Hydrogen company shares could be set to boom as Europe seeks to disentangle itself from Russia. Following the country’s invasion of Ukraine last week, Germany has finally cancelled the controversial Nord Stream 2 project, a pipeline set to supply Germany directly with Russian natural gas.
I think this will result in an accelerated transition to renewable energy production across Europe. This could potentially create room for hydrogen fuel companies to flourish, particularly as a replacement for natural gas.
The benefits of hydrogen
Hydrogen is an abundant and reactive element with a lot of benefits to its adoption. We can produce it without releasing carbon dioxide. (Green hydrogen comes from running water through an electrolysis machine). Like oil or gas, we can burn hydrogen for heat or run it through a fuel cell to create electricity.
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Hydrogen also acts as a store of energy. It must be pressurised and cooled but it can then be transported. Electricity loses energy the further it has to travel which is why we can’t power Europe with solar panels in the Sahara.
Use cases
One important use case is that hydrogen fuel could run industrial machinery. Electric cars function well enough on batteries, but heavier machines like buses, trucks, and diggers weigh too much. Just last year, JCB signed a multibillion-pound deal to supply green hydrogen to the UK, showing it recognises the possibilities hydrogen fuel offers.
Most importantly for the current moment, however, hydrogen could also be pumped into homes as a way to heat boilers and light gas stoves. Staffordshire university began mixing hydrogen into its gas supply back in 2020 and have seen no negative effects so far. The Energy Networks Association believes hydrogen could make up to 20% of all gas in the national grid by next year if policy makers are willing to make the switch.
Hydrogen shares
The UK has two home-grown companies that could exploit a sudden uptick in demand for hydrogen gas.
ITM Power manufactures the electrolysis machines needed to produce green hydrogen. The company announced several new expansions and partnerships over the previous year, but so far remains unprofitable. This doesn’t concern me too much at this stage. ITM has managed to consistently raise money without going into debt, showing a strong degree of investor confidence.
Another UK company I’d consider adding to my portfolio is AFC Energy. This Surry-based company manufactures the fuel cells needed to use hydrogen as a fuel. AFC has an advantage over its competitors because of a patent it owns on alkaline fuel cells. This new design can generate energy from lower purity hydrogen and is an innovation that could significantly reduce fuel costs for companies.
Unfortunately, AFC suffers from the same issue as ITM Power — unprofitability. However, I still believe it has great growth potential. I think once the demand for hydrogen increases, the market will be eager to find cost-cutting innovations like the ones AFC provide.
Final thoughts
There are a lot of risks in investing in companies like ITM and AFC. Hydrogen is not yet recognised as a highly valuable commodity. But current events in Europe have shown the important role renewables have to play. Not just for the green transition, but security.
Provided the companies can stay afloat over the coming years, hydrogen shares have the chance to explode in value. So I will be adding both ITM Power and AFC to my portfolio.
