CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

Green hydrogen: The next energy investment gem?

By Angela Barnes

Edited by Alexandra Pankratyeva

14:39, 26 January 2022

Molecule of green hydrogen H2 gas. Green hydrogen energy production based on renewable energy, sustainable alternative clean hydrogen energy H2, clean energy, future industry fuel 3D background
Green hydrogen: The next energy investment gem? – Photo: Shutterstock

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).

Hydrogen: The most abundant chemical structure in the universe

What is green hydrogen and how is it produced?

According to The International Renewable Energy Agency (IRENA): “Green hydrogen is an energy carrier that can be used in many different applications [industry, transport, heating and power generation]. However, its actual use is still very limited. Each year around 120 million tonnes of hydrogen are produced globally, of which two-thirds are pure hydrogen and one-third is in a mixture with other gases.”
 
Hydrogen is a fuel that emits only water when used. However, on earth, hydrogen rarely exists as a gas, so it needs to be separated from other elements to be created. The main way to do this is through a process called electrolysis, where an electric current separates the hydrogen atoms from the oxygen atoms from water.
 
The origin of the electricity used for the electrolysis will dictate the colour code for the hydrogen produced, as professional engineer Alexandre Pedneault explained to Capital.com. He said green hydrogen, otherwise known as clean hydrogen, is where the electrolysis process has used electricity generated from renewable sources, like wind or solar power, to create it in its pure form – and this way of production does not emit carbon dioxide.
 

What are the other types of hydrogen?

Shades 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:

“Hydrogen is a key piece of the climate-neutrality jigsaw. It has strong potential to become a solution to many of the world’s climate-neutrality objectives: it unleashes the potential of renewables, ensures energy-system efficiency and enables a carbon-neutral transport system, both on land and sea. In Europe, hydrogen is not only crucial to meeting the EU’s climate objectives, but also to preserving and enhancing the EU’s industrial and economic competitiveness,” he said.

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. 

Jules Kortenhorst, CEO at Rocky Mountain Institute (RMI), said: “Green hydrogen is a critical part of a sustainable energy future and one of the largest business opportunities of our time. It’s the key to decarbonising hard-to-abate sectors like steel manufacturing, shipping and aviation.”

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.

“Furthermore, the difference between the cost of, say, any fossil fuel and green hydrogen is momentous. The latter is three times more expensive than blue hydrogen. And once again, implementing these technologies will be difficult in the developing world, which is going to be the main driver of energy demand as per EIA.” 

Jorgo Chatzimarkakis, CEO of Hydrogen Europe, said he was of the view that targets can be met: 

“Net zero targets can be met and can be met faster if proper legislation and hydrogen uptake is in place. For hydrogen to become a commercial success, European and global decision-makers need to develop regulatory and policy incentives for clean hydrogen technologies to develop.

“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.

“Green hydrogen has been in the news for sometime now and for all the right reasons. With its abundant availability under conducive technology, and numerous sources to get it, green hydrogen remains the focus for energy transitions. However, it is also expensive to make (electrolysis) and the storage is tricky too (it is gaseous in nature so volatility is an issue),” said Rizvi.

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”.

“The obvious pro for green hydrogen is zero carbon emissions. The con is it takes a lot of energy to produce and use green hydrogen – and that energy could be better used elsewhere,” he said.

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:

US100

18,549.60 Price
+0.020% 1D Chg, %
Long position overnight fee -0.0262%
Short position overnight fee 0.0040%
Overnight fee time 21:00 (UTC)
Spread 7.0

XRP/USD

0.53 Price
+0.140% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

Gold

2,415.65 Price
+1.590% 1D Chg, %
Long position overnight fee -0.0187%
Short position overnight fee 0.0105%
Overnight fee time 21:00 (UTC)
Spread 1.50

ETH/USD

3,128.22 Price
+0.950% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00
“Clear policy incentives for hydrogen development will give a major push to fighting climate change across all continents. In Europe, this will power the green transformation, create jobs for Europeans and secure a clean-energy future for the generations ahead.
“On the legislation side, Hydrogen Europe believes no initiative must create regulatory barriers to the creation of a net-zero economy. It is primary to make sure initiatives are not watered down in the legislative process. It is also key that structural challenges are adequately addressed to boost the deployment of renewable hydrogen across Europe. It is also imperative that no laws bring irreparable harm to investments in renewable hydrogen production and therefore undermine the EU’s efforts to build a climate-neutral economy.”

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.

“As governments, businesses and civil society commit to concrete actions to get the climate under control, hydrogen is increasingly considered part of the solution to mitigating climate change. Europe is really walking the talk in this regard: we have the world’s first passenger train powered by a hydrogen fuel cell [and] hydrogen buses carrying passengers, to name a few.”

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). 

Largest hydrogen fuel-cell companies by market cap

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. 

PLUG vs NKLA vs BLDP vs ADN stock one-year performance

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. 

Hydrogen stocks historical performance

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. 

“I would say maybe [that] hydrogen stocks may take a while, but they will definitely take off in the next decade as technology picks up and we get more support from infrastructure and start sharing burdens of this expensive technology,” Shubhlakshmi Shukla, Platts S&P Global editor, European electric power, told Capital.com.
 

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.

“While this did not completely erase the benefits of the 2020 rally, several stocks have significantly underperformed the market. Yet, we remain of the view that hydrogen remains a long-term investment opportunity,” the bank said.

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 think we’re reaching an inflection point where green hydrogen could supply our energy needs, fuel our cars, heat our homes and be used in industries that have no economically viable alternative to fossil fuels,” he said. “Together with renewable electricity, green hydrogen gives us a shot at attaining a zero-carbon-emission global economy by 2050.”

“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.

“In doing so, the transition to green hydrogen could provide $11trn of infrastructure investment opportunities over the next 30 years and direct annual revenues of $2.5trn,” he added.

Israel said a number of industries are likely to benefit, as investors monitor the alternative energy stocks:

“Sectors we think could be clear beneficiaries include renewable energy, given that demand is likely to grow 10 times by 2050 to service the needs of green hydrogen alone.
“Utilities will play a role in converting gas grids so that they can carry hydrogen blended with natural gas. Companies that develop electrolysers and fuel cells stand to benefit, and the chemicals and industrial gases industry is likely to play a large role, given its expertise in using and transporting hydrogen.”

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).

Markets in this article

BLDP
Ballard Power Systems Inc.
3.10 USD
-0.05 -1.610%
JPM
JPMorgan Chase & Co (Extended Hours)
204.99 USD
2.33 +1.150%
NKLA
Nikola Corp (Extended Hours)
0.57 USD
-0.02 -3.770%
PLUG
Plug Power Inc (Extended Hours)
3.25 USD
-0.17 -5.030%

Rate this article

Related reading

The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided in this article is for information purposes only and should not be understood as investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents and has not been prepared in accordance with the legal requirements designed to promote investment research independence. While the information in this communication, or on which this communication is based, has been obtained from sources that Capital.com believes to be reliable and accurate, it has not undergone independent verification. No representation or warranty, whether expressed or implied, is made as to the accuracy or completeness of any information obtained from third parties. If you rely on the information on this page, then you do so entirely at your own risk.

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with Capital.com

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading