Kingdom Capital Management discusses the long-term potential benefits of investing in hydrogen.
As the global push to attain a clean, affordable, and carbon-free energy system continues to gain momentum, the use of hydrogen has emerged as an efficient way to decarbonate the vast carbon-emitting activities. Being one of the simplest and most abundant elements on earth, hydrogen has always shown potential as an alternative energy solution. Global economies have been focused on reducing carbon dioxide emissions, with stated milestone targets by 2030-2050, varying by country.
Hydrogen as an energy source is not new; in fact, hydrogen fuel cells helped propel Neil Armstrong to the moon. Research has been focused on creating a cost effective, sustainable, and environmentally friendly solution, however, its usage on a larger scale remained elusive in the past.
Historically, hydrogen was unable to achieve the scale needed to be cost competitive compared to traditional energy.
Almost every industry in the economy uses energy in some form, including inputs to produce, such as manufacturing, transport and electricity. Together, these three are estimated to contribute up to 66% of global carbon emissions. Hydrogen has demonstrated the ability to reduce carbon dioxide emissions. Thus, its use can support environmental sustainability by lowering the amount of carbon dioxide being released into the atmosphere.
Innovations in the Realm of Hydrogen Economy
Over the last five years, we have experienced rapid growth in hydrogen energy-based technology. Currently, cutting-edge solutions for transportation and storage of hydrogen are in development and being deployed globally. Most of the technologies have passed through the solar impulse foundation and are beyond the demonstration phase. The number and complexity of hydrogen technologies deployed in the economy are a strong signal towards viability of hydrogen, as a competing and cleaner alternative energy source.
Hydrogen has become a buzzword in most conversations, and proponents are projecting that it will likely shape global economies after the COVID-19 pandemic. However, the bugging question is whether it is worthwhile to invest in the hydrogen economy today. Phoenix, Arizona-based investment firm, Kingdom Capital Management has foreseen this as the next global energy shift and has been actively making investments in the industry since 2016. The company holds large portfolio stakes in alternative energy companies FuelCell Energy (FCEL) and Plug Power (PLUG) and affirms "all told, we are still in the early innings of an evolutionary change," says Kinny Madori, the company's CEO. From an investment standpoint, our research has led us to believe that we are in the early stages of a multi-decade secular trend. Currently, we believe the industry is more attractive than ever before. Here are a few key points why we foresee continued momentum in this industry.
Governments Investment in the Hydrogen Economy
In the last year or so, many Asian and European countries have set up hydrogen strategies as part of their post-pandemic recovery plans. For instance, Germany is planning to allocate about $10.6 billion into the sector, while France has announced an $8.3 billion investment into the industry.
Longer term, The European Commission has committed to raising electrolyzer production from 250MW to 40GW by 2030. Although the US lags Asian and European countries in investment, surprisingly, it has allocated approximately $100 million to $280 million per year over the last decade. With a new administration taking over in the White House, focused on climate change, it is reasonable to assume growth over the next four years and beyond. While these are just few examples of countries interest, there is a clear trend displaying the public sector's belief in the hydrogen economy.
Private Companies Setting up Infrastructures and Logistics for the Hydrogen Economy
The hydrogen economy is poised to become an investment focus for corporations and governments. For example, Toyota, has committed to making hydrogen fuel cell vehicles, and its Maria sedan is a perfect example of a recent introduction. Shell, a Dutch oil giant, is expected to open a gigawatt-scale hydrogen company in the Netherlands and a network of fueling stations across the US. Air Liquide, a large industrial gas manufacturer, is making a significant investment in hydrogen infrastructure globally. Front-end companies manufacturing fuel cell technologies and supplying hydrogen include Bloom Energy, Plug Power, Ballard Power Systems, and Nikola Motors, among others.
Final Verdict
The vast innovations, input by the public sector, and private companies' activities point to a potentially lucrative sector. However, investors should remain grounded as the hydrogen economy may also boast significant inefficiencies. For starters, developing infrastructure to facilitate hydrogen energy usage can take years. Additionally, the time lag in technological innovation can derail the commercialization of current hydrogen technology. It is not exactly clear what the future has in store for specific companies within the industry. However, the progression and economic confirmation of leading hydrogen energy products demonstrates a growing secular shift towards hydrogen’s viability as an alternative energy solution.
Disclosure: The content of this article is for informational purposes only. It represents views, assumptions, and forward-looking statements made by Kingdom Capital Management, Inc., which is engaged in the business of trading--buying and selling securities and financial instruments on behalf of its clients. The information contained herein should not be perceived as investment advice or a recommendation or solicitation to buy or sell any securities mentioned in this article. Past performance is not necessarily indicative of future results. All investments involve risk, including the loss of principal. Investors are encouraged to perform their own due diligence and to consult a tax or legal professional before engaging in any transaction.