Green hydrogen: investing in the future of energy

Globally, investors poured over $900 billion into clean tech investments last year.^[1] As the transition towards zero carbon emissions accelerates, that figure is expected to grow rapidly.

Green hydrogen alone is forecast to require $100 billion in investment to 2030 and an additional $500 billion by 2050, according to clean energy research and consultancy group Wood Mackenzie.^[2]

The International Renewable Energy Agency (IRENA) estimates green hydrogen could account for up to 12% of global final energy use by 2050 were the world to stick to its ambitious net-zero targets.^[3]

In line with that belief, the global oil majors have announced sizable commitments to develop their green hydrogen production capabilities.^[4] And hydrogen is the best hope for decarbonizing some of the most intensive users of fossil fuels, such as steelmakers, chemical plants, heavy-duty vehicles, shipping and cement producers.

Solving the storage problem

Hydrogen’s utility comes from its ability to store energy. Although renewable energy such as wind and solar is now cheaper across most of the world than fossil fuels,^[5] the difficulty of storing and transporting it impedes its wider adoption.

One solution is to convert renewable energy into hydrogen, which can be stored in compressed or liquified form and eventually re-electrified or used to drive combustion engines. Crucially, whereas coal, oil and gas produce planet-warming carbon dioxide when they are burned to generate energy, with hydrogen, the only waste product is water.

Already, 26 countries have announced hydrogen strategies, with commitments to adopt it as a major part of their energy systems.^[6] They include China, India, the US and countries of the EU, which, collectively, make up the bulk of global energy consumption. Perhaps the most ambitious of those on the list are Japan and South Korea; the former intends to become the world’s first “hydrogen society” and the former plans to make hydrogen its largest single energy carrier by mid-century.^[7]

The shades of hydrogen

Producing all that hydrogen will be no easy feat. Hydrogen may be the most plentiful element in the universe, but it cannot be simply plucked from the air. In order for the hydrogen to be usable, it must be separated from the other elements in the molecules where it occurs.

There are several ways of producing hydrogen, with the current generation technologies categorised primarily as grey, blue or green. Grey hydrogen is produced from natural gas or methane through a process called “steam reforming”, with the carbon dioxide and carbon monoxide generated allowed to escape into the atmosphere.

Hydrogen produced using steam reforming is labelled blue when the carbon produced in the process is instead captured and stored. Blue hydrogen is therefore sometimes referred to as carbon neutral, though classifying it as low-carbon would be more accurate because 10-20% of the carbon generated cannot be captured.^[8]

The most climate-friendly shade is green hydrogen, produced using renewable energy sources such as hydro, solar and wind, which is used to spilt water into hydrogen and oxygen through a process called electrolysis. Though it is the most desirable form of hydrogen, it is currently estimated to make up just 1% of the total produced.^[9]

However, the conditions are now right for green hydrogen to scale up in a big way. On the supply side, falling renewable energy prices, cheaper electrolyzers^[10] and increased efficiency due to technology improvements have made green hydrogen production more commercially viable. And on the demand side, use cases of hydrogen are expanding across multiple sectors – from manufacturing to green ammonia production for fertilizers.

Flexible funding is key to tapping clean tech opportunities

Given the pace at which new opportunities like green hydrogen are emerging in the clean tech sector, investors need access to a flexible, cost-effective and stable means of accessing capital that will enable them to move quickly into new positions and diversify their portfolios.

Securities-based financing provides investors the flexibility to follow their convictions in this evolving area. EquitiesFirst has a 20-year track record in providing such solutions, allowing investors to use their shares to raise low-cost funding while maintaining the upside potential from their underlying holdings.

This flexibility is especially valuable when it paves the way to invest in projects that support the global pursuit of net-zero emissions, which, ultimately, safeguard the sustainability of all investments.

A few key stocks and ETFs offer exposure to this increasingly popular theme in clean energy, including companies involved in hydrogen generation and storage, producers of hydrogen fuel cell powered vehicles, fuel cell and hydrogen station makers, and electrolyzer manufacturers.

[1] https://about.bnef.com/blog/energy-transitions-big-dollars-and-big-themes/

[2] https://www.woodmac.com/news/opinion/hydrogen-the-us$600-billion-investment-opportunity/

[3] https://www.irena.org/publications/2022/Jan/Geopolitics-of-the-Energy-Transformation-Hydrogen

[4] https://www.bloomberg.com/news/articles/2022-06-19/big-oil-bets-that-green-hydrogen-is-the-future-of-energy

[5] https://www.weforum.org/agenda/2021/07/renewables-cheapest-energy-source/

[6] https://www.iea.org/reports/hydrogen

[7] https://www.irena.org/publications/2022/Jan/Geopolitics-of-the-Energy-Transformation-Hydrogen

[8] https://energy-cities.eu/50-shades-of-grey-and-blue-and-green-hydrogen/

[9] https://www.iea.org/reports/hydrogen

[10] https://www.bloomberg.com/news/features/2022-07-22/the-key-technology-behind-the-green-hydrogen-economy

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