"We invested on the government's assurances"... The 'Valley of Death' drags on [Hydrogen, Broken Ladder] ②

Gap persists between government’s hydrogen vehicle rollout blueprint and reality
Companies that invested early face a double burden as the virtuous cycle between demand and infrastructure is delayed
70% of hydrogen distribution and utilization compa

Editor's NoteThe hydrogen industry, once seen as a future growth engine for Korea, is faltering. The government worked to build an ecosystem, even enacting the world's first hydrogen law, but has been unable to bridge the gap between its vision and reality. As a result, the industry's foundations are rapidly weakening. Small and midsize hydrogen technology companies that moved early into research and development (R&D) and facility investment in line with the government's plans are struggling to find a way forward as they face an uncertain future. Drawing on voices from the field, The Asia Business Daily examines this reality and explores ways to move beyond the hydrogen era and into the clean hydrogen era.

1. An ecosystem caught in a vicious cycle before it can even get off the ground

2"We invested trusting the government"... The never-ending "Valley of Death"

3. Korea's clean hydrogen transition policy trapped in a dilemma

4. The clean hydrogen transition has stages... Strategies of the U.S., China and Japan

5. "Korea is trapped in idealism... We need to redesign a realistic path"

"We thought we'd start making a profit after seven years, but we're still unable to get out of the 'Valley of Death.'"

Seong Nakcheol, head of Strategic Planning at Hydrogen Energy Network (HyNet), made this appeal while describing the current state of Korea's hydrogen refueling market when we met him at HyNet's headquarters in Dogok-dong, Gangnam-gu, Seoul, on September 11. The "Valley of Death" refers to the period when small and midsize companies and startups, despite succeeding in technology development or early commercialization, struggle with issues such as funding shortages and weak demand before they can establish themselves in the market and generate profits.

Seong Nakcheol, head of the Strategic Planning Office at Hydrogen Energy Network (HyNet), speaks with The Asia Business Daily at HyNet's headquarters in Dogok-dong, Gangnam-gu, Seoul, on the 11th of last month. Photo by Choi Hogyeong

HyNet is a special-purpose company (SPC) established through public-private cooperation in 2019, when the government announced its "Roadmap to Revitalize the Hydrogen Economy." It is also a hydrogen-specialized company. Thirteen companies, including Korea Gas Corporation and Hyundai Motor, invested 135 billion won in the venture, which was tasked with acting as a catalyst by building refueling infrastructure ahead of the wider adoption of hydrogen fuel cell vehicles.

The investment was made with the expectation of losses from the outset. In the early years, when there were few vehicles, the expectation was that even if operating stations incurred losses, building the infrastructure first would increase the number of hydrogen vehicles. That, in turn, would raise station utilization rates and create a virtuous cycle that would make the business profitable. HyNet's business plan projected a seven-year period of losses and anticipated that the company would become self-sustaining around 2026.

Now, seven and a half years after its establishment, the situation is very different from what was expected. Of the 59 hydrogen refueling stations HyNet operates nationwide, only around five are anywhere near the break-even point. In its 2019 roadmap, the government set a target of 67,000 hydrogen vehicles on Korea's roads by 2022, but the actual number reached just 29,733. The assumption that vehicles would follow once the stations were built first has been shaken.

Seong expects HyNet to turn profitable around 2031, beyond 2028, when the company's operating period was originally set to end. He says government support will be essential at least until then.

Iljin Hysolus CEO Im Mangyu is being interviewed by The Asia Business Daily at the company’s research and development (R&D) center in Wanju Techno Valley, North Jeolla Province, on the 10th of last month. Photo by Choi Hogyeong.

Automotive parts suppliers have also been unable to find a clear way forward and are left waiting desperately for wider adoption of hydrogen vehicles. When we met him at Iljin Hysolus's research and development (R&D) center in Wanju Techno Valley, North Jeolla Province, on September 10, CEO Im Mankyu spoke at length about the uncertain state of Korea's hydrogen vehicle market.

Iljin Hysolus is a hydrogen-specialized company that manufactures high-pressure containers for storing the hydrogen used as fuel in hydrogen vehicles. Since 2014, it has mass-produced high-pressure hydrogen storage containers for Hyundai Motor's hydrogen fuel cell vehicles and has supplied them for the Nexo, launched in 2018. As the government accelerated efforts to foster the hydrogen mobility industry in 2021, the company also shifted its focus to hydrogen. Hydrogen accounted for 49.4% of the company's total revenue in 2020, rising to 97.3% last year. In effect, the company had staked its future on its hydrogen business.

When the government shifted its focus for expanding hydrogen vehicle adoption from passenger cars to commercial vehicles such as buses, Iljin Hysolus also changed its business structure. Passenger-car hydrogen containers accounted for 85.3% of hydrogen business revenue in 2021, but their share fell to 38.5% last year. Meanwhile, other containers, including those for commercial vehicles and hydrogen transportation, rose from 14.7% to 61.5%.

The problem is that the commercial vehicle market has also failed to grow as quickly as the government planned. Last year, the government planned to put 7,300 hydrogen passenger cars and 2,000 hydrogen buses on the road, but actual adoption reached just 5,708 and 1,177, respectively. The target achievement rates were 78.2% for passenger cars and 58.9% for buses. This year, the government has set targets of 6,000 hydrogen passenger cars and 1,800 hydrogen buses, but Im expects actual adoption to fall short.

Iljin Hysolus ultimately posted operating losses of 9.8 billion won in 2023, 9.5 billion won in 2024 and 11.2 billion won last year, marking three consecutive years of losses. Facilities and staff secured in anticipation of market growth have been underused as production has fallen, adding to the company's fixed-cost burden.

These difficulties are not limited to a handful of companies. According to the government's hydrogen industry survey on October 12, among the 833 hydrogen distribution companies, including hydrogen refueling businesses, as of the end of 2024, 77.6% had annual hydrogen business revenue of less than 1 billion won. Among the 1,261 hydrogen utilization companies, including mobility businesses, 64.4% also had revenue of less than 1 billion won. The number of companies entering the hydrogen industry has grown, but many have yet to secure a stable revenue base.

In its 2021 "Basic Plan for the Implementation of the Hydrogen Economy," the government diagnosed that the focus of hydrogen use on hydrogen vehicles and fuel cell power generation limited demand growth and the potential to lower costs through economies of scale. It therefore set out the task of diversifying hydrogen mobility and expanding hydrogen use into areas such as power generation and industry to create new demand, then connecting that demand to stable revenue for producers and suppliers to build a virtuous-cycle ecosystem. But with this virtuous cycle not yet established, companies that made early investments in confidence in the government's initial plans are still struggling to escape the "Valley of Death."

This content was produced with the assistance of AI translation services.