The process of producing hydrogen from renewable energy resources and using it as a carrier for energy storage, which can later be converted back to electricity, is considered a pivotal option for deep decarbonization at the terminal end, and has been gaining more international attention for its potential as an emissions-free fuel.

With China identifying hydrogen as a key element in its low-carbon energy transition strategy, Rystad Energy projects the installation of approximately 2.5 gigawatts of hydrogen electrolyzer capacity by the end of the year. This capacity is expected to produce 220,000 tons per annum of green hydrogen, 6 kilotons per annum more than the rest of the world combined, it said.

According to the institute, green hydrogen costs have already halved over the past five years, dropping to 22 yuan ($3) per kilogram in 2024 from 42 yuan per kg in 2019.

The institute forecasts further reductions, with production costs expected to fall below 20 yuan per kg by 2025 and 15 yuan per kg by 2030, thanks to the scaling up of wind and solar power generation, as well as technological advancements such as improvements in electrolyzer efficiency.

By 2060, green hydrogen is projected to cost less than its carbon-intensive counterpart, gray hydrogen, which currently averages around 10 yuan per kg. The cost parity between green and gray hydrogen is expected to unlock new commercial opportunities, paving the way for hydrogen to compete purely on economic merit rather than environmental credentials, said a report on China's hydrogen industry development released by the institute.

Recognizing the sector's strategic importance, Chinese provincial-level regions are rolling out tailored policies to boost hydrogen production, transport, storage and application.

Regions with strong solar and wind potential, especially those in Northwest China, have announced more ambitious hydrogen production targets.

The Inner Mongolia autonomous region aims for 480,000 tpa of renewable hydrogen production by 2025, while Gansu province has set a target of 200,000 tpa, all of which are expected to contribute enormously to China's hydrogen production in the region.

China's coal-rich regions are also transforming their energy landscapes by investing in hydrogen. Xiaoyi, Shanxi province, historically dependent on coal mining, has been investing in hydrogen technology and infrastructure, including building hydrogen production plants, refueling stations and research facilities, harnessing its industrial expertise and infrastructure.

Guo Qingzhi, mayor of Xiaoyi, believes that the hydrogen energy industry, as a representative of new quality productive forces in the energy sector, has strong momentum and promising prospects.

Rystad Energy said, geographical disparity exists between China's hydrogen demand centers in the east and its abundant solar and wind energy resources in the north, which are ripe for developing green hydrogen production.

This has resulted in a supply-demand mismatch, prompting China to explore the expansion of its network of hydrogen pipelines, it said.