H2ello Green Hydrogen: Economics and Finance of Tomorrow’s Fuel
Despite being the most abundant element in the universe, hydrogen’s potential as an energy source has never been tapped to the same degree as fossil fuels like coal, oil, and gas. However, interest in hydrogen as an energy source and climate change solution has been growing all over the world. Japan aims to reorient its economy around hydrogen, Saudi Arabia and Australia want to diversify their fossil-fuel-dominated exports with it, and the recently signed US Inflation Reduction Act of 2022 sets aside funding for hydrogen energy. So what is hydrogen’s potential as an energy source? What are its drawbacks? How can prospective investors capitalize on this emerging technology?
From early internal combustion engines to airships from the early 1900s, humans have toyed with the idea of hydrogen energy for some time. With the 1970s oil crisis and growing concerns over anthropogenic climate change, however, interest in hydrogen as an alternative fuel source grew. US President George W. Bush, in fact, devoted $1.2 billion into developing hydrogen fuel in 2003. When used in a fuel cell, hydrogen can react with oxygen to produce energy without carbon emissions. Thus, many people hail it as an opportunity to diversify away from fossil fuels, whose combustion contributes to climate change.
However, as an energy source, hydrogen has several hurdles to overcome. The first is how it is made; since hydrogen rarely occurs as a pure elemental gas, it must be synthesized from other compounds that contain hydrogen. Hydrogen energy is commonly classified into gray, blue, and green designations based on the fuel source from which it is generated. Gray and blue hydrogen are both extracted from fossil fuels such as methane in processes that generate greenhouse gas emissions. Only a small percentage of hydrogen used today is classified as green. This type of hydrogen is created using electricity from renewable sources such as wind and solar. After the sourcing problem is overcome, there are still challenges with using hydrogen. The infrastructure for transporting hydrogen is still being developed, and hydrogen’s flammability (which caused the Hindenburg disaster) makes storage a challenge. Most importantly, the cost of green hydrogen relative to other fuel sources remains high.
When these hurdles can be overcome, the benefits of green hydrogen are substantial. For example, one common complaint against wind and solar electricity is their intermittency; the wind does not always blow, nor does the sun always shine. Green hydrogen made with the excess electricity produced during especially windy or sunny days, however, can function as a storage method for renewable energy. Additionally, it offers the ability to decarbonize economic sectors that are difficult to electrify. Airbus already unveiled several concepts for hydrogen-powered airplanes. Green hydrogen could also serve as a clean fuel for maritime shipping, steel production, and fertilizer synthesis.
In the automotive sector, although battery-electric vehicles (think Tesla or Lucid) have been more widely adopted, automobiles powered by hydrogen fuel cells still constitute a major part of Japan and South Korea’s national hydrogen strategies. Government support efforts for green hydrogen also make a compelling case for investing in it; the European Union and the United States have both set aside funding to boost electrolyzer capacity. Perhaps the most compelling case for investing in green hydrogen is that the technology still has room to grow. Green hydrogen’s aforementioned small share of global hydrogen consumption means that its usage is likely to expand rapidly with the development of necessary infrastructure, making it a potentially profitable investment.
There are many options for the prospective investor in green hydrogen. One could buy stock in companies involved with the manufacture of green hydrogen and hydrogen fuel cells such as Air Products and Chemicals and Ballard Power Systems. An investor could also get involved with green hydrogen by investing in companies that produce the wind turbines and solar panels needed to synthesize green hydrogen. If you don’t have the time to choose individual companies to invest in, there are also exchange-traded funds that track alternative energy indices.
After years of development, green hydrogen now appears ready to fly, buoyed by falling costs and the support of governments the world over. Its promise as a source of carbon-free energy is great, even as the obstacles facing its application remain significant. The heights to which green hydrogen climbs, however, will only be told by time.