The Limitless Investment Potential Of “The Fuel Of Tomorrow”

The Limitless Investment Potential Of “The Fuel Of Tomorrow”
Reda Farran, CFA

almost 3 years ago5 mins

What’s going on here?

Hydrogen has long been hyped as the clean energy source of tomorrow, and the industry is now starting to capture investors’ attention in earnest. With the US president’s landmark infrastructure plan pledging to step up support for energy projects involving hydrogen, here’s how you can position yourself to profit.

What is hydrogen?

Hydrogen, a colorless gas, is the universe’s most abundant element – and one which, according to its proponents, may just turn out to be indispensable in Earth’s battle to cut greenhouse gas emissions enough to prevent further catastrophic climate change.

Most of today’s industrial hydrogen production itself uses fossil fuels, generating substantial carbon dioxide emissions in the process. But there’s a much cleaner way to extract hydrogen. Splitting water molecules (H2O) into hydrogen and oxygen atoms using electricity – a process known as electrolysis – produces pure hydrogen with no harmful by-products. And if the electricity involved derives from renewable sources, then you’ve got real “green hydrogen”.

What is hydrogen useful for?

For starters, hydrogen can itself be used to generate electricity in two different ways. It can be cleanly burned in power plants originally built to run on natural gas. But hydrogen can also be converted directly into electricity using fuel cells that chemically react it with oxygen instead – with the process’s only waste product water so pure you can drink it.

These cells can be used to power an electric motor, meaning hydrogen could be a clean fuel source for vehicles on land, sea, and in the air. Hydrogen’s higher storage density offers advantages in terms of both weight and range over the batteries currently used in passenger electric vehicles (EVs) – and you can refuel a hydrogen-powered car much quicker too.

In fact, hydrogen tanks could be a key form of energy storage in a world increasingly dependent on inconsistent wind and solar power. Surplus electricity generation from these renewable sources can be used for electrolysis, producing hydrogen that’s then stored up and drawn upon to produce electricity of its own when the sun don’t shine. And unlike conventional batteries, hydrogen can be stored for months without losing much power.

How hydrogen can be used for energy storage (Source: Ballard Power Systems)
How hydrogen can be used for energy storage (Source: Ballard Power Systems)

Last but not least, hydrogen also has industrial applications. Manufacturing steel, cement, and chemicals typically involves fossil fuels either as a means to create extreme temperatures, a raw material input, or a catalyst for chemical reactions. Industry accounts for a fifth of the world's carbon emissions – but hydrogen could burn far more cleanly, stand in for carbon in certain reactions, and potentially be sourced emissions-free.

Why should I care?

Investors have unsurprisingly begun to cotton on to hydrogen’s game-changing potential, with the mooted US infrastructure plan promising to explore making much of the above a less-expensive reality. But there’s still time – as well as ample opportunity – to get in on the ground floor and prospect for profit while doing the planet a favor.

At the top of the supply chain, you can invest in public companies that produce hydrogen. Three of the biggest industrial gases companies doing so are Air Products & Chemicals, Air Liquide, and Linde. The drawback of these, though, is that the bulk of their current hydrogen production comes from carbon-emitting sources. New Fortress Energy, meanwhile, recently launched a business line selling green hydrogen to the power, industrial and transport sectors – but it’s also heavily involved in natural gas.

Then there are firms focused on manufacturing electrolyzers. ITM Power, Nel, and Cummins are three publicly listed examples, and Cummins also makes hydrogen fuel cells. It’s joined by the likes of Bloom Energy, Ballard Power Systems, Plug Power, Ceres Power, Powercell – and, believe it or not, by tire-maker Michelin, which is trying to reduce its reliance on rubber by betting on growing demand for hydrogen-powered vehicles.

Speaking of which, you can also invest in hydrogen-happy carmakers. While sales of such vehicles remain small, they’re growing – with Toyota, Daimler, and Hyundai among those investing in related projects.

Pipeline companies, worried about a future with fewer fossil fuels to transport, may be forced to repurpose their existing infrastructure to transport hydrogen. While few firms are doing this now, you may want to watch this space: some of the largest pipeline operators are Enbridge, Kinder Morgan, TC Energy, and Williams Companies.

You could also invest in electric utility companies working on projects involving hydrogen. NextEra Energy, for instance, has about 50 potential green hydrogen projects coming up. As with all the stocks mentioned here, why not try digging into NextEra’s fundamentals using the techniques described in the Packs listed below?

I’ll conclude with a word of caution. Hydrogen is still, for now, a high-cost form of energy: the big challenge in the coming years will be to reduce the expense of electrolysis as well as the cost of using the gas to generate electricity. The technology is very exciting, but it still has some way to go to become fully commercial. Enter those US research tax breaks…

Key takeaways

  • Investors are getting excited about hydrogen: a fuel source obtainable from water that can be either burned or chemically reacted to produce electric power without emitting greenhouse gases.
  • As well as having exciting transport and industrial applications, hydrogen could store intermittently produced wind and solar energy – making it of even greater interest to the climate-minded US infrastructure plan.
  • You can easily invest in companies producing hydrogen or manufacturing electrolyzers and fuel cells, as well as carmakers, pipeline firms, and utilities looking to use the technology. Not all of these stocks are bright green just yet, however.


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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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