[Hydrogen, Broken Ladder] 3. South Korea's Clean Hydrogen Transition Policy Trapped in a Dilemma

Clean Hydrogen Power Generation Market Volume Plunges 92%, from 6,500 to 500 GWh
Green Hydrogen Production Costs Top 20,000 Won per Kg...Economic Viability Still a Long Way Off
Weak Demand Delays Mass Production and Facility Investment...Demonstrati

Editor's NoteThe hydrogen industry, long viewed as a future growth engine for Korea, is wavering. The government has worked to build an ecosystem, even enacting the world's first Hydrogen Act, but has been unable to bridge the gap between its vision and reality, leaving the industry's very foundations increasingly fragile. Small and medium-sized hydrogen technology companies that moved early into research and development (R&D) and facility investments in line with the government's policy direction are struggling to find a way forward as they face a fight for survival. The Asia Business Daily examines this reality through voices from the field and explores solutions for moving beyond the hydrogen era toward the clean hydrogen era.

① An ecosystem caught in a vicious cycle just as it was getting started

② "We invested because we trusted the government"...The 'Valley of Death' drags on

③Korea'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"

The government is stepping up efforts to develop a domestic clean hydrogen ecosystem, including water electrolysis, but the formation of an initial market remains slow. Companies that have completed technology development and demonstration projects are also hesitant to expand mass production and invest in facilities because demand is not yet sufficient. To make clean hydrogen price-competitive, production must be scaled up to bring down its high unit cost. But, as in the existing hydrogen market, a vicious cycle is taking hold: insufficient demand is preventing mass production from expanding, while high production costs are further constraining demand.

Clean hydrogen refers to hydrogen whose production emits no more than 4 kg of greenhouse gases per 1 kg of hydrogen, measured in carbon dioxide equivalents. The government plans to shift the hydrogen supply structure away from gray hydrogen, which is based on fossil fuels such as by-product hydrogen and hydrogen produced through reforming, and toward clean hydrogen. Green hydrogen, produced by splitting water through electrolysis using electricity from renewable energy, is a leading form of clean hydrogen. As the government seeks to develop green hydrogen as a key production pillar, the importance of water electrolysis technology and related materials and components is inevitably growing.

However, there is still a long way to go before green hydrogen becomes economically viable in Korea. According to the Hydrogen Economy Comprehensive Information Portal, the current domestic production cost of green hydrogen exceeds KRW 20,000 per kg. This is also far above the government's 2030 target of KRW 3,500 per kg, set out in its 2019 hydrogen technology development roadmap. High production costs are seen as a major factor limiting demand for green hydrogen and slowing the formation of a market.

Han Sangbeom, CEO of Boyas Energy, introduces the research facilities at the company’s headquarters in Geumcheon-gu, Seoul, on the 8th of last month. Photo by Choi Hogyeong.

Boyas Energy, a prospective hydrogen specialist company developing water electrolysis catalysts, is also caught in this vicious cycle. The Prospective Hydrogen Specialist Company Support Program was launched in 2022 to help small and medium-sized companies in the hydrogen sector grow into hydrogen specialist companies by supporting technology commercialization and market access, and to foster the hydrogen industry ecosystem. Boyas Energy has been developing water electrolysis catalyst technology needed for the transition to clean hydrogen and pursuing its commercialization. After localizing iridium oxide (IrO2) catalysts for proton exchange membrane (PEM) water electrolysis, it has supplied them to major domestic companies.

However, with large-scale orders difficult to anticipate, the company is not moving ahead with full-scale mass production or expanding its production facilities. Han Sangbeom, CEO of Boyas Energy, whom we met on September 8 at the company's headquarters in Geumcheon-gu, Seoul, said, "Under the current circumstances, there's no reason to invest in mass production," adding, "Revenue will come once a market develops, but so far, it isn't economically viable." The company is prepared in terms of both technology and production, but it is difficult to be confident that there will be enough demand to support them.

Han cited the reduced volume of the Clean Hydrogen Power Generation Market (CHPS) as one reason companies cannot count on demand growing. Although the government has set out a policy direction of fostering the clean hydrogen industry, the market for power generation that should underpin demand has shrunk significantly. This has left companies questioning whether the government is truly committed to growing the market. "The volume opened for bids this year has been slashed so drastically that it is less than 10% of what it was in the past," he said.

The Clean Hydrogen Power Generation Market cited by Han is one of the hydrogen power generation bidding markets, in which electricity produced using hydrogen or hydrogen compounds is traded through competitive bidding. It is separate from the General Hydrogen Power Generation Market (HPS). According to the Ministry of Climate, Energy and Environment and the Korea Power Exchange (KPX), the Clean Hydrogen Power Generation Market was first opened in 2024, with a volume of 6,500 GWh, but only 750.48 GWh was awarded. Last year, bids were announced for a volume of 3,000 GWh, but the auction was ultimately canceled. The volume set for this year is 500 GWh, a reduction of more than 90% from the first auction in 2024. Han said that companies find it difficult to commit to mass production and facility investments not only because of high production costs, but also because inconsistent and unpredictable policies make planning more challenging.

Another problem, in addition to uncertainty in the demand market, is the lack of large-scale projects to take water electrolysis technology from demonstration to commercialization. To lower the cost of water electrolysis equipment, materials and components, and establish mass-production systems, companies need to build up operational experience and increase production scale. However, domestic demonstration projects remain at around 10 MW. A prime example is the Jeju Green Hydrogen Production Demonstration Project. It was planned as a 12.5 MW project when it began in 2022, but was ultimately scaled back to 9.7 MW, partly because of cuts to the government's research and development (R&D) budget.

The government plans to pursue large-scale demonstrations in the 50-100 MW range. Overseas, however, water electrolysis projects have already expanded to hundreds of megawatts and gigawatt scale. A 500 MW water electrolysis project began operations in China last year, while a 2.2 GW project is under construction in NEOM, Saudi Arabia. As the gap with overseas markets widens, concerns are growing about the domestic clean hydrogen ecosystem's ability to build its own competitiveness and become self-sustaining.

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