Interview: New policies will support use of hydrogen as energy fuel in China - Air Liquide's H2 director

Singapore — A number of new policies this year will support the use of hydrogen as an energy fuel in China, but challenges remain, Air Liquide's head of hydrogen in China, Bruno Forget, said in an interview with S&P Global Platts.

"In China, hydrogen is all about mobility for now," said Forget, who leads Air Liquide's clean hydrogen and mobility business in China. "Like other countries in the early stages of developing hydrogen energy, China is focusing first on developing fuel cell vehicles as opposed to other applications like heat and power or low carbon steelmaking.

"There's lots of policy developments this year, which is a good thing," said Forget, who highlighted the new Energy Law as well as recent policies outlining the government's energy strategy for 2020 and government funding for fuel cell vehicles as supportive of the development of China's hydrogen energy sector.

The new draft Energy Law classifies hydrogen as an energy fuel for the first time. Previously it was treated as a hazardous chemical, making it subject to rules and regulations restricting its use in energy applications. The government's energy strategy for 2020 puts the focus on energy security and also calls for the development of new technologies, including hydrogen energy.

TRUCKS AND BUSES

Unlike the US, Japan and South Korea where most fuel cell vehicles are passenger cars, in China fuels cells are used mainly in commercial vehicles.

China's focus on using battery technologies for passenger cars and hydrogen fuel cells for trucks and buses makes sense, says Forget, who sees the real opportunities for hydrogen transport in the heavy-use commercial vehicle sector.

According to recent research by HSBC, hydrogen contains more than three times the energy per unit of mass than a lithium ion battery, making it particularly suited for use in commercial vehicles and buses.

In markets like the US, Japan and South Korea, fuel cell vehicle manufacturers need to make both passenger cars and commercial vehicles in order for them to be commercially viable.

"A large European commercial vehicle manufacturer might produce 10,000 vehicles a year, which isn't enough to produce economies of scale, but in China the largest commercial vehicle manufacturers are producing more than 50,000 units a year, giving them the scale to achieve cost reductions in fuel cell manufacturing," Forget said.

China is increasingly dependent on imported crude oil, making it vulnerable to supply disruptions. According to Platts Analytics, crude imports will account for 73% of China's total crude consumption this year, up from 54% a decade earlier.

"Compared to Japan and Korea, China has plentiful domestic resources of coal, hydropower and renewables which can be used to make hydrogen," said Forget, which can help reduce dependence on oil - which according to Platts Analytics data, accounts for 95% of the energy used in China's transport sector. However using grid electricity to produce hydrogen still presents challenges, said Forget, as China's coal and hydropower resources are located in the north and west of the country, far away from end-users who are mainly located on the east coast.

SYSTEMIC CHANGE

Hydrogen as an energy source only really comes into its own when there's a systemic change in the energy system, said Forget. Without policies to take account of the cost of carbon, hydrogen is unable to compete directly with fossil fuels.

The introduction of China's Emissions Trading Scheme, which is expected to start trading this year, shows that China is slowly moving closer to a policy-driven market. But right now, China's hydrogen sector is still dependent on direct subsidies which, cautions Forget, can distort markets.

Subsidies on the purchase price of electric vehicles helped build Chinese battery manufacturer CATL into one of the world's leading battery companies, but also encouraged hundreds of companies to start making electric vehicles, resulting in a weak, fragmented and regionalized auto sector. A similar trend can already be seen in China's fuel cell technology sector, where there are lots of startups all competing for funding and market leadership.

The government appears to be taking a different approach to subsidizing hydrogen vehicles than it has to electric vehicles. It has announced it plans to move away from purchase subsidies for fuel cell vehicles toward a system where selected cities and regions will be given financial incentives for promoting the use of fuel cell vehicles as well as achieving breakthroughs in the research, development and application of hydrogen energy technologies. With China currently dependent on imported hydrogen technology, the government is aiming to build a domestic hydrogen energy and fuel cell vehicle industry chain in about four years.

But it will be the responsibility of the local governments of these cities and regions to deliver on these ambitions and Forget said they may underestimate the challenges of developing an internationally competitive hydrogen value chain. While major cities that are already centers of research excellence with established universities may be able to develop globally competitive companies, not every region or city may be able to attract the talent required.

The industry is waiting for the government to release more details on how it plans to support the hydrogen and fuel cells sector. One thing is for sure: the ambition is there.