Huayuan Securities: The hydrogen energy industry is expected to mature, focusing on equipment and operator opportunities.

Huayuan Securities released a research report stating that based on the current situation, supported by multiple factors such as the decrease in electricity prices, the increase in carbon prices, policy support, and growth in orders for green fuels, the start-up rate of green hydrogen projects is expected to gradually increase. The upstream electrolyzer industry may gradually move out of the "overlapping" stage, and it is recommended to pay attention to electrolyzer-related companies. At the same time, the economic viability of downstream green hydrogen or green ammonia and green alcohol projects is expected to gradually improve, and it is recommended to focus on hydrogen-based energy operators. In addition, with the decrease in the cost of green hydrogen, the penetration rate of hydrogen energy in transportation, industry, and other areas is expected to further increase, and it is recommended to pay attention to fuel cell-related companies. The main points of Huayuan Securities are as follows: The large-scale development of renewable energy has opened the door to cost reduction for hydrogen energy, and hydrogen energy is expected to accelerate its penetration into the energy system. Hydrogen gas has dual properties as a chemical raw material and fuel, but in the past, hydrogen has long been used as a chemical raw material rather than an energy medium. The main reason is that as a secondary energy source, hydrogen energy has been constrained by the price of fossil fuels on the power generation side, whether it is hydrogen production from fossil fuels or water electrolysis. However, in the era of renewable energy, electricity with zero marginal cost on a large scale offers the possibility of reducing the cost of hydrogen production. As an energy conversion medium for solar and wind resources, hydrogen energy is expected to accelerate its penetration into the energy system through the conversion process of "wind-solar-electrolysis-hydrogen-electric/thermal." The focus of the hydrogen energy industry in the "14th Five-Year Plan" is on demonstration, aiming to initially establish an industrial system. To promote the natural expansion of hydrogen energy under economic value drive, it is necessary to promote the learning curve and achieve economies of scale through large-scale applications. However, in the early stages of industry development, relevant facilities are still not perfect, and cost reduction in all aspects of production, storage, and utilization of hydrogen cannot be achieved overnight. In China's "14th Five-Year Plan and Vision 2035 Outline," hydrogen energy is listed as an industry of the future. From the policy perspective in recent years, China has shown a high degree of rationality and respect for the laws of industrial development in top-level design and industrial planning. The "14th Five-Year Plan" is positioned as the initial demonstration stage of hydrogen energy development, focusing on restructuring, guidance, and synergy at the planning level. Development at the industry chain level: 1) Hydrogen production end: Led by energy and chemical enterprises, the construction of green hydrogen projects in China continues to progress, with several tens of thousands of tons of green hydrogen projects gradually put into operation. However, in terms of pace, the actual number of projects implemented during the "14th Five-Year Plan" period is less than planned. The advanced planning of electrolyzer capacity has led the industry into an early stage of price competition. Based on publicly available bid data, the average winning bid for a 1000Nm3/h alkaline electrolyzer has dropped from 1 million RMB in 2021 to around 650,000 RMB in 2024. The development of the industry chain urgently needs synergy. 2) Transportation: Spatial mismatch raises the cost of end-use hydrogen, and there is a need to expand the scale of hydrogen transportation pipelines. Comparing the prices on the production side and the consumption side of hydrogen energy, the current intermediate transportation costs are still relatively high. In December 2024, the national hydrogen production side price dropped to 28.0 yuan/kg, and the consumption side price dropped to 48.6 yuan/kg, marking the lowest average price for both the production and consumption sides of hydrogen energy. However, the total cost of intermediate transportation and refueling accounts for about 40%. Academician Gan Yong of the Chinese Academy of Engineering pointed out that the current cost of transporting liquid hydrogen by tanker is as high as 8-10 yuan/kg, while pipeline transportation can reduce the cost to 0.3 yuan/kg per hundred kilometers. By the end of 2024, China had a total of 15 pure hydrogen pipelines, with six pipelines already built; eight blended hydrogen pipelines, six of which have been basically completed. With the expansion of green hydrogen pipeline scales, the cost of hydrogen energy use in the northern and eastern regions of China is expected to decrease rapidly during the "15th Five-Year Plan" period, promoting the expansion of green hydrogen absorption and consumption scales. 3) End use of hydrogen: Urban clusters lead the promotion of fuel cell vehicles, while the penetration rate in the industrial sector needs to be increased. In the transportation sector, as of March 2025, the five major demonstration urban clusters have accumulated the promotion of 15,850 fuel cell vehicles. As the "14th Five-Year Plan" comes to a close, related regions will further accelerate the promotion through urban cluster expansion or "hydrogen corridors" construction policies, and the sales volume of fuel cell vehicles is expected to rise. In the industrial sector, demonstrations of hydrogen applications in industries such as chemicals, metallurgy, and distributed power generation are underway, with hydrogen metallurgy and distributed power generation projects being gradually put into operation. Outlook for 2030: The carbon cost may stimulate the demand potential for green hydrogen, driving the substitution of low-carbon hydrogen in the industrial sector. 1) Taking the carbon tax mechanism in the international trade sector, represented by the EU's Carbon Border Adjustment Mechanism (CBAM), as an example, the EU started levying carbon taxes on the shipping and aviation sectors in 2024/2026, making carbon payment or carbon taxation a certainty. Under cost pressure, industries that previously had no demand for hydrogen gas are planning to reduce carbon emissions through green hydrogen-related products. For industries such as shipping, green hydrogen derivative products such as green methanol/green ammonia can be used as alternative fuels to achieve carbon reduction. As carbon prices rise, the green competitiveness of green hydrogen continues to strengthen in the form of economic benefits, and with the simultaneous decrease in power costs on the production side, the demand for green hydrogen is expected to expand. 2) The expansion of the domestic carbon market may lead to active carbon reduction in related industries. In March 2025, the Ministry of Ecology and Environment issued the "Work Plan for the National Carbon Emission Rights Trading Market Covering the Steel, Cement, and Aluminum Smelting Industries," which to expand the scope of the carbon emission rights trading market, covering an additional 3 billion tons of carbon emissions, resulting in an increase in the proportion of national carbon dioxide emissions covered from 40% to 60%. The industrial sector is the largest sector for hydrogen demand, and green hydrogen can help the industrial sector achieve carbon reduction. 3) Infrastructure construction in the middle and upper reaches, such as pipelines and hydrogen refueling stations, is expected to be strengthened, and cooperative hydrogen production and use between regions are worth looking forward to. Risk warning: The decrease in green electricity costs is not as expected; the growth of carbon prices is not as expected; the growth in downstream demand for green hydrogen is not as expected; the start-up situation of green hydrogen projects is not as expected.