China’s dominance of supply chains for solar panels, electric vehicles and lithium-ion batteries is rippling through the U.S. energy sector and drawing political fire on Capitol Hill.
Now, another industry may be added to the list of concerns: “green” hydrogen.
China leads the world in producing the essential technology for green hydrogen made from renewables: electrolyzers. The machines use electricity to make hydrogen fuel from water. The Biden administration has prioritized domestic electrolyzer manufacturing as part of its goal of producing 10 million metric tons of “clean” hydrogen annually by 2030.
Industry experts say the administration’s hopes for a domestic supply chain hinge on final regulations for the 2022 Inflation Reduction Act’s hydrogen tax subsidies known as 45V.
“The 45V tax credits will be important in determining the future of electrolyzer manufacturing in the US,” said Payal Kaur, a hydrogen analyst for BloombergNEF, in an email. “If the final guidance is not well received it may impact the pace of growth in the market.”
The Treasury Department proposed initial guidance for 45V in December, which said that green hydrogen producers receiving tax credits must use newly installed clean energy sources.
Companies are divided over whether the tax credits will jump-start U.S. industry and curb China’s influence.
In one view, the proposed 45V rules will cede electrolyzer leadership to China by restricting the development of U.S. green hydrogen projects altogether. In another view, the rules will push hydrogen companies to buy technologically advanced Western electrolyzers better suited for variable renewable energy.
The outcome of final 45V regulations would inform a raging political debate on the role of China in energy policy. Republicans have hammered the Biden administration for promoting clean energy technologies whose supply chains are dominated by China like solar and EVs. The administration says it’s building up U.S. clean energy manufacturing through climate spending, a necessary imperative to combat China’s energy supply chain dominance and achieve emissions reductions.
“The future trajectory of the [electrolyzer] industry might align with the solar model, where a single dominant player — perhaps China — spearheads global [electrolyzer] technology, or the wind model, [characterized] by a more balanced competition between major players globally,” wrote Nicolas Groues, a Wood Mackenzie managing consultant for emissions and low-carbon fuels, in a November opinion piece.
The Biden administration says its efforts are meant to help ensure electrolyzers will be made in America even as the country faces stiff competition from China.
In March, the Department of Energy announced hundreds of millions of dollars from the 2021 bipartisan infrastructure law was allocated toward electrolyzer research and development.
DOE said the funds would enable 10 gigawatts’ worth of U.S. electrolyzers, enough to produce 1.3 million metric tons of clean fuel. The announcement included $316 million to enhance electrolyzer performance, $81 million to develop a U.S. electrolyzer supply chain and $72 million for next-generation machines.
DOE still has to distribute another $750 million in infrastructure law funds for electrolyzers and other parts of the hydrogen supply chain.
In March and April, DOE separately announced Nel Hydrogen, Electric Hydrogen, Topsoe and John Cockerill received millions of dollars from the manufacturing tax credit known as 48C to finance U.S. electrolyzer factories.
When Treasury announced initial 45V guidance, a coalition of companies — including Air Products, Electric Hydrogen and Hy Stor Energy — said it could unlock 50 GW worth of green hydrogen projects, which would stimulate demand for electrolyzers.
Today, the U.S. has enough factories to produce 4.5 GW worth of electrolyzers, according to the Clean Investment Monitor, which tracks American investments in low-carbon technologies and manufacturing. John Cockerill, a Belgian engineering company, is expected to start producing electrolyzers this summer in Houston, adding another gigawatt of capacity to the U.S. total.
Hydrogen companies broadly have announced U.S. factories to increase electrolyzer production capacity by 9.5 GW, the Clean Investment Monitor says, though it’s unclear how many of them will become reality.
Despite emerging U.S. manufacturing, China today has enough production capacity to make 13 GW, or about 61 percent of global electrolyzer manufacturing capacity, according to research firm Clean Energy Associates. China’s market share is expected to decline to just under 50 percent by 2027 as new manufacturing comes online in both Europe and the U.S. in the next few years, the firm adds.
Chinese electrolyzer plants already have a higher production capacity than what the world demands, according to 2024 BloombergNEF data. Analysts found that China is overproducing the device — the same issue Washington lawmakers have said is stifling U.S. solar, EV and lithium-ion battery manufacturing.
The White House, DOE and Treasury did not respond to multiple requests for comment about U.S. electrolyzer manufacturing or China’s involvement in the hydrogen industry.
President Joe Biden has previously touted U.S. electrolyzer manufacturing. He attributed manufacturer Cummins’ decision to produce electrolyzers in the U.S. to the Inflation Reduction Act during a speech at a factory visit in April 2023.
“Instead of relying on equipment made overseas in places like China, the supply chains will be again made in America,” Biden said at the factory.
Market showdown
Some industry stakeholders argue initial 45V rules could spur domestic electrolyzer manufacturing because they incentivize hydrogen producers to buy advanced U.S. machines.
Chinese manufacturers almost exclusively make the cheaper alkaline version of electrolyzers, accounting for roughly 90 percent of production, according to 2023 Citigroup data and Clean Energy Associates. U.S. and European manufacturers, meanwhile, have the lead when it comes to the more expensive proton exchange membrane (PEM) kind of electrolyzers, the firms say.
PEM electrolyzers, however, are better suited to operate with intermittent wind and solar electricity than alkaline machines, according to a 2023 World Economic Forum white paper. That’s because PEM electrolyzers can function under a wide range of electricity and take only five minutes to get up to full operating speed. In contrast, alkaline machines — especially the unpressurized variant — need a stable source of power and take 50 minutes to get up to full speed.
Hydrogen producers may increase their demand for U.S. PEM electrolyzers if Treasury adopts “hourly matching” requirements in final 45V regulations, argued Paul Wilkins, vice president for policy and government engagement for electrolyzer manufacturer Electric Hydrogen, in an interview.
Hourly matching requires hydrogen producers to make hydrogen during the same hour new and intermittent clean energy like solar is powering the grid.
Experts say the provision will force electrolyzers to ramp up and down production at certain times, such as when the sun isn’t shining. PEM electrolyzers — because of their flexible operating range and ability to quickly ramp up production — are suited for this reality, Wilkins said.
“Driving the market towards hourly matching is better for U.S. manufacturers,” Wilkins said in an interview. “It’s a better emissions outcome and a better competitiveness outcome.”
Wilkins said that Chinese alkaline electrolyzers at a large green hydrogen plant have been unreliable, requiring a higher minimum level of electricity to make fuel than advertised.
Electric Hydrogen supports phasing in hourly matching around 2028 and allowing some of the first green hydrogen projects to not need to meet strict 45V requirements. The company plans to produce PEM machines at a 1.2-GW gigafactory it is constructing in Devens, Massachusetts.
Other U.S. electrolyzer manufacturers say their non-PEM machines can also help green hydrogen producers meet hourly matching requirements. Verdagy, for example, says it will make advanced alkaline machines early next year in Newark, California, that are suitable for variable electricity. Engineers for Topsoe, a Danish firm with an electrolyzer facility planned in Virginia, similarly found that the company’s solid oxide electrolyzer cell product could also handle intermittent energy without degrading the machine.
The Environmental Resources Management, a sustainability consulting firm, prepared a 45V analysis for the Environmental Defense Fund this year that also makes the case that hourly time matching would tip the scale for advanced U.S. electrolyzers. Technological advancements will continue to bring the cost of “flexible,” hourly match-compatible electrolyzers down over time, the firm said.
Electrolyzer economics
Still, companies like Cummins and Nel Hydrogen argue initial 45V rules will depress U.S. electrolyzer manufacturing and give China more of an upper hand.
“Complex US rules will drive developers to lower-cost equipment to reduce capital expenditures, reducing demand for US equipment,” said Alex Savelli, managing director of electrolyzers for Cummins’ zero-emissions business Accelera, in a statement.
U.S. and European electrolyzers are roughly four times as expensive to install on average compared to Chinese machines today, according to 2024 BloombergNEF data.
Cummins said that turning machines on and off under hourly matching would cause “wear-and-tear on an expensive asset,” which would be factored into warranties and lead to higher prices in its 45V letter.
Savelli added that 45V rules need to advance green hydrogen projects in the first place to create demand for U.S. electrolyzers. Cummins itself has said it needs to see green hydrogen producers tap into 45V credits before it expands a PEM electrolyzer facility in Fridley, Minnesota. The plant has enough capacity to make 500 megawatts’ worth of electrolyzers annually but could double to 1 GW, according to the company’s 45V letter.
Nel Hydrogen — an electrolyzer manufacturer with a factory in Connecticut and one planned in Michigan — also argued that 45V needs to unlock green hydrogen projects in their letter.
Production scale “is essential to our ability to provide the market with low-cost, high-reliability electrolyzers that can both compete with emerging international competition and support the requisite production economics of emerging low carbon industries,” the company said.
The company added that the current 45V rules will increase the upfront cost of green hydrogen projects because hydrogen producers must use new clean energy sources to make low-carbon fuel. Hydrogen producers, therefore, could look to cut back on their high costs by buying cheap Chinese electrolyzers. That would depress demand for U.S. electrolyzers.
“This single handedly cedes manufacturing of electrolyzers to other countries who are likely to use less responsible supply chains and foreign labor,” the company warned.
Both Cummins and Nel Hydrogen called on Treasury to implement hourly matching later than 2028 and allow the first hydrogen producers not to have to meet stringent requirements whenever they are implemented in their letters.
Christian Roselund, a senior policy analyst for Clean Energy Associates, agreed that 45V’s hourly matching provisions would increase the cost of green hydrogen production and reduce electrolyzer demand in the short term.
He noted, however, that 45V rules are primarily meant to ensure hydrogen production is clean and “may be necessary for social acceptance to support industry growth in the short and medium term” in an email.
Critical minerals
The Biden administration has taken steps to help the U.S. obtain electrolyzer components without depending on foreign markets.
China has a complete and mature supply chain for alkaline electrolyzers, according to BloombergNEF. The East Asian nation has ready access to the critical minerals it needs for Alkaline machines such as nickel and aluminum.
U.S. manufacturers, on the other hand, are dependent on South Africa for the platinum and iridium minerals PEM machines require.
South Africa extracts 74 percent of all platinum and 83 percent of all iridium in the world, according to 2023 data aggregated by FP Analytics, the research and advisory division for Foreign Policy magazine. The U.S. imports roughly half of its platinum and iridium from South Africa.
Platinum mining in South Africa is expected to decline in the years to come, FP Analytics said in its report. That drop would also harm iridium production because the rare metal is found in small quantities as a byproduct of platinum mining.
Aaron Feaver, executive director of the Joint Center for Deployment and Research in Earth Abundant Materials, said the U.S. can alleviate foreign supply chain concerns by researching ways to reduce iridium needs and recycling electrolyzer components.
“A lot of that work we need to encourage and move forward,” Feaver said.
DOE’s $750 million announcement for electrolyzers and fuel cells included funding to address critical mineral issues.
For example, DOE allocated $50 million to a consortium led by the American Institute of Chemical Engineers that will develop recycling technology for hydrogen fuel cells and electrolyzers. The department also awarded $10 million to Mott to develop PEM electrolyzer coatings not made with platinum or iridium.
