Outside the farming town of Delta, Utah, two companies are planning one of the world’s largest renewable energy storage hubs, with $504 million in backing from the U.S. Department of Energy (DOE).1The federal government support was in the form of a loan.
The idea behind the Advanced Clean Energy Storage (ACES) project — a joint venture between Mitsubishi Power Americas and Magnum Development — is to harness enough on-demand renewable energy to power around 350,000 west coast homes nonstop for a month. The project involves producing hydrogen using solar and wind power, storing it in two large salt caverns, and deploying it as clean fuel when Utah is short on sun or wind.
At a time when President Biden is seeking to drive investment in American-made clean energy, while reducing the U.S.’s reliance on China for the technologies of the future, ACES seems like a poster-child for domestic energy innovation.
But there’s a catch: for ACES, the vital technological components that convert solar or wind power into hydrogen, known as electrolyzers, will be shipped in from Tianjin, China, where they are set to be produced — demonstrating the challenges of decoupling from China in the clean energy space.
“For some aspects of the [clean energy] production process that take the most advanced technology, that’s where China seems to have this competence that the rest of the world has benefited from, and has leaned on China to do,” says Gregory Nemet, a professor at the University of Wisconsin–Madison who specializes in energy technology innovation.
I’ve been in the electrolyzer business for quite a good number of years, and I’ve seen plants from most of the world’s suppliers… We totally accepted that Chinese technology is ahead of European and American technology.
Richard Espeseth, HydrogenPro’s CEO
Many energy experts have hailed clean hydrogen as a key fuel source in the battle against climate change. But unlike wind and solar, it’s still expensive to produce, which is why governments around the world are racing to make it commercially viable. In 2021, the U.S. Congress committed $9.5 billion to support clean hydrogen initiatives, while in July 2022, the EU Commission approved €5.4 billion in public funding from 15 member states to support development along the hydrogen value chain.
Clean hydrogen’s promise stems from its flexibility. It can be stored and dispatched on demand, which makes it a valuable source of back-up power during prolonged wind or solar droughts; it burns efficiently to create the very high temperatures required in industrial processes like steelmaking; and it can be used in long-distance or heavy transport, where regular EV batteries are less suitable.
“Clean hydrogen is pretty much the only solution to decarbonize around 15 percent of global energy demand that can’t be foreseeably electrified, which means that hydrogen will play a vital role in getting to net-zero emissions globally,” says Alexa Thompson, a manager at RMI, an energy transition think tank and consultancy.
The main driver of clean hydrogen’s cost is the price of its key input, renewable electricity. The other is the efficiency of the electrolyzer, which converts the electricity into fuel.
European firms, including market leaders ThyssenKrupp and Nel Hydrogen, currently dominate production of electrolyzers, owning almost 50 percent of manufacturing capacity. Chinese electrolyzers have historically been viewed as cheap and poorer quality by contrast, and have largely been sold into the Chinese domestic market. However industry experts say that could be changing, as Chinese electrolyzer companies have begun to expand in overseas markets.
The ACES project is a case in point. Florida-based Mitsubishi Power Americas, a subsidiary of Japanese giant Mitsubishi, is sourcing electrolyzers from Norwegian company HydrogenPro. Last year, HydrogenPro took a 75 percent stake in a Chinese company, Tianjin HQY Hydrogen Machinery Co Ltd, and has established a manufacturing base there. HydrogenPro is planning to manufacture the electrolyzers destined for ACES in Tianjin, based on company documents and videos reviewed by The Wire.
“The Chinese have been ahead of Europe when it comes to this technology, particularly when it comes to alkaline high pressure electrolyzers,” says Richard Espeseth, HydrogenPro’s CEO. “I’ve been in the electrolyzer business for quite a good number of years, and I’ve seen plants from most of the world’s suppliers … We totally accepted that Chinese technology is ahead of European and American technology.”
Mitsubishi Power Americas did not respond to a request for comment on their choice of electrolyzer for the ACES project.
The growing popularity of Chinese-made electrolyzers raises the possibility that China could come to dominate the next generation of such energy technologies, just as it has done with solar panels, where it supplies more than 80 percent of global demand. More than 120 green hydrogen projects are currently under development in China, according to the German think tank MERICS, and the industry is receiving substantial support from local and provincial governments.
Click here to read a Q&A with Mikko Huotari, the executive director of MERICS.
The U.S. is hoping to challenge in this area: On June 6, right before the U.S. Department of Energy (DOE) loan to ACES was finalized, President Biden issued an executive order to “create a bridge to this American-made clean energy future.” The order included measures such as invoking the U.S. Defense Production Act to accelerate domestic production of technologies like hydrogen electrolyzers and solar panels, and using government purchasing power to create demand.
In an email to The Wire, the DOE said that while the electrolyzers for ACES will be manufactured in China, the project “is expected to be a bellwether for hydrogen deployment in the United States, helping to drive demand for domestic electrolyzer manufacturing. It will also enable the development of domestic infrastructure in hydrogen storage, delivery, and end use technologies.”
But while government loan programs provide some assistance for large scale projects like ACES, experts say the scale of intervention falls short of what’s needed to kickstart a substantial U.S. clean energy manufacturing sector.
The U.S. has historically excelled in research and development for new technologies, but it has struggled to convert innovation into manufacturing at scale. Compared with European manufacturing powerhouses like Germany, America has been weak at supporting vocational training. The primary funding mechanism for American start-ups — venture capital — isn’t well suited to financing capital-intensive manufacturing plants with longer payback periods.
China, in turn, has proven willing to invest billions of dollars of both public and private sector money into clean energy, sometimes — as in the case of the solar industry — risking huge production over-capacity in order to achieve market dominance.
In terms of cost advantage, Chinese companies have that. But it does not mean they’ll win the market immediately.
Xiaoting Wang, a hydrogen specialist at BloombergNEF energy consultancy
“China has this incredible system of creating domestic markets for these technologies, where there’s trial and error, and the opportunity to practice before you go international,” says Jonas Nahm, an assistant professor at the Johns Hopkins School of Advanced International Studies. “It’s kind of an ideal feedback loop, where you might have suboptimal products initially, but you can improve very quickly.” Nahm says he “wouldn’t be surprised if China becomes a formidable competitor in this [hydrogen] sector.”
The idea that the hydrogen industry could go the same way as solar is not a given. Xiaoting Wang, a hydrogen specialist at energy consultancy BloombergNEF, says there are still some technological wrinkles with electrolyzer technology, which is at a much earlier stage of development than solar.
“In terms of cost advantage, Chinese companies have that,” she says, “But it does not mean they’ll win the market immediately. It depends if they can run as fast as, or even faster than, the Western companies in terms of making these products more reliable when they’re being powered by fluctuating renewable energy.”
Regardless of who finds the winning formula, the question remains whether any country is capable of challenging China’s strength at the manufacturing stage. “There is a chance that the U.S. could combine its R&D prowess with manufacturing investments to gain the edge on production of high-value technologies,” says Thompson, from RMI. “The danger is still being swamped by China whenever it moves to invest in large-scale manufacturing of the latest technology.”
“I think for every new technology there’s always a new opportunity,” agrees Nahm. “It’s very valid to invest in these supply chains domestically or in the world. But in the meantime, I think we’re also kind of stuck relying on Chinese products … we don’t have time to wait.”
Isabella Borshoff is a staff writer based in Australia. Previously, she worked as a climate policy adviser in Australia’s federal public service. She earned her Master’s in Public Policy at Harvard’s Kennedy School. Her writing has been published in POLITICO Europe.
