Hydrogen – helping to heal the planet?

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Personal Investing

10 March 2021

We look at how important the use of hydrogen could be in the race to achieve net-zero carbon emissions by 2050.

With the world turning its back on the use of ‘dirty’ fossil fuels (notably coal, oil and natural gas) in an attempt to focus on ‘clean’ energy, there’s been much talk of hydrogen as the fuel of future. But only now are policymakers beginning to take its use more seriously.

Examples of governments adopting hydrogen as a means of helping reduce their carbon footprint and aiming to achieve net-zero carbon emissions by 2050 have achieved much greater prominence in recent months. President Joe Biden campaigned on a pledge to “rapidly commercialize” renewable hydrogen. In November 2020, the UK made “driving the growth of low-carbon hydrogen” part of its ten-point plan for a ‘Green Industrial Revolution’, while China plans to make Wuhan a ‘world hydrogen city’ by 2025.

It seems that, if we are serious in achieving net zero by 2050, more needs to be done in the field of clean energy. Electrification - the process of replacing technologies that use fossil fuels with those that use electricity - can certainly help contribute towards achieving net zero, but on its own, electrification is simply not enough.

Many areas of the economy – such as heavy-goods vehicles, shipping, and some aspects of home heating – will be hard to decarbonise using electrification technologies alone. We believe hydrogen could play a key part in lowering emissions in industries where electrification will not be sufficient.

The need for clean

There’s currently one major obstacle to that happening – the hydrogen economy is not yet truly clean. According to the International Energy Agency, over 99% of hydrogen is made using fossil fuels. But that’s changing and the ground is being prepared for hydrogen to become a truly ‘green’ fuel. To accelerate this move, the cost of the electrolysers (a system that uses electricity to break water into hydrogen and oxygen) needs to fall.

This is already in motion: the price of the wind and solar energy that will power the electrolysers has decreased by 70-90% over the past decade, according to Bank of America research[1], while the cost of electrolysers has fallen by up to 50% in the past five years and is projected to become a further 40-60% cheaper by 2030[2].

Cheaper green energy could then open the doors for the adoption of hydrogen across a wider variety of applications, so in time it could serve as a viable alternative to conventional sources of energy.

 

Companies likely to benefit from the move to hydrogen

We believe the hydrogen economy is on the cusp of entering a multi-decade growth phase as the economics, technological innovation, and government policy support start to converge.

In our view, the key contributors to the first wave of growth will be those companies that are engaged in the production of green hydrogen, those that are involved in pioneering technologies to make green hydrogen production more efficient, and those catering to specific applications such as heavy-duty vehicles.

 

[1] Bank of America, as at September 2020.

[2] Bank of America, as at September 2020.

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Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.