Hydrogen Fuel as an Investment?

Written by: Thomas Kostigen

Hydrogen has been hyped as the next big thing in alternative energy for more than 20 years. But it still hasn’t caught on. Is it a worthwhile investment? Analysts are holding out hope, and hydrogen fuel-cell stocks have soared over the year.

Still, around 2007, when clean energy vehicles became the rage and the Toyota Prius became the “it” car due to its hybrid engine, the talk of hydrogen power also becoming a better alternative to traditional fossil fuel burning cars was rampant. Seven years later, Toyota launched its Mirai, the first mass produced hydrogen fuel cell vehicle. Yet, electric vehicles continue to steal the show. Tesla, of course, has made a splash with its new car line-up—and its stock has recently proven to be a massive hit among investors, rising more than three times in price since the beginning of this year. But has that left hydrogen vehicles in the mist?

Maybe. However, there are other uses of hydrogen beyond vehicles. Europe and Saudi Arabia, for example, are investing in hydrogen technologies for broader utility purposes. Indeed, a recent Barclays analysis expects the hydrogen market to grow ten times its size over the next three decades. The reason is a clean energy source and Europe is amidst a clean energy transition.

A hydrogen fuel cell is a device that generates electricity through an electrochemical reaction, not combustion. In a fuel cell, hydrogen and oxygen are combined to generate electricity, heat, and water. Its potential is big because it’s a reliable and sustainable fuel source. Cells are not recharged, rather like traditional fuel engines, hydrogen is refilled. Moreover, hydrogen technologies are scalable, from vehicles to trucks to power grids. And there are different types of hydrogen processes that interact to create electricity with other fuel sources, from natural gas to solar or wind (green hydrogen). This presents different costs and use scenarios. Hence, some investors have become keen once again on hydrogen’s prospects, with at least one well-known investing site wonders if we are on the cusp of a hydrogen revolution. News outlets, too, are reporting on hydrogen’s rise.  

According to a recent Reuters post, “Investors might be forgiven for avoiding hydrogen altogether, especially as a similar burst of sector enthusiasm two decades ago proved short-lived. But there are good reasons not to. It’s only 10 years since offshore wind was seen as impossibly expensive, but government subsidies supported the sector and costs fell. Taxes that raise the price of carbon would also boost green hydrogen’s relative appeal.”

Some of the companies Wall Street analysts are eying in the hydrogen sector include multinational conglomerates that manufacture hydrogen powered trucks or mass energy for power grids to smaller, more narrowly refined operators that produce the technology off which hydrogen power is made. Investors should consult with a financial professional to figure which company is best in class, and whether there may be more risk-diverse options, such as investing in an alternative energy fund that includes hydrogen companies in its portfolio.

Tesla obviously has done well for investors with its forward-looking fuel alternative approach. Might hydrogen rise, too?

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