China's hydrogen ambitions may ride on Sinopec's Kuqa project in Xinjiang

The success of China's flagship green hydrogen project, the world's largest by capacity, is central to its plan to become a key exporter of hydrogen technology, lower production costs and switch local industry from fossil fuel-based hydrogen to a cleaner version of the fuel.

The project, named Kuqa, in China's remote Xinjiang province, is being developed by national oil company Sinopec; has, however, been in the spotlight for not reaching full capacity when it started operations.

Sinopec said the Kuqa project was fully completed and put into operation on Aug. 30, 2023, and has transmitted 22.36 million cu m (about 2,000 mt) of green hydrogen to Sinopec's Tahe Refining & Chemical Company as of Dec. 21, 2023.

"In the later stage, with the completion of the expansion and renovation of the Tahe production plant, the green hydrogen delivery volume will gradually increase," Sinopec said, adding that production will reach 20,000 mt/year by the fourth quarter of 2025.

Kuqa's slower-than-expected ramp up has been attributed to safety issues as the project had to cut capacity when renewable supplies fell below a certain threshold.

In the operation of electrolysers, the primary unit that splits water into hydrogen and oxygen, managing fluctuation in the power load is a common challenge faced by the entire industry, Sinopec personnel told S&P Global Commodity Insights.

They said China's alkaline water electrolysis technology has been industrialized for more than 30 years but is shifting from fossil fuels to renewable energy feedstock, requiring technological innovation to solve the intermittency issue, officials said.

They also said preventing the mixing of hydrogen and oxygen was a technical challenge in the production of green hydrogen, and the Kuqa project had systems in place to optimize production with key safety indicators under control.

At a recent industrial forum, Li Zhenguo, president of LONGi Green Energy Technology, an electrolyser supplier for the Kuqa project, said the challenge of low production rates had been exaggerated.

When renewable supplies are low and the system needs to operate below 30% of its design capacity, the real practice is to have 30% of the electrolysers working at full capacity, and shutting down the rest, instead of letting all electrolysers work at under 30%, according to local media quoting Li.

Ramping up

The Kuqa project is trying to achieve large-scale green hydrogen production in a very challenging environment -- the project has no comparable precedents to follow, especially in terms of how to select the best equipment and design the optimal system. As a state energy firm, however, Sinopec responded to the government's call to be the first to bite the bullet.

Also, contrary to its European counterparts, the project relies more on solar energy instead of wind, which exacerbates intermittency issues and puts more pressure on electrolysed stacks to handle low power inputs. That's because solar generally has a lower efficiency of 20%-30% than wind energy at 30%-60%.

"When there's not enough electricity, the production rate is low and efficiency decreases, leading to incomplete electrolysis. If the power supply drops below a certain level, there's a risk of gases mixing, which could potentially create explosive gas combinations," Ankit Sachan, principal consultant with SPGCI's Energy Transition Consulting team, said.

Analysts at S&P Global previously noted that some Chinese manufacturers use unverified domestically produced separators to cut costs.

"These separators are integral to maintaining the separation between the anode and cathode, while allowing the passage of ions in the electrolysis process. Separators play a crucial role in preventing the mixing of hydrogen and oxygen gases produced at the electrodes," Sachan explained.

He said one of the primary challenges in the industry was achieving efficiency improvements, while simultaneously managing costs. Chinese electrolyzers, despite claiming comparable efficiency on paper, often exhibit lower actual efficiency.

"Other challenges include ensuring access to low-cost raw materials. While Chinese manufacturers can source cathodes and anodes domestically, sourcing separator membranes is a challenge mainly due to the limited number of global suppliers," Sachan said, adding that sourcing separators from outside China may also lead to increased production costs.

"While several large-scale projects are currently in progress, Kuqa is the largest operational electrolyser facility. The project offers a valuable learning opportunity, and the experiences gained will play a significant role in other upcoming project," he said.

Sachan also said, due to the lack of operating projects of similar size, there is limited information on the challenges faced by alternative hydrogen technologies such as Polymer Electrolyte Membrane.

Challenges

The Kuqa project was launched when large hydrogen projects in other countries were struggling to even reach a final investment decision and the Biden administration's Inflation Reduction Act was sucking up hydrogen project funding.

Kuqa's scale is also eye-catching. It comprises a stack of 260 MW of hydrogen electrolysers, more than Europe's total water electrolytic capacity of 228 MW as of September 2023, according to local industry association Hydrogen Europe. The project pushed the limits of equipment supply within China as well.

"Before this project was initiated, the domestic demand for electrolysers of 1,000Nm³/h capacity was below 30, while our project alone needs 52 electrolysers of that scale," Sinopec said in a June 2023 statement.

China's current share of global manufacturing capacity for alkaline electrolysers is expected to reach 75% by 2025 from above 60% currently, and Chinese electrolyser capex is already around 73% lower than the global benchmark, with comparable efficiencies, analysts at S&P Global said in 2023.

China hopes to replicate its success in solar and wind in green hydrogen and reach electrolyser production capacity of over 25GWe by 2025 for 100,000–200,000 mt/year of green hydrogen. But buyers' acceptance and cost advantages will still depend on Kuqa's success.