Long term investors should not underestimate the diversity of the hydrogen market amid the current positive market momentum for the sector, according to CANDRIAM, a global sustainable and multi-asset focused investment manager. CANDRIAM today published a new report looking at the different investment areas of the hydrogen energy market and its role in the transition to low-carbon economy in line with the Paris Agreement.
Recent government actions to support hydrogen's potential as an energy source of the future have given a strong boost to the performance of a range of hydrogen stocks, with some share prices tripling over the past twelve months. However, the report underscored the importance for long-term investors to give primary attention to key factors such as the scale of the potential hydrogen market and at what stage of its development is each of the projects under consideration.
A growing market of diverse opportunities
Hydrogen technologies are at different stages of development depending on their application and requirements in different sectors. Some, such as in trains, are already being tried, but others are not expected to be commercially viable for at least another 20 years. For investors, it presents an opportunity to diversify between projects of different timescales or between different business types (electrolysis, hydogen producer or a fuel cell producer).
While commercial application of hydrogen still represents a small part of major players' turnover, a growing market may change things very quickly. For example, Air Liquide, a French supplier of industrial gases, stated that if, in an optimistic scenario, the company had a 1% share of the hydrogen market in 2050, it would represent 100% of its total 2020 turnover.
A vital player in alternative energy provision
In the power sector, hydrogen can be regarded a potential catalyst for value creation over the long term. As governments, investors and regulators move towards a low-carbon economy, CANDRIAM’s research finds that renewable power production and hydrogen are synergetic technologies, with the success of one facilitating the outcome from the other. An increase in the share of renewable energy in the overall supply of electricity will drive the cost of electricity down. This, in turn, will make hydrogen a more competitive option for the storage of electricity, leading to higher potential for renewables development and integration. This creates a strong opportunity for accelerating the energy transition in the power sector.
With renewable energy driving down the cost of electricity, hydrogen will also offer a more competitive solution for electricity storage, contributing to the development and integration of renewables. Excess power within electrolysis can be used create 'green hydrogen' which can be stored and deployed when renewable electricity production is low. This can offer production flexibility whilst addressing the issue of seasonal intermittency.
Head of ESG Investment and Research Vincent Compiegne commented, "As governments, investors and industries strive to meet the Paris Agreement, we need to find alternative energy solutions in order to support our global commitment to achieving a low-carbon economy. Hydrogen will not be the only way to achieve carbon neutrality but for specific sectors such as steel production and cement, it also offers a lower energy intensity than traditional sources. In addition, our research finds that technological advancements and falling costs of renewables has positioned hydrogen as an attractive, long-term opportunity for investors."