28 April 2021

The start of a supercycle?

With the UK government last year announcing that green hydrogen was to be central to the country’s ‘green industrial revolution' and the EU’s hydrogen roadmap forecasting €500bn being invested in the transition to a hydrogen-based economy by 2050, hydrogen is now seen by governments around the world as a key component of a carbon-neutral future.

Indeed, 20 countries that collectively represent around 70% of global GDP are placing hydrogen strategies front and centre of their plans for decarbonisation.

It is perhaps unsurprising, then, that hydrogen fuel cell and electrolyser makers at the forefront of this transition have seen their valuations soar during 2020.

Plug Power, for example, is up c.700% while French electrolyser developer McPhy is up a remarkable c.820%. Large industrial companies are also moving into the space by taking stakes in relevant companies.

US firm Cummins last year moved into the renewable energy sector by acquiring fuel cell and electrolyser technology manufacturer Hydrogenics. It swiftly followed this up by acquiring a minority investment in Loop Energy, a fuel cell electric range extender provider, and signed a memorandum of understanding with Hyundai Motor Company to collaborate on fuel cell technology.

Earlier this month, Plug Power and South Korea’s SK Group announced they will form a strategic partnership to accelerate hydrogen as an alternative energy source in Asian markets, with SK Group investing $1.5 billion.

Almost all the hydrogen produced globally stems from methods based on fossil fuels. Therefore, a network of electrolysers running off renewable power is needed, and electrolyser manufacturers such as ITM Power, which is soon to build the world’s largest electrolyser factory in Sheffield and has attracted investment from Linde/ BOC as well as Italy’s biggest gas grid company Snam, stand to be central players.

Electrolyser manufacturer Ceres Power has also attracted Bosch as a partner and 18% shareholder alongside Waichei, which owns 20%. The list of partnerships with hydrogen economy companies is expanding at a rapid pace yet we expect this trend to continue as global businesses continue to shift their focus to a cleaner, greener source of energy.

Causes for concern

Despite all the positive sentiment, some investors remain wary. Over the last 40 years, there has been a number of false starts for fuel cell stocks, with the most recent being during the tech bubble of the late 1990s. This is when Canadian company Ballard’s share price rocketed to a record high of C$165.05 in September 2000 until it dropped to just C$15 two years later after expected consumer demand failed to materialise.

In the past few years, common concerns have surrounded the efficiency and costs of the fuel cell, the questions of whether incumbent oil majors will allow this transference from hydrocarbons to green energy to happen, and the level of government support. Some also have questions about the specifics surrounding hydrogen: its safety, the availability of pure enough hydrogen, and the lack of a hydrogen infrastructure.

Yet all these concerns are being answered. The fuel cell’s efficiency has improved dramatically over the last decade and costs are falling (by as much as 90% in some cases) as partnerships such as Ceres/Bosch move into the mass production phase.

Oil majors have also been hugely disrupted by increasingly ambitious carbon emission targets set to accelerating time frames which are prompting them to become investors in hydrogen economy companies.

Nevertheless, we should remember this is still a maturing industry. Today, many hydrogen companies are still at an early stage of revenue development and few are consistently profitable.

Filling vital gaps

Yet these companies are growing rapidly, not least because there are so many applications for clean hydrogen now and in the future.

Although battery storage is likely to cover certain parts of the transport and power sectors, hydrogen is well suited to fill a number of important gaps.

Sectors such as steelmaking, residential and commercial heating, road freight, shipping, and aviation have no low-cost, convenient alternatives to fossil fuels, and collectively account for around 34% of global energy consumption.

Hydrogen’s low losses during storage and transportation and high energy-to-mass ratio and make it an ideal fit across these sectors. And even before green hydrogen is widely available, there is also scope for fuel cells to be used in off-grid generation, distributed generation, and backup power.

One specific vertical where fuel cells are particularly suited is EV charging, highlighted by AFC Energy’s recent partnership with ABB. Ammonia, which is readily available, provides the source of hydrogen for AFC’s fuel cell and therefore means that deployment for EV charging is available now.

Despite previous hype cycles, green hydrogen is steadily shifting to being a major part of the energy mix – we could be in what investors term a ‘supercycle’, instead.

Recently published forecasts from the EU, the Hydrogen Council and Bloomberg New Energy Finance suggest hydrogen could grow from the current 2% of the energy mix to 13–24% by 2050. With the same economies that adopted batteries now embracing fuel cells, there are opportunities for investors amongst the many hydrogen companies at the forefront of this transition – this time the hype could finally be justified.

 

This article was originally published on The Guide - Season 2 | 2021

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