Hydrogen: Asset against Climate Change, Market Developments and Investment Opportunities

Hydrogen in Transportation

Elon Musk has called hydrogen fuel cells “truely silly”, “mind-bogglingly stupid”, and “staggeringly dumb” for more than half a decade. It’s widely known that hydrogen cars are less efficient than electrics. Yet, hydrogen is a growing market.

Where does the hydrogen demand come from and what’s in it for transportation? Demand is expected to increase along with the transition to cleaner and cheaper industrial production. With regard to hydrogen in mobility, I think that demand will also grow, perhaps more moderately and there is a simple reason as to why:

Batteries are heavy. The more weight you need to move the more battery weight you need to add. While the electrification of heavy duty trucks, for instance in mining, is gaining pace, batteries still can’t scale up to power container ships. Conventional lithium-ion batteries can only pack enough power to move small ships short distances, e.g. the Yara Birkeland with a deadweight of 3200 mt. At present, the size of the battery needed would likely limit the amount of cargo that could be carried, making it commercially nonviable.

Hydrogen, as opposed to conventional lithium-ion batteries, can power virtually all container ships crossing the Pacific. In 2019, the world’s first liquified hydrogen carrier vessel was launched. Developers across the world are testing the use of hydrogen to power ships as the maritime industry races to find technologies to cut emissions. The shipping industry is responsible for two to three percent of greenhouse gas emissions worldwide. International shipping, similar to aviation, has thus far remained outside of all climate agreements including the Paris Agreement. However, the IMO made agreements to radically reduce CO2 emissions in the shipping industry.

Another variable to consider comparing the market development of electric and fuel cell vehicles is obviously infrastructure. Electric cars will increasingly challenge our electric grids. This is an opportunity to invest in electricity infrastructure in particular in regions that already require replacements and maintenance. Fuel cells can be economically more viable in specific locations, for instance at industrial production sights where hydrogen is already available.

Hydrogen in Industry

While hydrogen market growth estimates vary, all studies agree that the market will grow and that the driving force of the growth is decarbonization. There are investment opportunities at all stages. However, they might not all be where you think. With an emphasis of press on hydrogen in transportation it is easy to loose sight of the fact that 90% of all hydrogen used today is for fertilizer and refinery processes. Thereof, ammonia production accounts for 60%.

The growth of green hydrogen production entails the growth of zero emissions power sources fueling the investment opportunity around renewables. As a ballpark, the EU has laid out plans to install 40 gigawatts of renewable hydrogen electrolysers and produce 10 million metric tons of renewable hydrogen by 2030. The global hydrogen production currently amounts to about 70 million metric tons per year. For each renewable hydrogen investment roughly the same investment amount is needed for renewables themselves.

Financial markets started tuning in and shares prices in hydrogen-focused companies have made headway this year as governments have begun to set out more concrete decarbonization targets. Early-stage companies have come up with innovative technologies, for instance electrolysis at high temperatures using waste energy to significantly reduce opex.

Conclusion

Hydrogen demand will continue to increase mainly due to decarbonization as the driving force. The growing hydrogen demand leads to investment opportunities in hydrogen production and renewable energy. Suppliers and adjacent industries tag along.

With an emphasis of press on hydrogen in transportation it is easy to loose sight of the fact that the vast majority of all hydrogen used today is for traditional processes in chemicals, agriculture, and metallurgy.

Financial markets begin to price in the increasing hydrogen demand. Iterative and disruptive technologies are being developed across respective industries from early-stage companies to established players.