Green hydrogen production: China’s 43.77 GW alkaline and 2.7 GW PEM capacity signals overcapacity

Have you been keeping an eye on China’s rapid expansion in electrolyser factories? It’s fascinating to see the pace they're hitting, especially when you consider how that lines up with project demand. A recent dive into hydrogen energy news from Shanghai Metals Market shows that by mid-2026, China’s manufacturing capacity for alkaline water electrolysis is set to reach a whopping 43.77 GW, with an additional 2.7 GW coming from PEM electrolyzers. However, these eye-popping numbers come from what SMM calls “incomplete statistics,” hinting at a growing mismatch between what’s being produced and what’s actually needed in China’s ambitious green hydrogen production strategy, aimed at peaking carbon emissions before 2030 and achieving carbon neutrality by 2060.

Surplus of alkaline stacks

China’s rush to ramp up alkaline capacity has truly been something to behold. Current industry research reveals that over 91% of electrolyser shipments this year are using alkaline technology, giving local manufacturers over 80% of the global alkaline supply. The chemistry behind it is pretty straightforward—using potassium or sodium hydroxide, nickel-based electrodes, and cost-efficient diaphragms makes alkaline units reliable and affordable. But it seems this cost-efficiency has backfired a bit, resulting in an overproduction that’s outpacing the actual projects needing these systems. You might say factories are generating gigawatt-scale stacks faster than the demand can keep up, with reports from European policy studies showing a startling manufacturing-to-shipment ratio that can reach as high as 18:1.

Global context and overcapacity

When you zoom out to the global picture, the International Energy Agency estimates that by the end of 2025, global electrolyser manufacturing will be knocking on the door of 58 GW/year, and around 60% of that will come straight from China. But the kicker? Shipments are lagging significantly behind, leaving many factory lines underutilized. It's a tough market out there; competition has driven prices down, with alkaline equipment costs plummeting over 50% from 2022 to 2025, and PEM systems following suit. While these developments could reshape the economics of hydrogen production methods, they also risk squeezing profits and paving the way for potential mergers among original equipment manufacturers.

Project-level offtake

Some major players are starting to make headway in absorbing this surplus equipment. For instance, state-owned Sinopec is leading the charge with two major projects in resource-rich Xinjiang and Inner Mongolia. Their Kuqa green hydrogen project, for example, features 16 sets of 1,000 Nm³/h alkaline electrolyzers from LONGi Hydrogen, cranking out about 20,000 tonnes of hydrogen each year for refining. In Uxin Banner, they've recently awarded contracts for a total of 240 MW of new alkaline systems designed to produce a staggering 30,000 tonnes per year, complete with hydrogen storage and pipeline integration. Other bids from China Energy Engineering Corporation are mixing in smaller PEM modules, showcasing a flexible approach to technology.

Cost declines and market dynamics

This overcapacity situation is shaking things up in the market. With prices for equipment dropping, project economics are getting a boost across various applications, from decarbonizing steelmaking to powering hydrogen refueling stations. At the same time, squeezed margins for original equipment manufacturers have sparked conversations about factory shutdowns and mergers. Meanwhile, many Chinese exporters are eyeing international markets, especially in Southeast Asia and Europe, where their low-cost alkaline stacks could easily beat out local suppliers—a situation that could lead to anti-dumping investigations or new local content rules.

Balancing alkaline and PEM

Even though alkaline systems dominate the cost game, you can't ignore the unique perks of PEM electrolyzers. They have solid polymer membranes that allow for higher current densities and are compact, which makes them perfect for adapting to variable renewables and stabilizing grid power. However, the use of precious metal catalysts and advanced membranes drives up the costs. Some innovative setups, like China’s Da’an pilot project, are combining alkaline technology for steady output with PEM systems for load-following. This raises interesting questions about the future of hydrogen infrastructure: how do we strike the right balance between price, flexibility, and operational efficiency?

Implications for scaling green hydrogen

China’s impressive electrolyser overcapacity has its pros and cons. On the upside, a surplus of affordable equipment could speed up the global shift toward green hydrogen and help meet emission reduction targets. On the flip side, underused factories could tie up capital, pulling investment away from newer electrolysis innovations and complicating the economics of local projects. It’s a lesson learned from the solar and battery industries, where oversupply led to price wars and forced consolidations. Meanwhile, getting projects situated across remote areas like Xinjiang and Inner Mongolia brings its own challenges, such as managing land use, water, and grid access. For green hydrogen to genuinely help cut carbon footprints, it has to be carefully integrated with the rollout of renewable energy and sound carbon accounting practices.

Pressure on advanced technologies

With alkaline systems taking the lion’s share of production, next-gen technologies like solid oxide electrolysis or advanced PEM variants might get left in the dust. Without specific incentives or unique offtake agreements, developers of those high-tech systems could struggle to scale. This brings up a classic debate in industrial strategy: should we push the cheapest options for rapid rollout, or foster a diverse mix of technologies for long-term success and sustainability?

Policy response on the horizon

Regulators are already cooking up new strategies to balance supply with demand. Industry insiders say we can expect new technical specs on hydrogen carbon accounting that could shape the demand for verified low-carbon electrolysers. Local hydrogen demonstration zones are continuing to provide subsidies and favorable electricity arrangements to stimulate regional rollouts, while central policymakers are considering incentives for agreements that could help factories stay busy. These initiatives might help align industrial production with decarbonization goals and minimize the chance of having stranded assets.

Looking ahead

The next few years will be crucial to see if the supply of Chinese electrolyser production can sync up with global demand. We’ll be keeping a close eye on factory utilization rates, policy changes, and how quickly international markets pick up. Will prices for equipment continue to dip as capacity increases, or will they surge as green hydrogen projects start to multiply? And can these exporters find stable markets without setting off trade conflicts? For those investing or developing projects, the interplay of cost, performance, and geopolitical risks feels more complicated than ever.

As we look at the unfolding narrative of hydrogen production and hydrogen infrastructure, China’s electrolyser scene stands as both an opportunity and a cautionary tale. The looming question is whether this wave of excess capacity can be absorbed by a rising demand for green hydrogen or if it will leave behind a trail of dormant factories.