The present surge in the popularity of hydrogen is due to worldwide efforts to combat climate change. Most transportation can be powered by carbon-free sources such as solar panels, wind turbines, batteries, and electric automobiles. However, they are insufficient to power furnaces hot enough for important industrial operations like steelmaking.
A simple way for running domestic appliances, such as cooks and ovens, by feeding heat to natural gas. Furthermore, hydrogen fuel cells have the potential to compete in the transportation of big industrial equipment, truck fleets, and ships.
Almost 80% of the hydrogen in use today is classified as “gray,” meaning it is derived from natural gas. Making it “blue” necessitates the construction of infrastructure to absorb the greenhouse gases released during the process. Electrolysis, on the other hand, produces “green” hydrogen without emitting any pollutants, by sending an electric current through water to separate the hydrogen from the oxygen.
The cost is a problem for all three, especially for green hydrogen. Green hydrogen now costs between $ 1.84 and $ 10.09 per kilogram, according to Bloomberg New Energy Finance statistics. To be competitive with blue hydrogen, this should be in the $ 1 to $ 2 per kilogram region, and much more to equal conventional energy.
Green hydrogen can only be made with water as basic material. As a result, the Holy Grail reduces the cost of the procedure. The most critical factor is to have enough and low-cost electricity, followed by the development of infrastructure to manage and integrate hydrogen into current systems, such as appliances.
Efforts are being made to get there. Sinopec, the Chinese energy behemoth, started building on the world’s largest green hydrogen production plant reported to date earlier this month: a facility with a 260-megawatt electrolyzer capacity is projected. By mid-2023, it is projected to be in service at a cost of $ 470 million.
The plant’s yearly utilization rate is estimated to be 48.8 percent. A 300 MW solar system will provide about half of the power necessary for operation, with the remainder coming from neighboring wind farms. It also contains a 2.5-tonne-per-hour hydrogen transportation pipeline.
In his book “The Hydrogen Revolution,” the CEO of the Italian power firm Snam SpA (SRG, SNMRY) expects that green hydrogen costs will be comparable with fossil fuels in five years. This is most likely dependent on offshore wind capacity predictions of an 11-fold rise to 400 gigawatts by 2035.
In terms of transportation and integration, intermediary oil and gas distribution firms, such as South West Gas (SWX) in the southwestern United States, are experimenting with hydrogen mixing in existing infrastructure, with encouraging results. Last month, British oil firm BP Plc (BP) announced plans to build an electrolysis plant to deliver hydrogen to trucks and other heavy vehicles starting in 2025, with a 1.5-gigawatt output capacity estimated by 2030.
The UK government has set a target of 5 GW of hydrogen production capacity by 2030 in order to lower the transportation sector’s 29.8% contribution of CO2 emissions. If implemented successfully, the idea would remove hydrogen’s current main barrier to widespread battery use: a lack of infrastructure. Furthermore, hydrogen-powered trucks can be refueled considerably more quickly and have a significantly longer range than vehicles that run only on electricity.
In the end, anything that resembles a hydrogen economy is still years away. However, there has been progress in a number of areas. It’s also not difficult to see who may benefit.
Ironically, as the outlook for hydrogen improves, equities that are now considered trend bets are falling farther into the negative for 2021. There are two key reasons for this, in my opinion.
To begin with, the great majority of these businesses are still years away from becoming profitable. In truth, many of the most well-known lose a lot of money. Connect the Power (NSDQ: PLUG), a fuel cell firm with a market valuation of over $ 17 billion and representation in 153 different stock indexes and ETFs, is one of them.
The business has ambitious plans, including one to construct hydrogen buses with South Korean Edison Motors, which was unveiled earlier this month. However, he expects a negative free cash flow of almost $ 700 million this year and roughly $1 billion next year. Plug’s stock is presently trading at a third of its January high.
Bottom line: Avoiding so-called pure-play fuel cell/hydrogen equities this year was the wisest move investors could have taken. These businesses, including solar panel and battery producers, are essentially in a race to the bottom to improve process efficiency and cut prices. The winners will profit from a huge new market. However, there is no assurance that the stocks on which investors are betting now will survive.
ETFs aren’t a good way to decrease risk. Because of the hydrogen craze, the number of available units has expanded. The net asset value of the Defiance Next Gen H2 ETF (HDRO) is around $ 66 million. At $ 27 million, Global X Hydrogen FNB (HYDR) is a little less. The Direxion Hydrogen ETF (HJEN) has a market capitalization of $ 44 million.
This year, they’ve lost nearly 20% of their value on average. The Direxion fund is heavily invested in Asian firms, whilst the other two funds are focused on the United States and Europe. However, the most important performance differential appears to be when they were released, as they are still declining in 2021.
Fortunately, there is a technique to wager on hydrogen that is far less dangerous. The most promising players, in fact, already have stable and rising earnings, and many of them pay out significant and growing dividends.
Essentially, they are the same firms that now control “conventional” energy. The large oil firms are at the top of the list, with windfall earnings from oil and gas sales being used to jumpstart hydrogen and carbon capture projects.
Up there are also the major utilities and electricity generators. They will get access to a vast new potential source of contractual and/or regulated power sales, which will be boosted by the fact that the energy required for electrolysis is significantly higher than the energy generated by hydrogen.
These firms not only have the size and financial strength to control hydrogen, but they’ve also held power for almost a century. However, if the hydrogen dream is once again derailed by a failure to decrease costs sufficiently, the companies will continue to grow and reward investors with higher stock prices and dividends.
