“We are now in a golden era for hydrogen,” Robin Lin, CEO of fuel cell producer Refire, declared during a speech at the China Auto Forum in Shanghai last year.
Lin would know. His company made fuel cells before they were cool. When Refire was founded in 2015 it was a small, specialized market.
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But over the past two years, its prospects have exploded. Hydrogen technology is fast gaining attention in China as a viable alternative to the fossil fuels used in vehicles and heavy industries. Fuel cells are a dense, efficient, and clean way to store energy. Among the most popular prospects at the moment are fuel cell electric vehicles (FCEVs).
To proponents, hydrogen is the future of green fuel. Compared to gasoline, it emits only water. Compared to batteries, it leaves nothing to recycle.
China’s push for hydrogen energy looks much like its ambitions for electric vehicles when they were first set out. The country’s nascent hydrogen drive has led to an increasing number of companies researching and developing hydrogen technologies.
The expanding market has led to a series of hydrogen companies, including Refire, filing to go public. In March, Refire filed to list on Shanghai’s Nasdaq-like STAR Market.
For this week’s newsletter, we profile one of the Chinese companies that stand to benefit most from China’s push for hydrogen.
What are hydrogen fuel cells?
Hydrogen fuels cells are an efficient, clean form of energy storage. Use electricity to isolate the gas, and then you can deploy it to power a car in a reaction that’s cleaner than fossil fuels and requires less heavy equipment than battery electrics. It even has applications in energy-intensive industries like the steel sector.
The hydrogen used in these fuel cells is rarely found in its pure form, and needs to be extracted from water, coal, or natural gas. But producing it in an environmentally friendly way is currently expensive.
While hydrogen fuel cell technology is less mature than electric vehicle (EV) batteries, it has some advantages over batteries. Fuel cells vehicles can be refueled in a few minutes much like gas-driven cars unlike EVs, which can take up to a few hours to recharge, depending on the grading of the charging pile. They are also more energy dense than batteries.
Hydrogen fuel cells are less energy-efficient than batteries—you need more electricity to deliver the same amount of power when using hydrogen. In a world where renewables like solar and wind are producing vast amounts of surplus energy during off-peak hours, that might not be a problem, but right now most hydrogen comes from fossil fuels.
EVs are around a decade ahead of fuel cell vehicles, given China’s advanced charging infrastructure. For now, hydrogen fuel cell vehicles are confined to testing zones.
Taking on an industry
Refire is one of China’s largest fuel cell manufacturers. The company produces fuel cell systems, the heart of FCEVs, for commercial vehicles, which require large amounts of power and quick refueling times—both strengths of fuel cells compared to batteries.
Established in 2015, Refire designs and manufactures a range of fuel cell systems for heavy vehicles of up to 49 tons, including mixer trucks, buses, dump trucks, and truck tractors. It’s customers include trucks maker FAW Jiefang, auto manufacturer Dongfeng, and busmaker Yutong.
Refire declined to comment for this story, citing a pre-IPO quiet period.
The company began mass producing its first fuel cell system for light-duty commercial vehicles in 2017, manufacturing 1,000 within 18 months. The company has since launched a new line of fuel cell systems, the most powerful of which can drive heavy-duty vehicles.
While not widely adopted, Refire’s fuel cells have been deployed commercially in 2,700 vehicles in 15 cities across China, and have collectively driven more than 63 million kilometers, according to the company. Refire currently produces around 1,000 fuel cell systems a year, used by automakers in buses and trucks. For comparison, the Beijing government aims to deploy 10,000 fuel cell vehicles on its roads by 2024.
The company has set up two manufacturing plants, one in the southern Chinese province of Guangdong and the other in Jiangsu, in eastern China. Both aim to drastically increase capacity. The company expects to initially build 20,000 fuel cell systems a year at the new Jiangsu plant.
As China starts to promote hydrogen fuel cell vehicles with more fervor, heavy vehicles will likely be the initial focus. China’s policy environment currently favors using fuel cells in commercial vehicles rather than passenger cars, Yuki Yu, founder of consultancy Energy Iceberg, told TechNode in April.
Commercial vehicles have the strongest case for hydrogen fuel cells over electric batteries. These vehicles have higher utilization rates than passenger cars, and can’t spend hours parked while charging.
Commercial vehicles are likely to see pressure to go green. China has ambitious goals to reach peak carbon emissions by 2030, and transportation could become a major focus for lawmakers. In the first half of 2020, trucks made up just 10% of all vehicles in China, but are some of the largest polluters on the road. “Heavy trucks account for one-third of China’s total road carbon emissions,” Refire’s Lin said during the Yangtze Delta Forum in April.
Refire has forged a series of high-profile partnerships to increase adoption of fuel cell technology.
In July 2019, Japan’s Toyota Motor Corp. signed a deal with Chinese commercial vehicle makers FAW and Higer bus, with Refire acting as a local supplier. As part of the deal, Refire ensured that the components of the fuel cell systems functioned together and was responsible for developing fuel-cell powertrains that China automakers could use in hydrogen buses, Reuters reported at the time.
Then, in April, the company partnered with German automotive supplier Schaeffler to “explore the key areas of fuel cell technology” and set up a knowledge base and shared resource platform. Other partners include oil and gas giant Sinopec, which has also invested in Refire.
In early March, Refire filed to list on Shanghai’s STAR Market, with plans to raise more than RMB 2 billion ($309 million).
The company’s valuation has increased significantly over the past few years following several rounds of fundraising. In 2019, motor manufacturer Broad-Ocean announced plans to acquire 20% of Refire for RMB 300 million, valuing the company at RMB 1.5 billion. Broad-Ocean later pulled out of the deal.
The company’s filing comes just months after competitor SinoHytec floated in Shanghai in August.
“Since SinoHytec went public, Refire has been raising funds at a quarterly pace, which shows that the capital market is enthusiastically seeking hydrogen energy companies that are close to IPO,” China-based hydrogen fuel cell research center The Orange Club wrote in a September report.
But Refire losses have expanded dramatically. Between 2017 and 2019, the company’s losses ballooned nearly sevenfold from RMB 35 million to RMB 278 million, narrowing to RMB 150 million in the first nine months of 2020, according to its prospectus
Refire’s losses were primarily driven by R&D costs, which was equivalent to 90% of the company’s operating income between January and September 2020.
While China’s government is laying down the groundwork to commercialize hydrogen ftechnology, there are significant hurdles to unlocking its potential and delivering Refire’s zero-emissions goals.
Unlike electric vehicles which have a vast network of charging stations, hydrogen cars are still in their infancy and refuelling stations will likely be hard to come by in the next few years.
Sinopec has made pledges to address this, and plans to build 1,000 hydrogen refueling stations that also sell conventional fuels by 2025. The company currently runs more than 30,000 gas stations across China.
Meanwhile, hydrogen fuel cells are only as clean as the process used to isolate the gas. Currently, more than 80% of hydrogen is produced using natural gas or coal, meaning that carbon is released during the isolation process. “Green hydrogen,” which is produced using energy from renewable sources, is currently very expensive, though an increasing number of projects are being launched.