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Tuesday, January 31, 2023

Is the hydrogen trend sustainable and which stocks could benefit?

Hydrogen could play a central role in the energy transition. According to UBS, hydrogen can make a significant contribution to the de-carbonisation of the global economy. The growing number of countries striving for a climate-neutral economy by 2050 underlines the possibility of hydrogen again. But which stocks could benefit from the trend?

• Hydrogen could make up more than ten percent of global energy consumption by 2050
• Only green hydrogen is CO2-neutral
• A lot of potential is already priced into hydrogen stocks

The role of hydrogen in the energy transition

The global discussion about the potential of hydrogen as an energy carrier has intensified significantly in the past year. The list of countries that have the goal of zero carbon emissions by 2050 is getting longer, just like government subsidies for hydrogen are getting bigger and bigger. Despite the flourishing electrical market, there are some industries and markets where battery operation is not so easy to implement due to weight or costs, such as in aviation, shipping or in certain industrial sectors, according to a statement from the major Swiss bank UBS. Given the right framework conditions, hydrogen could therefore account for more than ten percent of global energy consumption by 2050. This scenario would result in an investment potential of over a trillion US dollars.

At the moment, hydrogen still lags behind fossil fuels in terms of costs, but according to UBS these costs could fall by up to 50 percent in numerous fields of application over the next few years. Hydrogen would not only be more climate-friendly, it would also be competitively priced and could make the major greenhouse gas emitters such as industry and transport more climate-friendly and thus play a major role in the energy transition.

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Difference between blue and green hydrogen

But hydrogen is not just hydrogen. Blue hydrogen is produced by splitting natural gas and the resulting CO2 is stored and does not enter the atmosphere, according to the Federal Ministry of Education and Research. Nevertheless, this form of hydrogen is not CO2-neutral. Green hydrogen, on the other hand, is the only CO2-free variant, since hydrogen electrolysis is operated with electricity from renewable energies. So only green hydrogen is really climate-friendly. There is also a big difference in costs, because blue hydrogen can currently be produced much cheaper. However, green hydrogen could cost less if electricity from renewable energies also becomes cheaper. It is expected

These stocks could benefit from the hydrogen trend

Investing in hydrogen stocks has been hugely popular with retail investors over the past year, and some stocks have rallied notably. Plug Power, for example, is one of the “pure players” in the hydrogen sector and the share price increased more than tenfold in 2020. The Plug Power share has recently corrected sharply and is currently around 60 percent below the all-time high of January (as of June 10, 2021). The American company manufactures fuel cells and storage and dispensing systems for hydrogen and is one of the market leaders in the fuel cell sector. It is possible that Plug Power, like its Norwegian competitor Nel ASA, couldContinue to benefit from the trend over the years, even if a lot of potential is already priced in, according to the online magazine.
But there are also companies like Linde who are participating in the hydrogen trend, but are not “pure players”. The risk for investors is therefore lower here. Linde is the world market leader in the field of industrial gases; hydrogen is only one of the sub-businesses. Should hydrogen technology prevail, Linde could react quickly thanks to its market power. There are also strategic partnerships , such as with the British hydrogen specialist ITM Power. The traditional German company is most recently a partnership with Airbus received. They are working together on a fuel cell solution for aviation. Here, too, there is a lot of potential if hydrogen technologies should prevail. Investors will certainly continue to watch the entire hydrogen industry with excitement over the next few months. It remains to be seen, however, whether a billion-dollar market will really develop here or whether hydrogen will not be able to establish itself as an energy carrier.

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