Is Hydrogen Investing for me?

Many governments and organisations have made hydrogen part of their strategy to achieve a net zero carbon economy and the European Commission has pledged to double existing hydrogen infrastructure funding in Europe. The UK government is aiming to generate 5GW of low-carbon hydrogen production capacity by 2030 (a typical nuclear reactor produces 1GW of energy), and develop the first town heated entirely by hydrogen by the end of the decade.

Hydrogen is an excellent store of energy and it is far more efficient as a way of storing energy than batteries. You can use it in boilers to heat homes, or to run gas turbines and engines.

But there are different categories of hydrogen:

  • “Grey” hydrogen is made from natural gas produced through coal.
  • “Blue” hydrogen uses the same process as “grey” hydrogen, but includes carbon capture and storage in the process.
  • “Green” hydrogen is created when renewable energy is put into an electrolyser, which uses electrolysis to split water into hydrogen and oxygen.

Green hydrogen is the attractive, poster-child of the hydrogen production industry.

It cannot be denied that the development of hydrogen has been a result of climate change and dwindling fossil fuel reserves. Fossil fuels are much more economically efficient at present, and over the last century or so, we have created the infrastructure needed to run the global economy on fossil fuels, but we cannot continue this way.

The development of hydrogen is vital for the future of economies, but, despite this, it will still need a lot of government support. It seems likely that the future will bring tax incentives and other government initiatives to bring growth and innovation to the hydrogen energy market.

Companies can benefit from the hydrogen opportunity in a variety of ways – for example, by manufacturing electrolysers and fuel cells, by distributing hydrogen, or by converting existing natural gas infrastructure to hydrogen, all of which will lead to sustainable profits in the future.

This means that by investing in these companies, you can also gain access to potential, long-term gains. But how do you invest?

Unfortunately, our research shows that it is very difficult to invest at the moment. However, as time passes, there may be more opportunities available, particularly in the chemicals industry, which has the experience and infrastructure to handle gas on a large scale, in the conversion of household boilers, and in the transport sector.

Although there are few hydrogen investment opportunities available, for those who don’t mind a gamble, it is not impossible to invest. It is possible to invest directly in the shares of companies which have been involved in providing clean hydrogen and zero-emission fuel cell solutions, and the last few months has seen the launch of a couple of Exchange Traded Funds (ETFs) in the UK. These funds consist of companies from around the world that are actively engaged in the hydrogen economy. Investing in an ETF gives you exposure to your desired sector or theme, whilst reducing your risk by spreading your money between a wide range of companies.

Any increase in the production of green hydrogen requires an increase in the production of renewable energy. It’s much more straightforward (but still very risky) to invest in renewable energy, with a wider range of funds available to investors. We’d suggest that this is probably where you should start, if you want to invest in hydrogen, but you should only do so cautiously, after taking advice.

Oliver Wise

This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of investments may go down as well as up and you may get back less than you invest.

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