Green hydrogen: The next energy investment gem?
Green hydrogen is widely regarded as a critical part of a sustainable energy future and considered key to decarbonising sectors like steel manufacturing, shipping and aviation. If it will cut harmful emissions around the world, could it be the next alternative energy investment favourite?
On the face of it, investing in green hydrogen is good for the planet and deemed an ethical option. However, the fuel alternative has challenges to overcome before it can be regarded as the most efficient and clean choice, including in the methods of its production.
Capital.com takes a closer look at the importance of green hydrogen, the pros and cons of producing it, why it is gaining momentum – and whether it can help countries reach their 2050 net-zero carbon emissions targets as defined by the International Energy Agency (IEA).
What is green hydrogen and how is it produced?
What are the other types of hydrogen?
Hydrogen is colour-coded (as black or brown, grey, blue, turquoise or green) depending on how it is produced – for example, hydrogen is called ‘green’ when it is a form of hydrogen that is generated entirely by renewable energy or from low-carbon power.
In addition to renewable energy sources, hydrogen can also be created from a range of other resources, including nuclear energy, biomass and even ‘dirty’ fossil fuels – for example, ethanol, propane or petrol (gasoline) are used in the process of steam methane reforming (SMR).
SMR – the most widely used process for generating hydrogen – is a process in which methane from natural gas is heated with steam (usually with a catalyst) to produce a mixture of carbon monoxide and hydrogen used in organic synthesis and as a fuel.
According to the World Economic Forum (WEF): “Grey hydrogen is the most common form and is generated from natural gas, or methane, through a process called steam [methane] reforming [SMR].”
The SMR process generates just a smaller amount of emissions than those used to create black or brown hydrogen, which uses black (bituminous) or brown (lignite) coal to produce hydrogen. Black or brown hydrogen is considered the most environmentally harmful as CO2 and carbon monoxide generated during the process are not recaptured.
WEF also explained what blue hydrogen is: “Hydrogen is labelled ‘blue’ whenever the carbon generated from steam reforming is captured and stored underground through industrial carbon capture and storage (CSS).”
Although blue hydrogen is often referred to as carbon-neutral, describing it as ‘low carbon’ would be more accurate, as in fact 10%–20% of the carbon generated cannot be captured.
Another alternative hydrogen ‘colour’ currently being debated is turquoise. While it does have some potential environmental merits, it is still very much in the early stages of development.
According to IRENA: “Turquoise hydrogen combines the use of natural gas as feedstock with no CO2 production. Through the process of pyrolysis, the carbon in the methane becomes solid carbon black. A market for carbon black already exists, which provides an additional revenue stream. Carbon black can be more easily stored than gaseous CO2.”
Why is green hydrogen so important?
Green hydrogen is widely regarded as an important pillar of a net-zero economy, Jorgo Chatzimarkakis, CEO of Hydrogen Europe, explained to Capital.com:
At the moment, green hydrogen makes up about 0.1% of overall hydrogen production, according to a report published by WEF. This figure clearly illustrates that it is not scaling fast enough to deliver on its potential.
In November last year, members of the Green Hydrogen Catapult (GHC), a coalition of leaders in green hydrogen development, announced a commitment for 45GW of electrolysers to be developed with secured financing by 2026, with targeted commissioning in 2027.
Can green hydrogen help countries reach their net-zero 2050 targets?
Osama Rizvi, energy, economic and geopolitical analyst at Primary Vision, shared his views on the matter with Capital.com, pointing out some challenges behind adopting green hydrogen:
“Personally, I don't think green hydrogen can be the only way to reach net-zero 2050 (we are beyond that anyway, but that's a different topic) and the reason behind this is that I subscribe to non-binary thinking – and in this specific regard, the idea of an Energy Basket, as introduced by Fernando Hernandez, is the way ahead: there will be a mix of energy resources.
Jorgo Chatzimarkakis, CEO of Hydrogen Europe, said he was of the view that targets can be met:
“For example, the European Commission’s proposed Hydrogen and Decarbonised Gas Package is a strong step towards achieving climate neutrality. This package provides clear policy incentives for ensuring hydrogen is front and centre to the EU’s decarbonisation efforts while channelling investments into dedicated infrastructure, ramping up liquidity and empowering consumers to make green choices.”
What are the pros and cons of using green hydrogen?
One of the challenges with green hydrogen is the cost to produce it and the lack of infrastructure in place to keep up with demand – thus behind the current low use of it.
Tom Baxter, a senior lecturer in chemical engineering at the University of Aberdeen, and one of the founding members of the Hydrogen Science Coalition, noted the importance of the shift towards green hydrogen to Capital.com: “Current hydrogen production has a very high carbon footprint - 9 tonnes of CO2 for every tonne of hydrogen produced. Hydrogen today has a comparable global warming impact as global aviation. So replacing current hydrogen production with zero carbon green hydrogen will be a very important element for delivering net zero.”
He also highlighted that green hydrogen will not just help reach the net-zero 2050 carbon emission target, he said it will be “essential”.
Failure to scale green hydrogen more quickly is also partly due to challenges like Covid-19 and lower fossil fuel and CO2 prices. To find ways to accelerate its adoption, the Clean Hydrogen Mission was launched, with a goal to “To increase the cost-competitiveness of clean hydrogen by reducing end-to-end costs to $2 per kilogram by 2030.”
Chatzimarkakis of Hydrogen Europe also gave his thoughts to Capital.com on the pros and cons of moving towards hydrogen:
Why is green hydrogen gaining momentum?
Chatzimarkakis said momentum for hydrogen is growing as climate change is undeniable. He believes the time to act is now: “As we embark on transitioning to a carbon-neutral economy by 2050, it is imperative that our choices are robust and future-proof – that policies create opportunities, not barriers, and that they deliver on the climate objectives.
The number of countries announcing pledges to achieve net-zero emissions over the coming decades continues to grow.
“But the pledges by governments to date – even if fully achieved – fall well short of what is required to bring global energy-related carbon dioxide emissions to net zero by 2050 and to give the world an even chance of limiting the global temperature rise to 1.5 °C,” warned the IEA.
Hydrogen stocks to watch: Leaders by market cap
What companies produce green hydrogen? According to CompaniesMarketCap (as of 25 January), the top four green fuel-cell hydrogen stocks by market capitalisation included: Plug Power (PLUG), which develops hydrogen fuel-cell systems, followed by Nikola (NKLA), Ballard Power Systems (BLDP) and Advent Technologies (ADN).
Browsing the performance of hydrogen energy stocks, one would think the investment appetite would be higher, given the comments, commitments and pledges to work with the alternative fuel source.
However, the green hydrogen shares reflected an overall one-year downtrend. Plug Power (PLUG) was down 70% on the Nasdaq during the period; Nikola (NKLA), Ballard Power Systems (BLDP) and Advent Technologies (ADN) followed a similar pattern, trading down by 65%, 73% and 71%, respectively.
The historical green hydrogen stocks’ performance looked stronger, with Plug Power (PLUG) trading 1,643% up in a five-year timeframe, and Ballard Power Systems (BLDP) trading 392% up from its inception. The NKLA and ADN stocks still showed losses of 25% and 53%, respectively.
Linde (LIN), another player in the hydrogen stock market, announced last year that it had made a long-term agreement with Infineon Technologies for on-site production and storage of high-purity green hydrogen, along with other industrial gases.
“It will be the first time green hydrogen is used in Infineon's semiconductor manufacturing process,” the company said.
Investing in green hydrogen: Analysts’ views
Analysts and investors are still confident in the long-term opportunity hydrogen offers. If you were considering which green hydrogen companies to invest in, their comments and analysis could be of value.
As more countries invest in hydrogen and to add to the momentum, investment bank JPMorgan Chase also reiterated its support last week for hydrogen as a long-term investment.
“The aspirational political momentum has not slowed down,” the bank said, with policy frameworks “slowly but surely establishing the conditions for the emergence of a low-CO2 hydrogen market.”
JPMorgan Chase said the hydrogen hype from 2020 is clearly behind us and noted that 2021 was a tough year for Alternative Energy, including hydrogen-focused stocks.
The bank also said its view is supported by the fact that a growing number of countries with strategies for implementing hydrogen have announced electrolyser capacity targets.
“For 2030, the announced target totals 69 gigawatts (GW). This is in line with our previous estimates and consistent with our more conservative forecasts versus peers,” it said.
The green hydrogen economy: Sectors to benefit
Despite hydrogen’s series of false starts over the past 50 years, Haim Israel, managing director of research at Bank of America (BofA) and head of Global Thematic Investing Research, who is a lead author of its 103-page hydrogen report, The Special 1 — Hydrogen Primer, said this time, the excitement over green hydrogen is justified:
“We have a long road ahead of us, but this is an energy revolution that’s happening because it must,” Israel added.
He also highlighted the fact green hydrogen could provide up to 24% of our energy needs by 2050, helping to cut emissions by around a third.
Israel said a number of industries are likely to benefit, as investors monitor the alternative energy stocks:
Considering green hydrogen stocks as potential investments, you should note that analysts’ views should not be taken as a recommendation to buy or sell the stock. Stock prices can go down as well as up due to a number of factors. It’s important to bear in mind that analysts’ forecasts can be wrong.
Do your own research, and always remember that your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio and how comfortable you feel about losing money. You should never invest money that you cannot afford to lose.
FAQs
Are green hydrogen stocks a good investment?
Green hydrogen has gained popularity as an alternative source of energy and a potential solution that could help countries achieve net-zero emission targets by 2050. Still, there are challenges – including the high cost of its production – which impede its global adoption.
Whether green hydrogen shares are a suitable investment depends on your own investment objectives and the opinion you form based on your own research.
What are the major green hydrogen companies?
According to CompaniesMarketCap, the top four green hydrogen stocks by market capitalisation (as of 25 January 2022) were Plug Power (PLUG), Nikola (NKLA), Ballard Power Systems (BLDP) and Advent Technologies (ADN).
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