China's Energy Transition Part 3
Last year was the first year that green hydrogen related projects were announced in large numbers. Many of these projects came in the form of methanol and ammonia production. Inner Mongolia was the most aggressive in project announcement due to its bountiful renewable resources and large/growing petrochemical industry.
There were 15+ green projects announced in 2023. Accounting for > 30% of the 1.6m ton to be brought online by 2025. Nationwide, 4.5m ton of green methanol projects were announced, that would require 860k ton of green hydrogen.
As of 2023, cost of green hydrogen production already lowered to below 25RMB/kg in Inner Mongolia, Liaoning and Heilongjiang province. As larger, more efficient and cheaper electrolysers are put into usage, cost of green hydrogen should continue to come down. Energy efficiency of these projects are also higher than I expected. Recent reporting from Xinjiang explained that Sinopec’s pilot project in Kuqa achieved generating 10k ton of green hydrogen with just 150MW of solar power. However, getting production up to designed capacity will take some time. That includes getting sufficient green power as well as having reliable electrolysis that can work continuously
Even with growing pains of massively building up green hydrogen industry, the benefits are quite far range. Here is a quick list of applications
We’ve seen evidences of all these applications. There was this project in Qiqihar which turns wind energy into green methanol and Sustainable Aviation fuel. There was this agreement between Mingyang and Hainan to build major 3 million ton green ammonia/methanol cluster using offshore win. Shanghai also declared its own intention of becoming a refueling hub for green methanol. Maersk announced in November that it will purchase half million ton of green methanol from Goldwind per year. And then, there was that mega project announced in Inner Mongolia with the goal of capturing local wind/solar resources for up to 200-300 million ton of green methanol per year!
Since China does not use that much methanol or ammonia right now, 1 might ask why they need hundreds of million tons of them? Well, the answer is that we need to see ammonia and methanol as carriers of energy since hydrogen itself is really hard and expensive to transport. Methanol can clearly be used for shipping and aviation industry. Imagine the day if we can get cost of green energy lower than fossil fuel. That would be quite the feat. Aside from that, they can also be used for industrial applications. Methanol is one of the key feedstocks for making plastics. Instead of inputting crude and natural gas, petrochemical plant can feed in methanol. At this point, I don’t know how much work will need to be done for that conversion, but this seems like the best path forward for de-carbonizing petrochemicals plants.
Aside from this, hydrogen and ammonia seem to be the best replacement for dealing with seasonal variations in supply and demand of renewable energy. While, large amount of battery ESS can deal with intraday shifts in solar power generation and grid demand. It will be hard for ESS to fully account for the seasonal changes. For example, how does northern regions deal with heating demand and lack of solar in winter time? How does southern region deal with AC demand and long draught in summer time? The variable demand is currently handled by NG plants (and coal plants to smaller degree). In the future, this will have to be carried out by thermal plants burning hydrogen or ammonia. We have already seen Mingyang develop 30 MW pure hydrogen gas turbine
Existing NG plants have also tested burning Hydrogen gas doped into NG, although the tests on 9HA gas turbine so far limit Hydrogen to just 10% of input. We have also seen NG pipelines being used to transport Hydrogen, although that also has a 30% limit so far. Going forward, it will be interesting to see whether we end up using Fuel Cells for electricity generation or gas turbines. Both solutions need to get more efficient. Combined cycle NG plants have efficiency up over 60%. So far, the larger fuel cells for grid operation are below 50% in energy efficiency. Another option is burning Ammonia. We have seen a 600MW coal plant generate electricity using Ammonia input. It remains to be seen how efficient we can actually get here. But, I think this is the best way to store large amount of green energy for long period of time. On top of this, you can more easily transport green energy in the future through Liquid Hydrogen carriers (likely very expensive process) or as methanol or ammonia. All of this tech will need to be developed over time. If we can lower the production cost of green hydrogen, then everything else should fall in place over time.