The business strategy of state-owned enterprises (SOE) in China is inexorably linked to government industrial policy. As government-owned organizations, SOEs adjust strategy to accomplish goals enumerated in industrial policy. Dongfang Electric Corporation (DEC) is one of China’s largest SOEs and known primarily for the marquee project Three Gorges Dam. In addition to hydroelectric capability, DEC started developing fuel cell system manufacturing prowess a few years ago in response to national calls to localize “chokehold” technologies, such as: catalysts, hydrogen-proof valves, and advanced fuel cell stack assembly methods.
What in retrospect was merely a token effort on the part of DEC appears a monumental application of resources to smaller fuel cell firms with more limited means. Between 2016 and 2018 DEC invested in a fuel cell system assembly line in the SOE’s industrial park in the southwestern city of Chengdu. Unlike other fuel cell system integrators, DEC insisted on developing not only the system, but also the stack, balance of plant components, and even membranes and catalysts in-house; DEC built a vertically integrated fuel cell system production line to produce products of only average performance – and all this just as a token effort.
The PRC’s “Mid- to Long-Term Hydrogen Industry Development Plan,” released earlier this March, reoriented industrial policy from support for downstream applications, such as fuel cell electric vehicles (FCEV) and fuel cell systems, towards upstream hydrogen production. Predictably, DEC and other SOEs responded by reorienting business strategy towards electrolyzers, intermittent renewable energy (IRE), and hydrogen storage and transport technologies. DEC established a new industrial park in July of 2022 specifically to explore direct coupling of electrolyzer and hydropower technology.
The national-level development plan also promoted similar plans from provincial and municipal governments. The “Sichuan Province Hydrogen Energy Industry Development Plan (2021 ~ 2025),” also released earlier this year, called for 6,000 FCEVs, 60 hydrogen refueling stations (HRS), and 5 hydrogen energy storage systems (H2-ESS) to be deployed in the province by 2025. On the municipal level, the “Chengdu City Hydrogen Energy Industry Development Plan (2019 ~ 2023),” sets specific financial goals for fuel cell firms in the city and also includes targets for FCEV and HRS. Tellingly, the plan released by the city of Chengdu, the home of DEC, also called for hydropower-to-green hydrogen demonstration projects.
In May of 2022 DEC launched an investment round for a new subsidiary focused on upstream hydrogen generation. Investments in this new firm marked the second ownership restructuring of DEC’s hydrogen energy and fuel cell division since 2019 and reveals that DEC is trying to innovate in both technology and financial aspects. At the May launch, six new investors added a total of about 35 million USD to the hydrogen business; the new investors together now own about 20% of the company. DEC’s fuel cell business was spun off from the larger SOE in April of 2018 and the parent organization has continued to pump resources into the hydrogen business, formally listing hydrogen energy and fuel cell technology as the “Seventh Pillar” of the SOE’s overall development strategy.
DEC may have a vertically-integrated fuel cell system production line, but the actual number of engineers working on the project is only around 50; every step in the process may be in-house, but actual production rates are low, probably due to continuing product efficiency and quality issues. The fact that production is vertically-integrated, but proceeding at a glacial pace, indicates that DEC views fuel cell technology as a development project rather than a commercial venture.
While reportedly DEC has installed fuel cell systems in more than 20 FCEV buses in Chengdu, future large-scale commercialization projects will probably require rebranding imported fuel cell systems that have been certified for higher hydrogen-to-power efficiency and also better quality in the form of longer operating lifetimes.
Dongfang Electric Corporation
Recently DEC has moved to secure thought leadership in the industry in addition to developing core technology and materials. The SOE led a consortium of firms to establish the “Sichuan Province Hydrogen Innovation Alliance” in August of 2021. As a national-level SOE, DEC has also benefitted from international partnerships; the launch ceremony for DEC’s new hydrogen technologies park in July was conducted concurrently with the “PRC-EU Hydrogen Industry Cooperation Expo.” DEC has vast resources and the scale of the firm’s investments is similarly impressive. Like a large planet, DEC has a gravity that attracts other firms in the industry into its orbit. After investing 21 million USD into the new tech park, DEC invited other firms to establish local subsidiaries nearby, such as Guofuhee Liquid Hydrogen, Rugao XECA Turbo Air Compressors, and Shandong Ice Wheel Liquid Hydrogen, among others.
Within Sichuan Province DEC is exploring a link between legacy hydropower business and new green hydrogen (GH2) generation industrial policy in the form of direct-coupling of the IRE to produce GH2. The province already draws about 90% of total energy from hydropower. Even this impressive ratio, however, does not reflect the province’s IRE potential; the 90% draw represents only 80 GW out of total installed capacity of 150 GW.
Around half of the power generated in the province is exported to other regions in China as part of the West-to-East Power Transmission project. DEC is a key player in both power generation and transmission in the province. Thanks in no small part to the efforts of DEC, Sichuan Province may be the first region in China to reach the carbon neutral goal set out in the Carbon Peak 2030 Carbon Neutral 2060 industrial policy.
As a national-level SOE, DEC is also investing considerable resources in the hydrogen energy and fuel cell industry in general. DEC invested in the “Liangshanzhou City West-Pan Hydrogen Technology Park” specifically to generate GH2 from IRE. DEC also shipped a 100 kW fuel cell system to Beijing China Huadian, one of the country’s Big Five power companies, in May of 2021. DEC also signed a hydrogen technology strategic agreement with SinoPec, a fellow SOE, in August of 2021 and established a fuel cell production center in Fujian Province in September. In June of 2022 DEC won a tender to produce GH2 from 100 MW of solar IRE in the city of Zhangye, Gansu Province. Most recently, DEC signed another solar IRE to GH2 project in August in the city of Jiuquan, Gansu Province.
SOEs are owned by the government and therefore adjust business strategy in response to industrial policy. Starting in 2016 DEC invested in a vertically-integrated fuel cell system production line, an effort that culminated in 2018 with the formation of a dedicated hydrogen energy subsidiary. In response to the new national hydrogen energy development plan released in March of 2022, DEC both shifted focus from downstream applications to upstream GH2 generation and also acquired new investors. DEC is well-placed to leverage extensive hydropower resources to answer calls from the central government to build GH2 capacity. As the hydrogen energy and fuel cell industry in China shifts away from high-value technology demonstration projects towards low-value infrastructure projects large national-level SOEs like SinoPec and DEC will play pivotal roles in fulfilling industrial policy.