The sector’s growth prospects are more sensibly understated after a year of declining stock prices and industrial progress
As Wall Street has cooled on hydrogen, industry activity has heated up. According to the Hydrogen Council, as of November 2021, the cumulative number of large-scale projects announced had doubled from January to 522. About three-quarters are expected to be partially or fully operational this decade, and two-fifths of them are already funded or under construction.
After many false dawns, the age of gas is coming, primarily as a low-carbon fuel for areas that cannot use electricity to decarbonize such as steel and cement.
Government incentives are still important, as in many places carbon prices do not cover the additional cost and most customers are not yet willing to pay more for green steel or cement. In these early stages, policy has power, especially to avoid costly mismatches in coordinating supply and demand growth.
Europe is an early leader, with both the EU and individual countries offering dedicated strategies and generous incentives. Politicians in the region want to ensure that their domestic companies are not left behind as they were on solar panels, batteries and digital companies.
Reliance on politicians also comes with drawbacks: constant discussions over industry regulations in Brussels mean that “projects are stalled,” says Pierre-tienne Franck, president of Fivety Hydrogen, an investment fund. Still, he expects that the completion of these regulations will lead to significant financial support for hydrogen projects.
While Beijing is still working on its national hydrogen strategy, it has offered some incentives, and China’s commitment to carbon neutrality by 2060 has already prompted some state-owned companies to invest in the gas. . For example, oil giant Sinopec recently said it was building a solar-powered green-hydrogen electrolyzer that is an order of magnitude larger than European projects.
“China’s rise on hydrogen has been absolutely staggering, and most of the quadrupling of what we’re expecting next year is coming from China,” says Martin Tengler, hydrogen analyst at BloombergNEF.
Australia is also a leader, with well-developed plans to export hydrogen, which is seen as a fuel for electricity and transport in Japan and South Korea. While US policy has lagged, President Biden’s now stalled “Build Back Better” bill includes a production tax credit for green hydrogen. It will be a powerful incentive if it makes it through to the law.
Electrolyzer manufacturers are among the most obvious beneficiaries of the industry’s growth. Adam Collins, an analyst at Librem Capital, estimates that ITM, Nell and McAfee could have 10%, 8% and 2% long-term market share respectively, which he considers a profitable global business fueled by high-margins. hopes to be. -Sales, production capacity crunch in this decade and potential stimulus-driven pickup in the US
Still, buying these pure-play stocks is a huge leap of faith. Even after this year’s correction, Nell and McAfee traded at nearly 20 times forward revenue; ITM more than 40 times. How fast they move into such valuations depends largely on the pace of subsidies, technological innovation and scaling up.
The one thing patient capitalists can count on is that the hydrogen theme is more likely to reward them after a disappointing year than following a big rally.
Write Rochelle Toplensky at [email protected]