South Korea's Hydrogen Industry Faces Shrinking R&D and a Growing Cost Gap With China

Research spending falls as hydrogen ambitions meet a costly reality

South Korea's hydrogen industry increased investment by just 4.6% between 2022 and 2024, while spending on research and development fell 26.8%. The figures expose a weakness in an industry facing cheaper Chinese production and smaller government tenders at home.

Figures released by the Ministry of Climate, Energy and Environment on October 26, 2026, showed that 82.7% of the country's 2,932 hydrogen companies lacked a dedicated research and development department in 2025. Only 11.2% had an in-house research institute, and 7.6% said they had received national government funding.

The cost gap is substantial. Average hydrogen production costs at South Korean water electrolysis facilities reached 18,163 won per kilogram, compared with roughly 2,800 to 3,600 won at some demonstration projects in China's Inner Mongolia and Xinjiang regions. On those figures, the Korean average was about five to six times the Chinese project costs.

South Korea must now decide how to support domestic technology while securing hydrogen that customers can afford. Researchers and industry specialists are proposing a broader supply mix, including imports, hydrogen made from natural gas with carbon capture, and production using nuclear electricity.

The government is taking a more selective approach. Its June 2026 changes to hydrogen power auction rules placed weight on developing domestic clean hydrogen production through water electrolysis. At the same time, it has reduced the amount of electricity available for hydrogen generation tenders, citing costs and doubts about the emissions savings of some applications.

For equipment makers, vehicle suppliers and energy developers, these decisions connect directly: research needs investment, investment needs customers, and customers need a fuel price they can sustain.

How deep is the research shortfall?

Investment by hydrogen companies rose from 4.1469 trillion won in 2022 to 4.3373 trillion won in 2024. Research and development spending moved in the opposite direction, dropping from 1.1219 trillion won to 821.2 billion won, a reduction of 300.7 billion won.

The government's industry survey began in 2022. Its latest findings suggest that a modest increase in investment has not translated into stronger spending on the work needed to improve equipment, test materials and reduce production costs. Among companies surveyed, 92.4% said they had never received national government funding.

The Korea Institute of Energy Technology Evaluation and Planning, known as KETEP, also tracks research infrastructure through its technology development organization dataset. It records whether companies across fields including hydrogen, solar and wind have research institutes or dedicated technology development departments.

That public dataset covers the 2022 reference year and draws on a survey report published on May 31, 2024. Its publication notes explain that sampling and data review create a delay between the period measured and publication. The newer ministry figures describe companies in 2025, giving the two sets of statistics different reference periods.

The practical challenge extends beyond hiring researchers. Hydrogen companies need access to testing facilities and operating projects where they can improve equipment under real conditions. A laboratory design must eventually become a reliable system that customers can run for years.

Why electricity makes Korean hydrogen expensive

Water electrolysis uses electricity to split water into hydrogen and oxygen. The equipment is called an electrolyzer. When renewable electricity powers the process, the resulting fuel is commonly called green hydrogen.

Electricity prices and operating hours both affect the final cost. An expensive machine that runs only when a nearby solar installation generates power produces fewer kilograms over which to spread its construction and financing costs.

The Korea Energy Economics Institute examined those effects in its electrolyzer economics study, issue paper 23-02, by Kim Jong Woo and Lee Tae Eui. Their estimates put hydrogen production at $16.19 per kilogram when a solar facility and a 5 megawatt electrolyzer had equal capacity. The electrolyzer's utilization rate was 14.9%.

Increasing solar capacity to three times the electrolyzer's capacity raised utilization to 37.1% and lowered the estimated cost to $10.09 per kilogram. A power purchase agreement, a contract to buy electricity from a generator, reduced the estimate further to $8.13.

The study estimated production using nuclear electricity at $4.65 per kilogram, compared with $6.87 using industrial grid electricity. Its calculations show how strongly the power supply arrangement can shape hydrogen economics, alongside the price and performance of the machinery.

Lee Sang-jun, a professor at Seoul National University of Science and Technology, has argued that South Korea lacks sufficient conditions for installing vast renewable energy facilities solely to produce hydrogen. Cho Hong-jong, an economics professor at Dankook University, has recommended expanding nuclear power to make cheaper electricity available for electrolysis.

China is building equipment and demand together

China's advantage reaches beyond inexpensive electricity at selected projects. International Energy Agency figures put the cost of manufacturing and installing electrolyzers in China at $600 to $1,200 per kilowatt in 2024, compared with $2,000 to $2,600 outside China.

Cheaper equipment lowers the initial investment required to start a hydrogen project. Access to large renewable energy installations in regions such as Inner Mongolia and Xinjiang can then help reduce operating costs.

China plans to provide up to 8 billion yuan, about 1.5877 trillion won, for hydrogen demonstration projects across five city clusters, with up to 1.6 billion yuan for each cluster. The program covers production, transport and use, including commercial vehicles, ironmaking using hydrogen and green ammonia.

Hydrogen energy is also included as a strategic national industry in China's 15th Five-Year Plan for 2026 to 2030. By supporting several parts of the supply chain together, the demonstration program can connect equipment manufacturers with producers and customers.

Earlier work at a Rizhao seawater hydrogen plant illustrates another approach to costs: combining hydrogen production with fresh water and chemical feedstocks, while using industrial waste heat. That project brings several possible revenue streams into one facility.

Power tenders shrink, leaving future demand uncertain

South Korea's conventional hydrogen power tender volume fell from 1,300 gigawatt hours in 2025 to 930 in 2026, a decline of 28.5%. The market includes generation using hydrogen produced as a byproduct of petrochemical operations.

The clean hydrogen tender contracted more sharply, from 3,000 to 500 gigawatt hours, down 83.3%. That market centers on applications including burning hydrogen or ammonia alongside other fuels in existing power plants, a practice known as co-firing.

A gigawatt hour measures electricity generated over time. Cutting the volume offered through tenders reduces the amount of generation companies can compete to supply, making the expected market smaller for fuel suppliers and equipment developers as well.

The office of People Power Party lawmaker Kim Sohee said tender volumes for 2027 and beyond had not been set. Companies therefore lack a published schedule of future tender demand on which to base investments in plants and supply contracts.

Japan is using public funding to create demand at existing power stations. It has committed 8 billion yen to projects that mix hydrogen with liquefied natural gas in gas turbines, and 20 billion yen to a demonstration using 20% ammonia co-firing at Hekinan Thermal Power Station.

Japan's industrial projects also provide another route to customers. The Yamanashi factory hydrogen project connects a planned 16 megawatt installation with heat sterilization and trial whisky distillation at Suntory facilities. It directs hydrogen toward specific factory processes rather than converting it back into electricity.

Why the government is slowing support

The Ministry of Climate, Energy and Environment says hydrogen power generation has yet to become economically competitive. Producing hydrogen from electricity and later turning it back into electricity loses energy at both stages, raising the cost of the final power supplied.

A ministry official described the government's position as continued support for hydrogen, with a narrower selection of projects:

Our policy of fostering the hydrogen industry remains unchanged, but the initial plans need to be adjusted to reflect reality,

The official also said the government intended to select areas capable of becoming competitive, rather than keep funding projects that would stop operating when subsidies ended. Ammonia co-firing with coal faces a further policy conflict because South Korea also aims to phase out coal power.

Hydrogen can store energy for later use, including when renewable generation is unavailable. The policy dispute concerns how much support to provide while that capability and other uses become cheaper, and which applications deserve priority.

Seung-Hoon Yoo, a professor in the Department of Future Energy Convergence at Seoul National University of Science and Technology, warned against reducing investment too early:

If we delay investment just because costs are high right now, we could lose our lead in future markets,

The competing concerns are concrete. Subsidies can sustain demand while technology improves, but public spending also has to account for the cost of each project and the carbon emissions it avoids.

Imports, blue hydrogen and nuclear power enter the debate

Lee Sang-jun has proposed relaxing domestic production requirements to allow some imported hydrogen and considering blue hydrogen alongside green hydrogen. Blue hydrogen is generally made from natural gas, with carbon capture used to reduce emissions from production.

The Korea Energy Economics Institute study likewise recommended considering several production routes. It ranked alkaline and polymer electrolyte membrane electrolysis first for research investment, followed by blue hydrogen, then less mature electrolysis technologies.

Hydrogen made through electrolysis using nuclear electricity is often called pink hydrogen. The institute recommended examining whether it should qualify under the clean hydrogen certification system and developing suitable electricity contract arrangements.

For imports, the delivered price includes much more than production. Hydrogen must be transported, stored and sometimes converted into another substance for shipping, then converted again near the customer. The institute's review found ammonia to be the cheapest of the shipping routes it examined under its stated assumptions.

South Korean researchers are already working on that conversion step. A Korean ammonia conversion project demonstrated hydrogen purity of 99.97% using a reactor operating near 600 C. Such technology could support a supply chain in which ammonia carries hydrogen across the sea before the gas is released for fuel cells.

Vehicles and suppliers face budget pressure too

The Korea Hydrogen Alliance estimates that South Korea's hydrogen industry employed about 37,000 people across roughly 3,000 related companies in 2024. The supplier network extends into components, refueling infrastructure and fuel cells.

Hyundai's Nexo uses domestically sourced parts for at least 90% of its key components and has more than 60 partner companies in its supply chain. Changes in vehicle demand can therefore affect businesses beyond the manufacturer.

The government has set the hydrogen vehicle rollout budget for 2027 at 445.7 billion won, down 23% from 2026. Funding for refueling station construction is set at 119.7 billion won, a reduction of 37%.

China had more than 40,000 hydrogen fuel cell vehicles and 574 refueling stations at the end of 2025. SNE Research forecasts that South Korea's hydrogen vehicle market share will fall from 66.9% in 2026 to 13% in 2040, while China's rises from 24.1% to 31%.

Those projections place a date on the competitive risk. Korean suppliers face decisions now about research, production capacity and staffing while the anticipated customer base shifts toward other markets.

How the original industrial strategy reached this point

South Korea's early hydrogen strategy combined industrial expansion, jobs and energy infrastructure. Jane Nakano, a senior fellow at the Center for Strategic and International Studies, described that approach in her November 5, 2021 hydrogen industrial strategy analysis.

Her analysis recorded government hydrogen spending of $701.9 million for fiscal 2021, up 40% from 2020, and a commitment of $2.34 billion to develop the hydrogen vehicle industry by 2022. The strategy also included import infrastructure, showing that overseas supply was part of the early plan.

The main policy and investment milestones span several years:

• 2019: South Korea adopted its Hydrogen Economy Roadmap.
• January 2020: Parliament passed the Hydrogen Economy Promotion and Hydrogen Safety Management Law, which took effect in 2021.
• 2022: The government began its hydrogen industry survey, establishing the starting year for the latest investment comparison.
• 2024: Industry research spending stood at 821.2 billion won, down from 1.1219 trillion won in 2022.
• June 2026: The government announced changes to hydrogen power auctions favoring a domestic water electrolysis production ecosystem.
• October 26, 2026: Ministry figures showed that most hydrogen companies lacked dedicated research departments.

The early strategy set 2040 targets of 5.26 million tonnes of annual hydrogen consumption, 1,200 refueling stations and 15 gigawatts of utility fuel cells. Nakano described its main emphasis as economic growth and industrial competitiveness.

Research priorities extend beyond bigger budgets

The Korea Energy Economics Institute identified specific gaps between laboratory capability and commercial scale. It found that Korean alkaline and polymer electrolyte membrane equipment had sound basic technology at the level of individual units, but lagged in large demonstrations, system operation and integration with renewable electricity.

Its study recorded 138.2 billion won of water electrolysis research investment over the preceding five years, with 88.2% directed to those two established technologies. Hydrogen projects received 42.4 billion won, or 1.7% of the 2022 Climate Response Fund.

The institute proposed larger equipment modules, longer operating life, better performance and cheaper materials. For polymer electrolyte membrane systems, replacing costly materials such as titanium and iridium was a central cost challenge. It also called for support that lets smaller specialist companies test and commercialize components together.

South Korea's choices therefore involve both fuel supply and manufacturing capability. Imports or nuclear electricity could lower costs for some users, while sustained testing and research could improve domestic equipment. Smaller power tenders and vehicle budgets make coordination between those goals more urgent for companies deciding where to invest.

Key Points

• Hydrogen industry research spending fell 26.8% between 2022 and 2024, while investment rose 4.6%.
• Of 2,932 hydrogen companies in 2025, 82.7% lacked a dedicated research department and only 7.6% had received national funding.
• Korean electrolysis production averaged 18,163 won per kilogram, about five to six times costs at selected Chinese demonstration projects.
• The 2026 clean hydrogen power tender fell from 3,000 to 500 gigawatt hours. Volumes for 2027 and beyond had not been set.
• Researchers recommend cheaper electricity, stronger equipment development and consideration of imports, blue hydrogen and nuclear electricity.
• The government says it will continue supporting hydrogen while selecting applications with a stronger prospect of becoming competitive.