With hydrogen energy as a fuel source gaining traction around the world, China stands out as one of the fastest adopters of this abundant source of clean energy. Here we lay out insights gleaned from our research on hydrogen energy over the years.

• Policies & plans for hydrogen as an official energy source
  In 2024, hydrogen energy was included in the government work report for the first time, positioning it as a new form of productive force and leading emerging industries. On November 9, the Standing Committee of the 14th National People’s Congress included a provision in the Energy Law of the People’s Republic of China, stating that China will actively and orderly promote the development and utilization of hydrogen energy, firmly supporting the growth of the hydrogen industry. By 2025, the planned production capacity for green hydrogen is 1.2 million tons, with Inner Mongolia accounting for over 40% of the share. The planned production of fuel cell vehicles is 90,000 units, with cities like Beijing, Shanghai, Hebei, Inner Mongolia, Shanxi, and Guangdong each planning for 10,000 units.
  
  
• Chinese hydrogen market overview
  As of the third quarter of 2024, the number of hydrogen fuel cell vehicles in operation is 25,000, leaving a gap of 25,000 vehicles to reach the target. The production capacity of hydrogen from renewable energy currently stands at 110,000 tons, 90,000 tons short of the goal. However, considering the start of green hydrogen projects and various policies for fuel cell vehicles, both green hydrogen projects and fuel cell vehicles are expected to see rapid growth by 2025.
  
  
• Green hydrogen applications and market expansion
  The main areas for green hydrogen application include chemicals, transportation, energy storage, and power supply. Policy support is encouraging the large-scale replacement of high-carbon hydrogen with low-carbon hydrogen in fields such as ammonia synthesis, methanol synthesis, petrochemicals, and steel. Additionally, regions with favorable conditions are supporting pilot projects for bio-diesel, bio-aviation fuel, bio-natural gas, and green hydrogen-based ammonia and methanol in sectors like shipping and aviation.
  
  
• Hydrogen equipment prices to fall & commercialization to take place
  The prices of hydrogen production equipment are decreasing, with the per-watt price dropping by over 10% year-on-year. Fuel cell system and stack prices are also continuously declining, with a 20% decrease expected in 2024. These price reductions indicate that the hydrogen industry is gradually moving toward commercialization.
  
  
• Project implementation and increase in hydrogen energy project bids
  The current green hydrogen projects have a total production capacity of 110,000 tons, while the planned production capacity reaches 6.8 million tons, with a project start-up rate of 24%. It is expected that a surge in green hydrogen project biddings will occur, particularly with the push from national and local green hydrogen production capacity plans by 2025.
  
  
• Policy relaxation and opportunities
  Hydrogen-related regulatory policies are gradually relaxing, allowing green hydrogen production without hazardous chemical permits, so hydrogen refueling stations can be built outside chemical industrial parks. Green hydrogen subsidies are abundant in the “Three North” regions (Inner Mongolia, Gansu, Jilin, Xinjiang, and Dalian), helping make green hydrogen price-competitive against coal-derived hydrogen.
  
  
• Green methanol and green ammonia markets to grow
  The rise of green methanol and green ammonia is creating new opportunities for the green hydrogen and electrolyzer industries. The number of green methanol projects has reached 109, with a planned production capacity exceeding 50.37 million tons, and the construction of green ammonia projects is progressing rapidly.
  
  
• Hydrogen fuel cell sector growth
  From 2021 to July 2024, more than 60 hydrogen fuel cell energy storage and power generation demonstration projects have been announced, with a total installed capacity of 460 MW. The target for fuel cell vehicle ownership is 50,000 units, with the current shortfall nearly half of the target, expected to be achieved by 2025. The market size for fuel cell systems and stacks is forecast to reach 20 billion yuan and 12 billion yuan, respectively.
  
  
• Evolution in efficiency and cost
  The price of fuel cell vehicle engines is expected to become comparable to internal combustion engines, thanks to technological advances and economies of scale, which will lower costs. The economic viability of fuel cell heavy trucks is becoming more realistic, and exemptions from highway tolls will further enhance their cost-effectiveness.
  
  
• Infrastructure and market growth
  The market for onboard high-pressure hydrogen storage tanks and hydrogen supply systems is growing rapidly, and the infrastructure system is constantly improving. The market for onboard high-pressure hydrogen storage tanks is highly concentrated, with the top three manufacturers accounting for approximately 70% of the market share. Among them, Guofu Hydrogen (a CM Venture portfolio company) holds the largest share.
  
  

Guofu Hydrogen stands as a testament to how we’re researching and predicting new energy trends. Today, they are listed on the HKEX, under symbol 2582. We first invested in Guofu Hydrogen energy in 2019, under its A-Round, and another 4 times after. It paid off. Today we’ve achieved an 8X return on our overall investment, or approximately 20X on our initial A-round investment in Guofu in 2019.  This serves as an inspiration to us and all of our LPs involved, as we look forward to more successful investments in the clean energy sector.