As portfolio managers in the environmental sector, we seek out impactful, innovative technologies such as hydrogen, and look at the businesses behind the innovations. We talked with Andy Marsh, President and CEO of green hydrogen provider Plug Power, to learn if there is more to clean hydrogen than mere hype.
Hydrogen 2.0
Hydrogen has long been used for industrial purposes. What makes it a big opportunity today is the shift from grey to green hydrogen, which is made using renewable energy sources rather than fossil fuels. The transition has the knock-on effect of decarbonising typically brown industries such as steel and cement manufacturing, transportation, and energy storage.
For Andy Marsh, the potential of green hydrogen resides in the ability to move it at scale through pipelines. Referencing work in Demark to build a hydrogen pipeline through Central Europe, he believes that when such pipelines are as accessible as natural gas pipelines are today, it will enable many applications. He says, “Green hydrogen could take the place of anything which currently requires high-temperature burning and relies on natural gas and oil.”
He sees it becoming an integral part of power networks, with hydrogen-powered fuel cells providing backup for solar and wind energy. In transportation, liquid hydrogen is already used by long-range, commercial trucks, but it could shake up the consumer vehicle market by adding a hybrid component to electric cars. People could fill up at hydrogen fuelling stations just as they do with petrol now.
According to Andy, “The argument about what is better – batteries or fuel cells – will go away and it will be a combination of both that solves many problems. As the world becomes more electrified, and as hydrogen becomes a substitute, people are going to figure out creative ways to use hydrogen which nobody’s talking about today.”
Three drivers of momentum
Ambitions for a future hydrogen economy have been fuelled by three key events from the last decade.
After the 2016 Paris agreement, Andy recalls it took 2-3 years for people to recognise that green hydrogen was the only way highly emitting industrial applications such as cement making were going to decarbonise. “It did take a while for people to understand that electricity wasn’t going to work in these processes. Now, Bloomberg is forecasting that 20% of the world’s energy needs will come from hydrogen.”
Secondly, the Build Back Better ethos after the pandemic prompted efforts to make sure fiscal spending was aligned with government goals. “Hydrogen took a prominent position because people recognised that is where the jobs and opportunities of the future would be.”
The Ukraine war has increased the desire for national and regional energy independence and the need to ensure energy is readily available. Hydrogen can help solve this problem.
Countering the naysayers
Countering the argument that hydrogen is currently not cost-effective enough, Andy Marsh draws parallels from his experience in wireless communication. “Around 1993/94, the technology and costs were coming down, and there was a strong government push around the world for wireless communication. The same is happening with hydrogen today.”
He adds this time the push is also coming from consumers and from companies who are using green hydrogen to further their net zero goals. “The younger generation wants to buy sustainable products. They don’t want oil and gas… they want to buy from companies [that aim] to be net zero.”
The challenges that remain are mainly engineering and business-oriented rather than technology-related. “… new opportunities and areas…are becoming routine faster because we have been through such loops before.”
Looking at today and tomorrow
We believe companies making a genuine impact offer a real structural investment opportunity. For companies such as Plug Power, access at a project level to ‘patient capital’ from investors with a longer-term vision for the industry is critical. Andy Marsh: “We’re going to build plants by ourselves… with partners and… for partners… [So] they’re the kind of investors needed both in Wall Street and, hopefully, in Europe.”
He concludes: “As hydrogen drives the growth of the fuel cell industry, industrial applications will really [lower] hydrogen product costs, which will make them more competitive.”
Written July 2023
Disclaimer
Companies mentioned herein, are for illustrative purposes only, are not intended as solicitation of the purchase of such securities, and do not constitute any investment advice or recommendation.
Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
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