Hydrogen investment 101: what’s all the excitement, how will it work, which companies are involved?

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Hydrogen investment 101: what’s all the excitement, how will it work, which companies are involved?

Shares prices in hydrogen-focused companies have finally begun to make serious headway this year as governments have begun to set out more concrete zero-carbon targets.

While environmental campaigners, ecologists and many others have long been stressing the importance of decarbonisation, the financial market’s attention has only really begun to tune in to the discussion this year as governments around the world have set out more concrete targets.

As we’re only in the early stages of the hydrogen journey there’s still likely to be significant opportunities for investors who want to dive deeper in this sub-sector. 

Many of these aim to meet or beat the aim of the Paris Agreement to keep the global average temperature rise “well below” 2°C above pre-industrial levels.

This means it is vital for the global economy to shift from fossil fuels and to low- or zero-emissions energy.

The EU, in July this year, provided a big kick up the industry’s backside with its Hydrogen Strategy plan to encourage green hydrogen production and consumption, which includes targets to increase installed electrolysis capacity 4gigawatts (GW) in 2024 from 140 megawatts (MW) in 2018, then up to 40GW by 2030.

Hydrogen capacity of 1GW is equivalent to 40,000 to 100,000 tonnes per year of hydrogen capacity, depending on the load factor for the electrolyser.

With the UK having pledged to reach net-zero greenhouse gas emissions by 2050, the government and industry have both stressed the likely crucial role of hydrogen.

Last year the Committee on Climate Change predicted that between 6GW and 17GW of electrolyser capacity will be required in the UK by 2050, depending on energy demand and utilisation rates, implying the country will need to build up to 567MW of electrolysis per year for 30 years.

Last month, the UK government said it is working on the “detailed and specific policy levers” that would be needed to be able to deliver what it said would be “a world leading hydrogen market”.

It’s not just governments, energy network operator National Grid recently said the gas “could be the solution to many of the hardest parts of the transition to net-zero”, particularly in long-distance freight, shipping and heavy industry.

At this stage, it may be worth having a quick chemistry lesson.

Back to school

Sitting at the top left of the periodic table, hydrogen is simplest and one of the smallest and lightest molecules in the universe.

While fairly well known as a form of renewable energy, hydrogen is not really a fuel, as it takes energy to isolate it in the first place. So, it’s more current to view it as an energy carrier.

For those who don’t remember their anodes and cathodes from GCSE’s or O-level science, the process of electrolysis uses electricity to split water into hydrogen and oxygen. A fuel cell can reverse this process, creating energy from hydrogen and oxygen.

Not all hydrogen is truly ‘green’, it is worth noting, as the gas created is only as clean as the method by which it was produced.

These low-carbon credentials are grouped under three broad categories:

‘Grey’ hydrogen is the currently dominant form of hydrogen manufacture, but this is not really green fuel at all as it is made using fossil fuels, mainly though coal gasification or steam methane reforming.

‘Blue’ hydrogen is where the CO₂ emitted during production of grey hydrogen is sequestered via carbon capture and storage (CCS), so producing an energy with very low emissions.

‘Green’ hydrogen, made by electrolysis using renewable energy, is the only version of the fuel that is free of emissions (or as close as dammit).

How hydrogen can be used

Renewable energy from wind, solar and hydro is already being used to power homes and businesses, while batteries are already being used to power cars, with hydrogen currently only a small piece of either pie.

For a major step up in decarbonisation, hydrogen will almost certaintly be needed. It has applications in energy generation, transportation, industry and heating.

While much of the focus in recent years has been on renewable energy, for some energy requirements electricity is not a viable option for technical and economic reasons and so hydrogen is solution to fulfil some of these other uses.

Transport is a key example, as compared to heavy electric batteries, fuel cells using hydrogen and other technolgies, have range and weight benefits as well as faster refuelling times. Currently a hydrogen fuel cell car takes a couple of minutes to refuel for a range of around 300 miles, while an electric battery car requires at least a half an hour for around a 100 mile range and even a Tesla supercharger taking 75 minutes for a full charge.

Weight and range are even more of an issue in some other parts of the transport indudsty, such as industrial transport and aerospace.

Airbus, for example, this year switched its development focus from batteries to hydrogen as it feels battery technology will not advance quickly enough to adapt to large aircraft. How big would the battery need to be to fly a jumbo jet across the Atlantic?

Moving from transport to heavy industry, some of the high-temperature heat needed for industrial production, such as metalworking and glassmaking, would be well suited to hydrogen as it burns at over 2,000°C in open air.

Companies involved the hydrogen revolution

Companies are already starting to benefit at all stages of the hydrogen market, from creation and supply of the fuel, to those manufacturing the cells and components, and those that deal with the end-user operations, plus all those involved in the building out of the infrastructure.

ITM Power PLC (LON:ITM) is a specialist in electrolysis based on proton exchange membrane (PEM) technology. It offers various sizes of electrolyser unit, from one ‘stack’ that can produce 270kg of hydrogen per day, a two-stack and three-stack model, all the way up to a modular system where each module has a 2MW capacity.

This technology has been adopted by Royal Dutch Shell PLC (LON:RDSB) which as part of a collaboration with ITM where is rolling out hydrogen refuelling stations using the technology for passenger and commercial vehicles.

Last month, as part of a new partnership with Scottish Power, chemicals giant Linde’s BOC arm and ITM, was launched to create clusters of green hydrogen refueling stations, starting with a first based around a 10MW electrolyser near Glasgow.

Hydrogen fuel cells could widely be split into three types: polymer electrolyte membrane, alkaline, and solid oxide. Ceres Power Holdings PLC (LON:CWR) has developed a ceramic technology that is seen as forming the basis of a highly efficient solid oxide fuel cells, both more affordable and more robust.

The AIM-listed group sells this SteelCell technology under a licence model and it has attracted heavyweight partners including Germany’s Bosch and China’s Weichai, Miura in Japan and Doosan in South Korea.

Also, by reversing the process within a fuel cell, Ceres solid-oxide technology could be used for electrolysis of green hydrogen or synthetic fuel production from renewable electricity. The company said earlier this year it is investing in £5mln over the next year and a half in the development of this technology, which some think could lead to the lowest cost production of green hydrogen.

AFC Energy PLC (LON:AFC) makes alkaline fuel cell systems and elecrolysers, with its fuel cells and AlkaMem membrane also boasting the ability to reduce costs through being able to use lower quality and less expensive hydrogen sources.

Its products include the HydroX-Cell fuel cell, which comes in a larger model for industrial uses and with lower grades of hydrogen; and a compact Hydrox-Cell model more suitable for vehicles and othe mobile applications; the H-Power a zero-emission electric vehicle charging system; and a commercialisation agreement to produce zero-emission hydrogen fuel from natural gas.

As green hydrogen need to be manufactured, some analysts stress that the zero emissions power sources and the wind- and solar-focused companies that provide the power to electrolyse green hydrogen are going to be the main investment opportunity for investors. This might range from the likes of energy companies focused on green energy, like SSE PLC (LON:SSE) and Drax Group PLC (LON:DRX), to renewable energy funds, including Greencoat UK Wind PLC (LON:UKW), from NextEnergy Solar Fund PLC (LON:NESF), Foresight Solar Fund Ltd (LON:FSFL).

For another angle, catalytic converters group Johnson Matthey (LON:JAMT) recently held a day of presentations to show off its capabilities in green, blue and grey hydrogen.

On the larger side, industrial gas companies like Air Liquide, Linde PLC (LON:NYSE:KLIN) and Air Products & Chemicals (NYSE: APD) are already getting in on the hydrogen act.

Proactiveinvestors.co.uk

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