Home / Industry / Before you go looking for green hydrogen stocks, know these 10 things

A variety of solutions will be needed to achieve carbon neutrality by 2050. One of these is green hydrogen.

There is a growing international consensus that green hydrogen will play a pivotal role in the world’s transition to a sustainable energy future.

And while this transition is yet in the nascent stages, it is quickly turning into an investing megatrend. It has come to a point that economic progress over the next century, may just be defined by climate investments. This bodes well for the companies leading the green hydrogen race.

But what is green hydrogen? What sets it apart from the other clean energy alternatives? Why is India investing so heavily in green hydrogen

So, before you go looking for the potential multi-baggers in the green hydrogen sector, let’s understand green hydrogen better.


#1 The hydrogen colour spectrum – grey, blue, and green

Hydrogen is invisible, so why are there so many colourful descriptions used when referring to it?

Hydrogen is classified into three different categories of grey, blue, and green - each referring to how it is produced. 

Presently, it’s mainly produced industrially from natural gas, which generates significant carbon emissions. That type is known as “grey" hydrogen.

Next is blue hydrogen, which is just a cleaner version. The carbon emissions emitted from this are captured and stored or reused. 

However, there are some controversies around blue hydrogen because natural gas production inevitably results in methane emissions from the drilling, extraction, and transportation process, which is not environment friendly.

The cleanest is “green" hydrogen, powered by renewable energy sources without producing carbon emissions in the first place. And is the top candidate to meet 25% of the world’s energy needs.


#2 Green hydrogen is made from water, chemically known as H20

Green hydrogen is not a newly discovered or invented element. It is the same hydrogen that is on our periodic table, only produced differently.

You see, 95% of the hydrogen widely used and produced today through a process called “steam methane reforming". This process uses a catalyst to react with methane (such as natural gas) and steam to produce hydrogen.      

However, along with hydrogen, it also produces massive amounts of carbon monoxide and carbon dioxide.

This has pushed companies to adopt environmentally conscious methods of producing hydrogen. 

Enter green hydrogen. Unlike the grey hydrogen generated from methane, green hydrogen is generated through a process called electrolysis, which splits water (chemically known as H2O).      

Moreover, it packs in a harder punch than fossil fuels. However, at the moment, less than 0.1% of hydrogen is made this way. 


#3 It contains almost three times as much energy as fossil fuels

Pound for pound, hydrogen packs in almost three times as much energy as fossil fuels. This means less amount of hydrogen is needed to do any work.      

And as we know, when burnt, it produces no harmful emissions — only water vapour.


#4 Green hydrogen, like grey hydrogen, is versatile but environment friendly 

Grey hydrogen is light in weight and easy to store. It is an energy carrier and can be transported as a gas by pipelines or in liquid form by ships, much like liquefied natural gas (LNG). 

Unlike batteries that are unable to store large quantities of electricity for extended periods, hydrogen can be stored in large amounts for a long time.

It can also be produced from a wide range of sources such as renewables, nuclear, natural gas, coal, and oil anywhere where there is water and power through electrolysis. 

But green hydrogen is all of this and more. It can be produced with no direct emissions of pollutants or greenhouse gases. This makes green hydrogen a truly versatile element and scalable for use in different applications.


#5 Not just vehicles, but you can eventually fly planes using green hydrogen

Green hydrogen carries the potential to transform a myriad of industries. 

It can be converted into electricity and methane to power homes and feed industry, and into fuels for cars, trucks, ships and planes. 

Companies across the world are already experimenting with various use cases. China, hoping that the technology for hydrogen-powered vehicles will mature, has announced it aims to produce 1 m fuel-cell vehicles by 2030.

Airbus recently launched a program to test hydrogen combustion technology on an A380 platform and is optimistic about the technological readiness of a hydrogen-combustion propulsion system by 2025.

But this is not the first time people have thought of powering a plane with hydrogen. Back in the 1950s, it was used in a top-secret project in the United States. 

But hydrogen lost to the race to kerosene due to inadequate infrastructure and storage issues. Besides, kerosene (traditional aviation fuel) was inexpensive. 

This brings us to our next point.


#6 Green hydrogen is expensive to produce

The adoption of green hydrogen as an everyday fuel faces two primary issues: the lack of infrastructure and the cost of production.      

The technical issues, such as the development of the infrastructure needed to store and distribute hydrogen on a large scale, are surmountable. Every year 70 m tonnes of hydrogen is shipped around the US alone. 

So as of today, there is no dearth of infrastructure as of today. Moreover, the element can bank on the existing pipeline infrastructure across the world.

The bigger problem is cost. Hydrogen currently costs three times as much as natural gas in the US. And that is just the conventional hydrogen also referred to as grey hydrogen.

Green hydrogen is far more expensive. International Energy Agency (IEA) puts the current cost of green hydrogen at US$3-8/kg, compared to US$0.50-1.70/kg for grey hydrogen.

This is partly because the electrolysers used in the process are expensive. Apart from that, the operating costs also burn a hole in the pocket. 

Electricity is by far the biggest variable operating cost when breaking down capital versus operating expenses for electrolysers. This is because the energy required to break the water molecule is immense. And so are the costs of producing it.

Therefore, there is an urgent need to demonstrate key hydrogen technologies. We have to make ensure they reach commercialisation at the earliest and are ready to deliver CO2 emission savings at scale by 2030.      

But from what we can see, things are moving in the right direction. 


#7 The production costs are deflating

NEL ASA (Norway), the world’s largest producer and manufacturer of electrolysers by revenue, believes that green hydrogen production costs can match those of fossil fuels as early as 2025.

A primary deterrent to the affordability of green hydrogen is the high electricity costs, that accounting for anywhere between 45-75% of the total production cost.      

However, declining costs for renewable electricity, in particular from solar and wind, can change the dynamics faster than we can imagine.

IEA posits that the cost of producing hydrogen from renewable electricity could fall 30% by 2030 led by declining renewable energy costs and the scaling up of hydrogen production. 

According to Niti Ayog, India’s economic think tank, 98% of hydrogen is currently produced from fossil fuels (natural gas – 71%, coal – 27%). However, in the last decade, the number of electrolyser projects has jumped from 40 to 100, amounting to an increase in their capacity from 2 MW to over 200 MW in 2020. 

If we keep at it, green hydrogen can eventually replace fossil fuels.


#8 Green hydrogen can help  decarbonise some of the most carbon-intensive industries 

Once we have the costs under control, green hydrogen's versatility can compete with fossil fuels on equal grounds. Its lightness and ease of storage can decarbonise some of the most carbon extensive and tough to decarbonise industries.      

These include chemicals, refineries, and steel. 

The government wants to make it mandatory for industries (starting with fertilisers and oil refining) to use green hydrogen for a big chunk of its overall energy requirements.  It then aims to become a green hydrogen exporter.

India's top refineries have already rolled out aggressive plans to invest in green hydrogen. 

Adani Enterprises has reported a massive investment of US$70 bn to become a green hydrogen giant in the country. 

IOC, one of the largest producers of hydrogen with conventional carbon-intensive method is targeting to convert 5% of its existing hydrogen to green hydrogen by 2028 and 10% by 2030.      

Larsen & Toubro and Oil India has already commissioned green hydrogen plants earlier this year and plan to invest more.

In the steel sector, the JSW group has collaborated with Australia-based Fortescue Future Group to use green hydrogen to decarbonise its operations.


#9 Green hydrogen could meet a quarter of the world's energy needs, bringing us closer to our environmental targets

Switching to g reen hydrogen has become a top priority for countries world over. This is led by the fact that 95% of the hydrogen today also produces 830 m metric tons of carbon dioxide (CO2) emissions every year (roughly the same as the UK and Indonesia’s annual emissions combined). 

This has made the transition to green hydrogen an increasingly important piece of the net zero emissions by 2050 puzzle. 

A hydrogen economy powered by vast amounts of renewables could meet a quarter of the world’s energy needs by 2050.

It could also lead to modest reductions in CO2 emissions in comparison to renewable energy sources, electrification of transportation etc. 

But the transition is going to be slow and will require the world to join hands.


#10 The world is after it

Green hydrogen's fundamental role in decarbonising industries has garnered the attention of governments all around the world.      

     Europe and the US are spearheading these efforts and are the main contributors to this increase, with Europe nearly doubling its expenditure.

The EU plans to invest US$ 430 b     n in green hydrogen by 2030, while countries such as Chile, Japan, Australia, and Saudi Arabia are all making big investments into technology.

Portugal, too has vowed to produce green hydrogen by the end of this year, eventually changing its paradigm to become an energy-exporting country. India is also in the race to become a green hydrogen exporter.

Apart from these individual national efforts, the countries are coming together to support this movement. 

In May 2022, the G7 launched a Hydrogen Action Pact to accelerate the ramp-up of low-emission hydrogen, technology development, and the shaping of regulatory frameworks and standards.


In conclusion

Green hydrogen has enormous potential. It plays a prominent role in decarbonising heavy industries by replacing natural gas and storing renewable energy. 

The demand for green hydrogen for applications such as refineries, fertilizers, and city gas is to extend up to 2 m metric tonne per annum by 2030. This is in line with the nation’s green hydrogen mission. This calls for investments upward of US$60 bn.

However, hydrogen is still far from being a commercially viable fuel source.    These laudable developments still are below what is needed to get on track with the net-zero emissions by 2050 scenario. 

The industry needs to reduce costs to match up to fossil fuels and other emerging technologies like battery storage.  It also needs to act fast on creating demand for low-emission hydrogen. 

So, while hydrogen could become a key element of 100% renewable energy systems, it needs the right policy and regulatory framework to stimulate private investment in hydrogen production in the first place.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. 


This article is syndicated from Equitymaster.com


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