manufactures alkaline electrolyzers, a mature technology whose manufacturing cycle has been perfected to such an extent that it can offer very cheap devices. A study by Wood Mackenzie, a global provider of data and analytics solutions, maintains that “Chinese machinery can guarantee a halving of the investment costs of a hydrogen project.”
However, when it comes to electrolyzers with proton exchange membranes (PEM); a more expensive technology but better in terms of energy efficiency, Chinese production is not superior to Western production, nor cheaper. Although this could change: in September, the Envision group, which deals with qualifications for the design and construction of sustainable infrastructure, based in Shanghai, announced a $1 billion investment in Spain to create an industrial park dedicated to both alkaline electrolyzers such as PEM.
Although the facility will be built in the European Union, there remains a risk to the technological autonomy sought by the Commission: Chinese companies could rely on the scale achieved in traditional machinery while advancing the manufacturing of PEM electrolyzers, making it even more difficult for European manufacturers to compete. Especially since the latter, unlike the Chinese, do not have the same ease of access to raw materials. Draghi’s report explains that “the production of electrolyzers requires at least 40 raw materials and the EU only produces between 1% and 5% of them”. The Wood Mackenzie study adds that the need for high-quality materials, such as nickel for alkaline technology or platinum, iridium and titanium for PEM technology, “is the most significant additional cost.”
“If funds and financing for clean technologies are limited by national priority or the exclusion of certain nationalities, and if tariffs on imported goods are raised as in the case of electric vehicles, a compromise may be to attract foreign manufacturing investment on European soil,” explains Picotti. In some ways, it’s a win-win situation: the Chinese get access to the European market without suffering tariffs, and the Europeans get factories, jobs and know-how.
“But this is not necessarily in Beijing’s plans, especially when it comes to sharing the stages of greatest added value. So these defensive measures may be fine in the short term, but you cannot rely on them alone, one has to becoming great on your own in terms of competitiveness, productivity and innovation. First you win in the market, then comes the rest. And sometimes maturity also consists of accepting some defeats and starting to look the other way,” Picotti concludes.
Article originally published in WIRED Italy. Adapted by Alondra Flores.
#tug #war #China #Europe #hydrogen
