What explains the cost advantage of Chinese electrolysers?

Interest in electrolysers – a critical technology for producing low-emissions hydrogen – has surged in recent years, with global deployment reaching a record of 4 gigawatts (GW) in 2025, up from nearly 300 megawatts (MW) just five years earlier. The vast majority of deployment has taken place in China, which currently accounts for two-thirds of global installed electrolyser capacity, in addition to two-thirds of capacity that has reached a final investment decision.

A key reason is China’s domestic manufacturing base for producing electrolysers. The country hosts nearly 70% of global electrolyser manufacturing capacity, and the capital costs (CAPEX) associated with production are the lowest in the world. We estimate that the CAPEX of Chinese electrolysers was USD 500 to 1100 per kilowatt (kW) in 2025 for alkaline electrolysers, which are the most established and widely deployed today, in comparison to USD 1 900 to 2 500/kW outside China. Low Chinese CAPEX is partly driven by intense market competition among equipment manufacturers. In 2025, China’s electrolyser manufacturing capacity was 35 GW per year while demand was less than 2 GW. This substantial overcapacity has contributed to bidding below full cost, with awarded bids in auctions falling as low as USD 170/kW.

China’s cost advantage in producing electrolysers has raised the question of whether they could come to dominate global supply, as has been the case with solar PV modules and batteries in recent years. However, a closer look at the breakdown of electrolyser costs indicates that the advantage of electrolysers made in China is narrower than it may first appear. In addition, logistical and practical considerations could limit their deployment at a global scale in the short term.

In China and other regions, more than half of total CAPEX for electrolyser projects corresponds to engineering, procurement, construction and contingency costs – factors that entirely depend on project location. Around 25% to 30% corresponds to other plant components, such as power electronics, piping, compressors and gas treatment, which are commercially available.

The remaining 15% to 20% corresponds to components for the stack – the core of the electrolyser where water is split into hydrogen and oxygen. In alkaline electrolysis, manufacturing the diaphragm that separates the electrodes is the single largest stack-related cost item, representing about 40% of stack manufacturing costs. Along with nickel-based electrodes and other diaphragm materials, these core elements typically make up nearly two-thirds of stack component costs. Other key costs for stack manufacturing include energy, plant costs and labour.

China’s stack manufacturing costs are almost 60% lower on average than in advanced economies, largely due to access to cheaper materials for core components such as catalysts, economies of scale, and optimised supply chains for items such as seals, frames, separators and gaskets.

However, in practice, there are trade-offs between cost, efficiency and durability, making direct comparisons of production costs somewhat misleading. Alkaline electrolysers that are designed with more expensive materials can deliver higher efficiency and last longer, while cheaper alternatives can reduce performance and result in higher electricity costs for production – effectively offsetting some of the manufacturing cost advantages of Chinese stacks. Despite higher upfront costs, electrolysers produced in advanced economies can therefore be competitive – and in some cases have an advantage – compared with those from China.

Electrolyser stacks could see their prices come down further in the coming years across markets. However, installation and non-stack plant components are bigger contributors to overall costs. Many of these items, such as rectifiers and transformers, are standardised equipment, leaving limited scope for cost reductions. Still, construction expenses could be reduced through modularisation, the standardisation of design, and shifting some work from plant sites to manufacturing locations. Some equipment manufacturers aim to cut their construction costs by more than half through this approach.

Taking a step back, electrolysers currently represent 55% to 65% of the levelised cost of low-emissions hydrogen production, out of which the stack is just 6% to 9%. Electricity accounts for the remainder – and as electrolysers become cheaper, electricity costs will become more dominant. China generally has lower electricity costs and cost of capital than other regions.  Some hydrogen projects have also benefitted from preferential loans from government institutions. Together, these factors mean that the cost gap in China between renewable hydrogen and hydrogen produced from unabated fossil fuels is significantly narrower than in many other regions.

Given these factors, the cost advantage of Chinese stacks shrinks considerably when imported into Europe: using a Chinese stack alongside locally sourced equipment for the rest of the plant and European construction costs would result in a total CAPEX that is 8% lower. This is still significant, but well below the cost advantage at the stack or project level for electrolysers manufactured and installed in China.

And cost is not the only factor under consideration. Electrolysers are bulky, making it difficult to trade them globally. Importing also carries the risk of delays and extra costs related to shipping. In addition, it makes maintenance and repairs more difficult, with more limited access to specialist support and troubleshooting.

Moreover, some Chinese electrolysers have faced efficiency and performance challenges and do not consistently meet international standards. Lower efficiency means producing less hydrogen with the same equipment, increasing costs per kilogramme of hydrogen. For example, importing only the stack from China can, in some cases, result in higher overall production costs, more than offsetting the stack’s CAPEX savings.

The Chinese electrolyser market has suffered from surplus capacity in manufacturing and a resulting fierce price competition, but market dynamics in China are changing. In November 2025, 40 Chinese equipment manufacturers signed an agreement covering 10 actions, including pledges to end below-cost bidding and refrain from making inflated claims about equipment efficiency and lifetimes. In March 2026, the Chinese government set a performance target for mass-manufactured electrolysers and is planning to implement mandatory national standards for energy efficiency in electrolysers. In parallel, original equipment manufacturers are announcing a new wave of more efficient products that can meet international standards.

Taken together, these dynamics indicate that Chinese electrolyser manufacturers might not be able to achieve the level of global market concentration seen with other clean energy technologies. Global electrolyser manufacturing capacity stood at 58 GW per year in 2025, with average utilisation of less than 10%. Of this, 22 GW per year is located outside of China – supporting a trend towards domestic manufacturing in order to reduce shipping costs and facilitate easier maintenance and troubleshooting. Countries outside China are also taking steps to support greater diversification. For example, the second auction of the European Hydrogen Bank requires that at least 75% of the electrolyser stack capacity originates from outside China.

This does not mean, however, that these dynamics cannot shift again. Chinese manufacturers are already working on closing the efficiency gap, investing in overseas manufacturing, and exploring other electrolyser technologies that could create new market opportunities globally.