Think green economy? Think hydrogen economy!
As the world looks for alternative sources of fuel, clean hydrogen energy has garnered a lot of attention of late. The recently passed Inflation Reduction Act of 2022 provided about $370 billion in incentives for climate change and energy security. The package heavily subsidises the manufacturing of green hydrogen, which is hydrogen generated using renewable sources of energy.
By 2050, the demand for hydrogen is projected to increase to 500–680 million metric tonnes (MT), from an anticipated 87 million MT in 2020. The market for hydrogen production was valued at $130 billion between 2020 and 2021, and it is anticipated to expand by up to 9.2% annually until 2030.
However, over 95% of current hydrogen production is fossil-fuel based. But this should gradually change as clean and green production technologies are seeing deep interest and attracting large investments.
Exhibit 1: Hydrogen Production from Renewable Resources in a Hydrogen Economy Society
Graphic source: sciencedirect.com
The S&P Kensho Hydrogen Economy Index outperforms the broader market
The S&P Kensho Hydrogen Economy Index measures the performance of companies that specialize in hydrogen production, storage and transportation, and fuel cell designing and manufacturing. The index was launched on June 1, 2021. Hence, information for the index prior to its launch date is hypothetical back-tested, not actual performance, based on the index methodology in effect on the launch date. Based on the back-tested data, the index has outperformed the broader market in the last five years.
Exhibit 2: Performance of S&P 500 vs S&P Kensho Hydrogen Economy Index
(Data has been based at 100)
Source: S&P Dow Jones Indices LLC. Data as of 6 September, 2022
Exhibit 3: Annualised Total Returns of S&P 500 vs S&P Kensho Hydrogen Economy Index
Source: S&P Dow Jones Indices LLC. Data as of 6 September, 2022
Leading hydrogen companies
Many companies have forayed into the green hydrogen energy sector to tap into its growing potential. While most of the hydrogen is conventionally produced using fossil fuels, an increasing number of companies these days are turning to renewable energy sources to make green hydrogen. Listed here are some of the leading hydrogen energy stocks.
Exhibit 4: Key Hydrogen Stocks
Source: Stockal Research. Data as of 2 September, 2022
Plug Power (PLUG)
Plug Power manufactures hydrogen fuel cells and electrolysers. Hydrogen fuel cells directly convert hydrogen energy into electricity. Producing only water and heat as by-products, this possibly is one of the cleanest and most efficient ways of generating electricity. These fuel cells can be used to power vehicles or used as an emergency power backup, hence positioning them in competition with lithium-based batteries.
On the other hand, electrolysers use electricity to split water into hydrogen and oxygen. Plug Power employs renewable electricity to produce green hydrogen. The company plans to operate a green hydrogen highway across North America and Europe as it targets to produce 500 tons of liquid green hydrogen daily by 2025.
Plug Power entered into a deal with Walmart (WMT) in April to supply green hydrogen for material-handling lift trucks at the big-box retailer’s distribution and fulfilment centres in the United States. In another deal signed on August 25, Plug Power will supply 10,950 tons of liquid green hydrogen annually, beginning in 2025, to power Amazon’s (AMZN) transportation and building operations. According to Plug management, the agreement is expected to help the company reach its $3 billion revenue target by 2025. Plug’s other customers include Nike (NKE), Home Depot (HD), Stellantis and Mercedes.
Bloom Energy (BE)
Bloom Energy focuses on creating fuel cell power generating systems that may be used by utilities and transportation sector and run on hydrogen, biogas, and natural gas. It has also developed an on-site electric power generation platform called Bloom Energy Server. Its Bloom Electrolyzer, unveiled in 2021, uses the same technology as its energy server to generate clean hydrogen. The electrolyser can also be paired with wind and solar energy to produce storable green hydrogen.
Ballard Power Systems (BLDP)
Ballard Power Systems develops hydrogen fuel cells for electrifying buses, trams, trucks, passenger cars, marine vessels and forklifts. Earlier this year, Ballard partnered with Swiss industrial behemoth ABB Ltd (ABB) to develop fuel cells for ships. In February, the company entered into a Memorandum of Understanding (MoU) with India’s Adani Group to jointly evaluate investment options for the commercialisation of fuel cells in India. The MoU includes a potential collaboration for fuel cell manufacturing in India.
On September 6, the company received a fuel cell module order from Medha Servo Drives, a rail system integrator, contracted to develop India’s first hydrogen-powered trains. While the fuel cell modules are expected to be delivered next year, the trains will go into service in 2024.
FuelCell Energy (FCEL)
FuelCell Energy’s products help large-scale facilities like hospitals, universities, wastewater treatment plants, factories, etc., to generate clean and affordable power on-site. With the aim of becoming a multinational leader in decarbonising power, it is working on converting renewable energy sources into hydrogen that can be converted back to electricity when required.
Air Products and Chemicals (APD)
Air Products is a diversified manufacturer of atmospheric gases which cater to a wide range of industrial needs. One of the world’s largest suppliers of merchant hydrogen, Air Products plans to emerge as a leader in carbon capture and clean hydrogen technology solutions. The company boasts of a $7 billion carbon-free hydrogen joint venture in Saudi Arabia and a $1 billion net-zero hydrogen project in Canada which should enter service between 2024 and 2026. In March, Air Products announced a 10 metric ton per day facility to generate green liquid hydrogen in Arizona for the mobility market.
Hydrogen energy indeed is a very promising and emerging sector that could help the economies reduce their carbon footprint. Even though the potential is enormous, the sector needs to scale its operations to reduce costs and become competitive with fossil fuels and lithium-based batteries. As governments worldwide and in the United States increasingly push for a green economy and hydrogen, the sector does stand a solid chance of becoming commercially viable. While the journey may seem long, it definitely will be a rewarding one for everyone–the investors, the overall economy and the planet.