As the world confronts the urgent issue of climate change, hydrogen shines as a key player in the global energy scene. Hydrogen, a clean fuel and energy carrier, can help various sectors like transportation and industry become carbon-neutral. Thus, it takes a central role in shifting towards a sustainable energy future.
Recognizing its importance, many investors are keenly exploring opportunities within this burgeoning market. In this article, 'How to Invest in Hydrogen,' we will delve deeper into the nuances of this powerful element, unraveling its production methods, key areas of investment, and the risks and rewards that lie ahead.
Whether you're an experienced investor or a beginner, this guide gives you the insights to explore hydrogen investments.
What is Hydrogen?
Hydrogen is a chemical element with the symbol H and atomic number 1. It is the lightest and most abundant chemical substance in the universe and makes up approximately 75% of the universe's elemental mass. Here are some key points about hydrogen:
Physical Properties: Hydrogen is a colorless, odorless, and tasteless gas at room temperature and atmospheric pressure.
Combustibility: It is flammable and can form explosive mixtures with air when concentrated.
Molecular Formation: In its most common form, hydrogen forms diatomic molecules (meaning it forms molecules consisting of two atoms), represented as H2.
Water Formation: Hydrogen forms water (H2O) when it burns in the presence of oxygen, giving it the name "hydro-gen", which means "water-former" in Greek.
Applications: Hydrogen serves multiple purposes. People use it to produce ammonia for fertilizers, refine petroleum, and manufacture methanol. Additionally, researchers are investigating its potential as a clean fuel for vehicles and other uses since it only emits water when burned.
Energy Carrier: While hydrogen is not a primary source of energy, it is an energy carrier. It can store and deliver energy, which makes it a candidate for various energy applications, especially when produced using renewable resources.
Production: Most hydrogen production today comes from steam methane reforming of natural gas, a process that emits carbon dioxide. However, producers can also generate hydrogen by electrolyzing water, particularly when using renewable energy, leading to zero carbon emissions.
Understanding hydrogen, its properties, and potential applications is crucial in the context of seeking cleaner energy alternatives and addressing global climate challenges.
Why Invest in Hydrogen?
According to Grand View Research, the global hydrogen market was worth $155.35 billion in 2022. The report projects it will grow at an annual rate of 9.3% from 2023 to 2030.
Several factors are propelling this anticipated growth. Predominantly, environmental concerns are at the forefront, as global communities and industries seek sustainable and low-carbon energy solutions. Concurrently, technological advancements in hydrogen production and utilization methods further underscore its increasing significance in the energy matrix. Additionally, governmental policies, both domestic and international, have been pivotal, championing the adoption of hydrogen as a cleaner alternative to traditional fossil fuels.
For investors, the growing hydrogen sector offers multiple opportunities. It allows for a more varied investment mix, providing protection against usual market ups and downs. Plus, as the world moves toward greener options, investing in hydrogen aligns with this trend and taps into its consistent growth.
Hydrogen's attributes, being a high-density energy carrier that's non-toxic, non-corrosive, and environmentally friendly, make it invaluable for generating heat and electricity in fuel cells and serving as an essential raw material across various industries. Hydrogen provides large-scale storage flexibility and can be transported either in its liquid or gaseous state.
The Significance of Green Hydrogen
Hydrogen is an energy carrier, not an energy source. Whether or not it is renewable depends on the method of production. When considering hydrogen as part of a clean energy future, it's essential to consider the source of the hydrogen and its associated environmental impacts. Learn more in our article Is Hydrogen a Renewable Energy?
The rise of green hydrogen, produced via renewable methods, is reshaping the energy landscape, offering a sustainable solution to global energy challenges. As societies worldwide pivot towards cleaner energy alternatives, understanding how to invest in hydrogen has become crucial for forward-thinking investors.
The significance of green hydrogen lies in its potential to offer a carbon-neutral energy source, especially when compared to hydrogen derived from fossil fuels. This environmental advantage translates to growing market demand, spurred by both policy incentives and corporate commitments to sustainability. As a result, hydrogen investment opportunities are expanding rapidly.
For those seeking to align their financial strategies with sustainable practices, tapping into the growing green hydrogen market is appealing.
What is the Hydrogen Economy?
The Hydrogen Economy encompasses the integrated system of producing, storing, distributing, and consuming hydrogen. This framework emphasizes the potential role of hydrogen as a pivotal component in the global energy landscape.
Production: There are various ways to produce hydrogen, forming the foundation of the hydrogen economy. Currently, the main method is steam methane reforming, which gets hydrogen from natural gas. However, there's growing interest in cleaner methods like electrolysis, which uses electricity to turn water into hydrogen and oxygen. If this electricity comes from renewable sources, it's a green and carbon-free way to produce hydrogen.
Storage: Storing hydrogen is challenging because of its unique properties like low density. Current methods include keeping it under high pressure in tanks or making it into a liquid at very cold temperatures. Newer technologies are looking into storing it in solid forms using materials like metal hydrides.
Distribution: Distributing hydrogen effectively is crucial for a hydrogen-focused economy. Right now, we use pipelines, like those for natural gas, and trucks with high-pressure tanks or liquid hydrogen. As the use of hydrogen increases, having a strong and widespread distribution system becomes essential.
Consumption: In the hydrogen economy, the final step is using the hydrogen. One main way is through fuel cells, which turn hydrogen into electricity for vehicles or other uses. Additionally, industries like steel or chemicals can use hydrogen directly, offering a greener option than usual fossil fuels.
In short, the hydrogen economy is a complete system that combines new technologies and methods from creation to use. As it develops, it offers a more sustainable energy option, moving away from high-carbon sources.
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A Heavy Industry Saviour
In heavy industry and transport sectors, hydrogen stands out as the preferred energy source. Renewable energy, while beneficial in many contexts, is not apt for high-intensity industries like steel production or robust transport modalities like aviation. Hydrogen offers the capability to meet these intensive demands and simultaneously curtail emissions. Consequently, the integration of hydrogen ensures the preservation of skilled jobs and the satisfaction of consumer requirements, all the while advancing towards a net zero emissions future.
How to Invest in Hydrogen
For those looking to invest in hydrogen, it's important to start with thorough research about the hydrogen market, its main companies, and its technologies. Investors can either put money directly into hydrogen companies or invest in broader hydrogen-focused funds to spread out their risk.
Hydrogen Stocks
Some notable players in the global hydrogen industry include the following:
Air Liquide SA (OTC: AIQUY)
Air Products & Chemicals, Inc (NYSE: APD)
Saudi Aramco (Saudi Arabian Oil Co (TADAWUL: 2222))
Ballard Power Systems Inc (NASDAQ: BLDP)
Bloom Energy Corp (NYSE: BE)
BP plc (NYSE: BP)
Cummins Inc (NYSE: CMI)
Equinor ASA (NYSE: EQNR)
FuelCell Energy Inc (NASDAQ: FCEL)
Fusion Fuel Green PLC (NASDAQ: HTOO)
General Electric Co (NYSE: GE)
ITM Power (LON: ITM)
Jericho Energy Ventures (TSX.V: JEV) (OTC: JROOF) *For a deep dive read our exclusive report.
LINDE ORD (NYSE: LIN)
Mcphy Energy SA (EPA: MCPHY)
Nel ASA (OSE: NEL)
Plug Power (NASDAQ: PLUG)
Shell (NYSE: SHEL)
TotalEnergies (NYSE: TTE)
For more info on each of these read our Hydrogen Companies to Invest In article.
Hydrogen ETFs
Exchange-traded funds (ETFs) with a hydrogen theme provide investors a chance to tap into this growing trend in the energy sector.
When investors put their money into these hydrogen-centric ETFs, they get access to a broad range of companies that produce, store, and distribute hydrogen or lead in hydrogen fuel cell technologies. This investment strategy lets people harness the growth of the hydrogen industry without the need to select individual stocks.
As the global appetite for cleaner energy solutions grows and countries detail their plans for a green future, these ETFs offer forward-thinking investors a way to align their portfolios with a shift to a greener energy horizon.
Global X Hydrogen ETF (HYDR)
HYDR offers global exposure to companies set to benefit from the hydrogen economy by tracking a modified market-cap-weighted index. This ETF focuses on four hydrogen sectors: production, fuel cells, technology, and integration. It uses a unique NLP algorithm to score companies based on their thematic exposure from public filings. Companies fall into three categories: pure-play, pre-revenue, or diversified.
Defiance Next Gen H2 ETF (HDRO)
HDRO tracks a modified market-cap-weighted index focusing on global companies in the hydrogen and fuel cell sector. This ETF stands out as one of the pioneers capturing the hydrogen-based energy market, mainly targeting pure-play companies that earn at least 50% of their revenue from hydrogen energy and fuel cell technologies.
Direxion Hydrogen ETF (HJEN)
HJEN follows a modified market-cap-weighted index featuring global firms engaged in the hydrogen sector. This ETF incorporates companies from both emerging and developed markets, excluding India and Vietnam, involved in various aspects of the hydrogen value chain such as fuel cells, hydrogen production, storage, and more. HJEN aims to maintain a portfolio of 30 market-cap-weighted pure-play firms, each limited to an 8% weight.
Key Areas of Investment
Hydrogen Production: In the changing energy world, companies making hydrogen are becoming key players. They produce hydrogen in different ways, from using natural gas to using renewable energy like water electrolysis. As the focus on clean energy grows, these hydrogen-producing companies, especially those using sustainable methods, will be crucial in the future energy scene, making them attractive to investors.
Infrastructure: The infrastructure for hydrogen, including its transport, storage, and refueling stations, is crucial for its growth. Without good transport and storage, hydrogen's use is limited. Having many refueling stations is essential for the success of hydrogen-powered vehicles. Thus, investing in companies that build and manage this infrastructure is vital for the entire hydrogen industry.
Fuel cells: Fuel cells are a new way to turn hydrogen into energy, useful for both transportation and stationary power. Hydrogen-powered vehicles have no emissions, refill quickly, and can travel long distances. Stationary fuel cells can give constant power to buildings and factories. This flexibility and environmental benefit highlight the importance of companies making and servicing these fuel cells in today's energy market.
Research & Development: In the hydrogen energy field, Research & Development (R&D) is essential for creating new solutions and improving old ones. Leading companies and schools focus on developing new technologies and making sure hydrogen stays competitive. They work on making things like electrolyzers better and finding new storage methods. Those who invest in these innovative groups are backing advanced technology and putting themselves in a promising position in a growing sector.
Hydrogen Investment Challenges & Risks
Hydrogen investors should consider the challenges and risks. For instance, there are still technological issues to iron out, especially in storing and transporting hydrogen. Competition from other energy sources is stiff with new advancements and solutions appearing rapidly.
Regulatory policies can be unpredictable, with changing rules that might either help or hinder hydrogen's growth. Lastly, starting hydrogen projects can be expensive, and market prices can be volatile.
Practical Steps to Start Investing in Hydrogen
Before venturing into hydrogen investments, start by researching top players in the hydrogen field, as they can highlight promising investment areas. It's always smart to diversify investments to reduce risks. Also, consider indirect investment opportunities, like renewable energy, which might fuel hydrogen production in the future.
Stay alert to government incentives that can enhance certain hydrogen sectors. With the hydrogen industry's fast pace, consistently updating your knowledge is key to making informed investment choices.
If you're thinking of investing in the hydrogen market, here's a straightforward approach:
Start by researching the top companies in the hydrogen industry.
Diversify your investments to reduce risks.
Think about indirect ways to invest, like putting money into renewable energy that could drive hydrogen production in the future.
Keep an eye on government support or subsidies, as they can boost certain hydrogen areas.
The hydrogen sector changes quickly, and being informed helps investors make better investment choices.
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Future Outlook for Hydrogen
An IEA report highlights a surge in political and business support for clean hydrogen, noting a swift rise in global policies and projects. The report suggests that immediate action to advance technologies and reduce costs will enable broader hydrogen use. It offers practical recommendations to governments and industries to capitalize on this growing trend.
Meanwhile, according to a Deloitte report, the clean hydrogen market has the potential to expand significantly in efforts to achieve climate neutrality by 2050. The initial demand surge will largely be driven by the need to decarbonize existing industrial uses of hydrogen, primarily for fertilizer production. As the transition to net-zero intensifies, hydrogen's demand is expected to skyrocket, solidifying its place as a key solution for decarbonization.
By 2050, industries such as iron and steel, chemicals, cement, and high-temperature heating, along with transport sectors like aviation, shipping, and heavy road transport, could contribute to 78% of the total clean hydrogen demand. This trajectory indicates hydrogen's significant role in reducing carbon emissions.
While industrialized nations are likely to see rapid demand, clean hydrogen also offers growth opportunities for developing countries, suggesting the emergence of a global market. However, establishing this new major industry poses challenges, especially since the early stages of projects might rely on public funding for viability. Various governmental programs, such as the United States Inflation Reduction Act, the Australian Clean Energy Finance Corp., and the European Union Fit-for-55 package, highlight this dependency.
The conventional production cost of carbon-intensive hydrogen doesn't fully account for its environmental impact, and government support might be necessary until clean hydrogen becomes cost-competitive. Breakeven points are projected by 2030 for ammonia, 2035 for gaseous hydrogen, 2045 for methanol, and 2050 for sustainable aviation fuels (SAF).
By 2050, as green hydrogen becomes economically self-sustaining and supply capacities scale massively to meet demand, the global hydrogen market is anticipated to mature, with spot markets expected to play a major role in price determination.
What is the Potential of Hydrogen in the Next 5, 10, 20 Years?
5 Years
Industrial Decarbonization: Hydrogen will play an increasing role in decarbonizing industries, especially those that are hard to electrify, such as steel and chemical production.
Transportation: Early adopters will begin to see more widespread use of hydrogen-fueled vehicles, especially in public transportation (buses) and heavy-duty vehicles like trucks.
Storage: Hydrogen will start to be utilized as a storage medium to balance intermittent renewable energy sources like wind and solar.
10 Years
Energy Sector: Hydrogen will become a more integral part of the energy mix, with more power plants adopting it as a clean fuel source.
Infrastructure Expansion: More extensive hydrogen refueling infrastructures will be developed, facilitating a larger-scale rollout of hydrogen-powered vehicles.
Cost Reduction: Advances in technology and economies of scale will make hydrogen production, especially green hydrogen, more cost-competitive.
20 Years
Widespread Adoption: Most industries and transport sectors, including aviation and maritime, will have significant hydrogen integration.
Integration with Renewables: Hydrogen will play a critical role in storing and transporting energy from regions with abundant renewable resources to those with high energy demands.
Predicted Technological Advancements
Electrolysis Improvements: Advancements in electrolysis techniques, especially for producing green hydrogen, will become more efficient and less costly.
Fuel Cell Technology: Increased efficiency, durability, and reduced costs of fuel cells will make hydrogen-powered vehicles more attractive.
Storage Solutions: New and safe methods to store and transport hydrogen, both in liquid and gaseous forms, will emerge.
Geopolitical Landscape and its Impact on the Hydrogen Economy:
New Energy Leaders: Countries with vast renewable resources (like wind in the North Sea or solar in the Sahara) might become major exporters of green hydrogen, altering traditional energy geopolitics.
Trade Dynamics: Hydrogen trade routes will establish, leading to new partnerships and dependencies among nations.
Policies & Regulations: Governments will enact policies promoting hydrogen production and use, shaping the global push towards a hydrogen economy.
Challenges: As with any major energy transition, there might be resistance from established fossil fuel sectors, leading to potential geopolitical tensions.
Collaborations: International collaborations and agreements on hydrogen standards, trade, and technology sharing will become essential for a seamless global hydrogen market.
Hydrogen’s Role in Achieving Climate Goals
To achieve our climate goals, it's vital we utilize all available technologies to reduce emissions. While hydrogen will be a component of the energy matrix, a mix of solar, wind-to-electric, wind-to-hydrogen, and natural gas is essential to satisfy growing demand. It's crucial to understand that not every energy source fits all situations.
Certain energy sources are best suited to household use, some are better for businesses, and others are ideal for heavy industries and extended travel. By adopting a balanced strategy, every segment of society, including households, businesses, and industries, can progress towards net zero emissions. For investors, this also creates multiple areas of potential investment.
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There's no doubt the global hydrogen supply is set to become a mainstay in the future energy landscape. The momentum behind hydrogen-based solutions is growing, driven by both technological advancements and increasing recognition of hydrogen's potential in addressing energy challenges.
Notably, both the public and private sectors are playing a crucial role in this evolution, investing in research, development, and deployment of innovative hydrogen technologies.
For the long term, the combined efforts of governments, industries, and individuals are essential in realizing a future where hydrogen is a primary energy source, underscoring its significance in the quest for a sustainable energy future.
