L’green hydrogen, the one produced through renewable energies, can be the investment of the future, as well as playing a key role in the energy transition of our planet. It is the simplest and most abundant chemical element in the universe. Its low environmental impact when consumed in a fuel cell has made it increasingly attractive to both politicians and companies. This element can be used for a number of applications and industries: as a fuel for the transport sector, as a raw material, in food processing, in the steel industry, in the fertilizer industry or even in the semiconductor industry.
However, thehydrogen it must always be extracted from existing compounds that contain it, as it does not exist by itself in nature. Depending on the type of compound from which the hydrogen is derived and the process used to obtain it, we can identify three types: gray hydrogen, produced by fossil fuels; blue hydrogen, which is nothing more than gray hydrogen which, however, has captured and incorporated the CO2 emitted during the production process; finally, we have the cleanest form of hydrogen, the one mentioned above, green, produced through water electrolysis and using renewable energy.
The necessary green turn
Currently, thegray hydrogen represents about 98% of the total consumption of the element and is responsible for 2.3% of global CO2 emissions. Since neither the production nor the consumption of green hydrogen implies the emission of CO2, the substantial increase in the use of this element could make a significant contribution to being able to achieve the ambitious targets for reducing CO2 emissions set by companies, governments. and international institutions. Green hydrogen can therefore play a key role in the energy transition: it is in fact particularly interesting for those industries that are difficult to convert, namely those companies that cannot switch to full electrification such as the steel or shipbuilding industry.
Also, it can be used as source for the production of fertilizers, thus replacing the productions that rely on collection methods based on fuels fossils. Finally, it can also be used as a low-carbon fuel in the transport industry: green hydrogen can be used as an energy carrier and storage medium, thus representing an alternative to batteries, especially when it is converted into ammonia substance for which we already have considerable experience in terms of management and transport. All these low-carbon applications explain the recent and growing attention and interest in this element, especially in the context of the energy transition.
The main challenges of the sector
As with all trends, the technology play a important role in the development and scalability of hydrogen. Basically, the high costs of electrolysers and renewable energy, when combined, highlight the main problems encountered in the development of green hydrogen. The price differences with the production of gray hydrogen are still hindering the development of the green one: to date the production of 1 kg of gray hydrogen costs on average less than two dollars, while the production in green form, of the same quantity, is it is between 3.5 and 4.5 dollars. However, in some areas where renewable energy sources are more developed, such as Australia or Saudi Arabia, costs are starting to drop significantly.
Unfortunately, there is another difficulty in the production ofgreen hydrogen which consists of adequate infrastructure for its transport and storage as it is a highly flammable element that requires to be pressurized before transport. The overall challenge is actually twofold: we not only need to decarbonise existing uses of (gray) hydrogen, but, at the same time, also to increase new uses and initiatives, such as transport. Furthermore, the ultimate challenge could be regulation: if green hydrogen is to be cost-competitive at the gray level, carbon prices need to increase dramatically to push users to green hydrogen sources. For a couple of years, the issue has been increasingly present in the global political landscape and included in national energy and climate plans.
The opportunities of hydrogen in investments
Keeping in mind the great potential for development and use ofgreen hydrogen, both in terms of the technology required for its production, and in terms of market size, it is possible to identify various investment opportunities in multiple sectors.
According to estimates, the size of the market can reach 10 trillion dollars by 2050. Of course there are direct beneficiaries, such as electrolyser manufacturers or other dedicated equipment suppliers, as well as industrial gas companies. However, there are also significant indirect beneficiaries, for example renewable energy developers, but fertilizer producers could also benefit from increased use of hydrogen, and their ammonia expertise could be useful. As such we believe that for investors, and especially in the equity sector, a value chain approach can identify a variety of investment opportunities: from production itself to that of the equipment needed to obtain hydrogen, to the beneficiaries of transportation. and storage, of course always keeping in mind the different timing.
In order to get adirect exposure investment, including the investments credit they can offer interesting possibilities. We are thinking in this case of the increase in bonds linked to sustainability and green bonds with a specific focus on the development of green hydrogen at the production, use or infrastructure level.