Hydrogen Investments 2021

There are several ways to participate in the Hydrogen boom. The stock market offers direct investments in Hydrogen stocks, Hydrogen indices, Hydrogen investment funds, and various certificates.

The boom in hydrogen shares continues and there are several ways to participate in it: Hydrogen stocks, Hydrogen indices, Hydrogen investment funds, options, and various certificates of may stocks. Hydrogen is already being used intensively. Energy transition promotes hydrogen technologies. Industrialized countries formulate hydrogen strategies. Hydrogen applications are diverse, but often still immature. Technology costs must drop significantly. Renewable energies are the key to efficient, sustainable supply. Hydrogen is considered an energy carrier of the future.

hydrogen stocks investments 2021a

Funds and stocks of hydrogen technology companies boomed in 2020. In early 2021, the long-term upward trend was confirmed, while profit-taking brought losses to some stocks. Investors should weigh opportunities and risks well. Meanwhile, fundamental valuations are quite high. Climate-friendly: hydrogen can be generated from surplus wind and solar energy by means of electrolysis.

The global energy supply will change fundamentally in the coming decades. The range of oil as well as natural gas is finite, and the burning of fossil fuels pollutes the climate heavily with CO2. Countries such as Germany, Spain and Belgium are also phasing out nuclear power or, like France, want to reduce the share of nuclear energy.

The energy transition is being driven by renewable sources. Alongside wind and sun, hydrogen is seen as the energy of the future. The production and use of this gas thus offer investors opportunities. However, as the analysis of the market environment and investment options shows, investments in hydrogen technologies also entail risks.

Hydrogen is already being used intensively

A world powered by hydrogen is by no means a new idea: The gas, discovered in 1766 by the English chemist Henry Cavendish, has long been indispensable in many industrial and technical processes. The substance with the formula H2 is used in the refining of oil, in welding, as a coolant and food additive, as fuel for space shuttles or for fertilizers.

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Currently, around 70 million metric tons of pure hydrogen are consumed worldwide each year, and another 45 million metric tons as gas mixtures. The catch is that this amount is almost exclusively obtained from fossil fuels, producing just as much climate-damaging carbon dioxide as direct combustion. According to the International Energy Agency (IEA), this results in annual emissions of 830 million metric tons of CO2. That would be equivalent to the greenhouse gas emissions of the United Kingdom and Indonesia.

Energy transition promotes new hydrogen technologies

However, two trends in particular have made hydrogen a beacon of hope for the energy supply and environment of the 21st century: the foreseeable end of the internal combustion engine and the rapidly increasing production of electricity from wind and sun. It is true that gasoline and diesel engines will continue to power cars, trucks and ships for some time to come. However, due to their poor environmental performance and declining cost-effectiveness compared to alternative drives, classic engines are likely to gradually disappear from mass markets. By the end of 2020, 17 countries have already decided or planned to phase out the internal combustion engine in cars. Norway wants to phase out in 2025. Great Britain, Sweden, the Netherlands and Denmark have set 2030 as their target.

hydrogen stocks investments 2021c
hydrogen stocks investments 2021 part c

Hydrogen is also a perfect energy storage medium for electricity from wind and solar power. In this country, the share of renewable energies in net electricity generation was already 55.8 percent in the first half of 2020, according to the Fraunhofer Institute ISE. According to the German government’s energy concept, this figure should rise to at least 80 percent over the next few decades. However, wind turbines and solar cells deliver inconsistently and usually produce far away from large centers of consumption. Hydrogen would make it possible to use renewable energy sources flexibly.

To do this, the substance is fed directly into the natural gas grid in its pure form, stored in storage facilities and then transported to wherever it is needed. “Power-to-gas” is the name of the process in which hydrogen is produced from green electricity and steam. This can be converted back into electricity and heat at any time. So far, around 40 plants that produce and store renewable gases are operating in Germany.

However, there is not yet a large site. One is planned for the port of Hamburg. Together with the Hanseatic city, the companies Shell, Vattenfall and Mitsubishi Heavy Industries want to build a power-to-gas plant with a capacity of at least 100 megawatts. It could produce about two tons of hydrogen per hour – enough to drive a car about 200,000 kilometers and a truck 25,000 kilometers. That would be a new technical dimension. That means for hydrogen production and applications: We are still at the very beginning of development. We have to look ahead to the next 30 years.

Industrialized countries formulate hydrogen strategies

The most developed market is Japan. Since 2017, Nippon’s government, auto and tech companies have been following a national strategy. By 2030, there are to be 800,000 fuel cell cars on the road in Japan and more than five million so-called fuel cell-based micro-CHP systems producing decentralized electricity as well as heat in homes. China, France, the USA, Great Britain or Norway are also investing more and more in H2 technologies. “Of course, many technologies are not yet mature. But governments and industry have recognized that there will be an enormous demand for hydrogen in the future,” explains the analyst.

hydrogen stocks investments 2021d
hydrogen stocks investments 2021 part d

For the German government, hydrogen is one of the important building blocks of the energy transition. In mid-February 2021, the German cabinet adopted key regulations for the development of a hydrogen network. As early as mid-2020, the National Hydrogen Strategy was adopted, which focuses on the production and use of green H2.

Over one billion euros in funding is to be made available for hydrogen use in industry by 2023. Around 1.1 billion million euros will be available for research and development over the next three years. Added to this is seven billion euros as part of an economic stimulus package. These are intended to help hydrogen technologies establish themselves on the market. A further two billion euros is to flow into international partnerships.

The funds are to be used to build generation plants with up to five gigawatts of capacity over the next decade. By 2040, electrolysis capacities of ten gigawatts are to be created. By comparison, German nuclear power plants generated 6.4 gigawatts of electricity in 2020. According to experts, the goals are clear: On the one hand, hydrogen is to contribute to the decarbonization of important core industries, such as the steel and chemical industries, but also the transport sector. On the other hand, Germany should secure an international pioneering role in the development and export of hydrogen technologies, say hydrogen experts.

Hydrogen applications are diverse

Portable, stationary, mobile, industrial: the areas of application for hydrogen are undoubtedly diverse. However, it is questionable which processes have real potential. Energy solutions for portable devices have been under development for more than 20 years. Tablets or laptops can easily be powered by the gas. However, the mini power plants are considerably more expensive than rechargeable batteries. Stationary fuel cells for houses also only have market opportunities if they are produced in quantity.

hydrogen stocks investments 2021e
hydrogen stocks investments 2021 part e

Flying with hydrogen instead of kerosene: It’s possible! Researchers at the German Aerospace Center (DLR) are testing green fuels, as is the aviation industry. Airbus says it wants to be the world’s first manufacturer to bring a hydrogen-powered passenger aircraft to market. To this end, the company is testing various designs. In the latest model, which was unveiled in early 2021, the aircraft manufacturer is relying on a propeller drive. Airbus plans to decide on a concept by 2025.

Hydrogen makes sense for trains when overhead power lines are lacking. In Germany, nearly half of the rail network is not electrified. In Germany, about 40 percent of the rail network is not electrified. Across the EU, the degree of electrification of lines is around 50 percent, according to data from the Statista portal. But the technology is in its infancy. So far, only one fuel cell train, Coradia iLint from French manufacturer Alstom, has been running since 2018; and that is between Buxtehude and Cuxhaven. At the end of 2020, Deutsche Bahn and Siemens have entered the hydrogen era. Together, the companies want to develop an H2 train and a special refueling station. In fact, the prospects for rail transport are excellent: hydrogen trains make dirty diesel technology and electric infrastructure unnecessary.

For trucks, Hyundai and Toyota are testing H2 drives. Bosch is developing fuel cells for trucks with U.S. company Nikola Motors. According to experts, however, their use has not yet been sufficiently researched. In addition, “trucks also run efficiently on diesel over long distances,” writes Tüv Süd in an analysis. Compared to electric drives, however, hydrogen has two clear advantages for heavy-duty transport: short refueling times and the longer range.

Dividends from cooperative banks

The two largest carmakers in the world are taking completely different paths. While hydrogen vehicles are already rolling off the production line at Toyota in Japan, Volkswagen is relying on battery-powered e-mobiles. VW says it will continue to explore fuel cell technology, and Audi has announced a small-scale hydrogen-powered vehicle for this year. But in early 2020, VW CEO Herbert Diess made it clear they would focus on electromobility.

“The very poor energy efficiency from the primary energy source to the drive wheel of fuel cell cars ensures that battery-powered e-cars are several times more efficient,” scientists from the Helmholtz Institute for Electrochemical Energy Storage told Wirtschaftswoche.

Michelin, on the other hand, is of the opinion that hydrogen will prevail in the transport sector. By 2030, the French tire manufacturer says, there could already be two million H2 vehicles on the road, about 350,000 of them trucks. A quarter of these are expected to run on the technology that Michelin itself plans to sell. To this end, the tire manufacturer has entered the production of fuel cell drives.

Technology costs must drop significantly

The economic viability and carbon footprint of hydrogen technologies depend on many factors. These include production method and price of the base material. Like electricity, hydrogen is not a primary energy carrier, but must be produced. This requires raw materials such as oil and natural gas, biomass or water, as well as electrical, thermal or solar energy supplied from outside.

If hydrogen is obtained from fossil materials, it is referred to as “gray”. If it is split off from water with renewably generated electricity, it is considered “green.” However, sustainable production is more expensive: according to a 2019 IEA study, the production price of green H2 varies between about three and six euros per kilogram. The “gray” version can currently be produced for one and a half to four euros, depending on the process.

Gasoline, diesel, heating oil and kerosene are considerably cheaper. In a study, experts from the consulting firm McKinsey assume that the costs for many hydrogen applications will drop by around half by 2030. However, this would require global investment of around 80 billion euros. This corresponds to about five percent of global energy spending per year.

Hydrogen investments are geared to trends and prospects

The capital market reflects the profile of hydrogen: the gas is not only one of the megatrends in the energy sector, but also on the stock market. After the Corona crash in March 2020, a number of stocks performed strongly with high price increases. For example, the American fuel cell specialist Plug Power gained more than 800 percent last year. The French company McPhy Energy, which develops hydrogen storage, filling stations and electrolysis systems, recorded a gain of around 750 percent on the trading floor. And U.S.-based FuelCell Energy, which makes equipment to generate electricity from hydrogen and natural gas, saw its stock price rise more than 640 percent.

Hydrogen, H2 and FuelCell stocks in a round wordcloud picture.

The prices can hardly be justified by fundamental data. The rally in hydrogen stocks is being driven by hype about the future of the technology, analysts explain. However, because the potential and the political will are undeniable, the gas has sparked strong investor euphoria in recent months.

Whether this will continue in 2021 remains to be seen. The valuations of many companies are now very high compared to sales – this could lead to setbacks. Profit-taking already depressed many share prices in January and February 2021. But it is also a fact that, in addition to EU countries and Japan, the world’s largest industries, the USA and China, are increasingly adapting to the energy transition.

For example, the new U.S. President Joe Biden has issued the goal that his country wants to be climate neutral by 2050. Green hydrogen is one of five priorities in the Biden-Harris transition team’s innovation strategy for climate protection.  And China aims to provide 10 percent of its energy supply with hydrogen by 2050, according to Christina Otte, an economic expert at the Gesellschaft für Außenwirtschaft und Standortmarketing (GTAI).

The decades-long perspective highlights the opportunities, but also the risks, of hydrogen investments. Governments around the globe will pump a lot of capital into the market over a long period of time, but most technology paths are still in their infancy. Asset managers point out that currently, rising investor demand would meet few available hydrogen stocks. And that could cause prices to explode further.

2021 Outlook on Hydrogen Stocks

Range from +++ (buy) via 0 (hold) to — (sell)

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