Political hot air lifts hydrogen stocks: here's how to profit

Imagine a future where your kettle, your washing machine, your plug-in car and “the whole lot of them will get their juice cleanly and without guilt from the breezes that blow around these islands”, as Boris Johnson invited his audience to do at the virtual Conservative party conference earlier this year. Imagine Britain as the Saudi Arabia of wind. Imagine wind power propelling this country to “commercial greatness” again, just as it once puffed the sails of Drake and Raleigh and Nelson. Imagine a future, post-Covid-19, when investment in new energy technologies has boosted the economy, created tens of thousands of new jobs, and helped the UK to meet its target of net-zero carbon emissions by 2050. It’s easy if you try, no doubt. But though you may call the PM a dreamer, he’s not the only one. Europe and China have committed to similarly bold plans, as have Saudi Arabia, Japan and Korea; the US seems likely to too, now that Joe Biden is on his way to the White House. Investors have been placing their bets: the S&P Global Clean-Energy Index has climbed by over 70% since the start of this year. 

From vision to reality

Johnson was expected to announce further steps in his green revolution as MoneyWeek went to press, including bringing forward the ban on new cars powered by fossil fuels. But the wind blowing around these islands, not to mention the hot air issuing forth from Conservative podiums, will not be enough on its own to keep the lights on. As The Times points out, progress has already been made towards the goal of decarbonising electricity networks. But to make further progress towards the government’s legal commitment to net zero by 2050 will require additionally decarbonising heavy industry, transport and heating. Electricity, however, no matter how cleanly produced, is not up to the job of smelting iron or lifting jumbo jets. 

That means hydrogen will have to play some role in Johnson’s plans. Its potential as a clean fuel has long been recognised – it is the most abundant element in the universe and the only waste product produced when it is used as fuel is water – and it is indeed already in use in a number of pilot projects around Britain. It fuels buses in London and Aberdeen, and ferries in Orkney. Trials of hydrogen-powered trains have begun, and the Tees Valley is set to host the UK’s first hydrogen transport hub. Earlier this year the world’s first hydrogen plane took to the skies over Britain – a first step towards commercial flights by 2023, it is hoped. ArcelorMittal Europe aims to produce its first “green steel” using hydrogen technologies this year. 

The obstacles that remain before hydrogen’s full potential could be realised – and the hoped-for “hydrogen economy” replaces our current one running on fossil fuels – remain considerable, however. Hydrogen, although abundant, is not found just lying around in pure form. Most of the hydrogen produced in Britain is manufactured by burning fossil fuels. It is possible to produce “green” hydrogen instead, by electrolysing water using renewable energy, but costs remain prohibitive. Still, as The Times notes, it’s “probably right” that Johnson “not lose sight of the long-term prize” here. Renewable energy costs have tumbled over the past decade; the cost of green hydrogen is likely to do so too. And other countries, including Germany, China, Japan and the US are investing in the technology. Goldman Sachs estimates that green hydrogen could be a $10trn global market by 2050, driving investments in renewables, electrolysers, pipelines and storage. 

The challenge, as Dieter Helm, a professor at Oxford University, points out in the Financial Times, is of turning the grand vision into a reality. “The energy scene is littered with the debris of grand visions and bold initiatives,” he says. The PM has, for now, merely added to it. If the rhetoric is to be transformed into something of substance, action is urgently required. The UK’s coal industry is now “effectively closed and the nuclear fleet is ageing”. The long-promised energy white paper “must be delivered and decisions taken. Otherwise, the lights might go out and the carbon targets be missed”.

Hydrogen might well be one of the key planks on which to build a proper energy policy “after two decades of dither and uncertainty”, and Johnson is “good at willing the ends, if only vaguely”, says Helm. But Johnson must also will the means: ensuring appropriate infrastructure is in place and providing an appropriate regulatory and institutional infrastructure, for example. Doing all this and more would be a “great legacy for the prime minister” – assuming he will act “and pay for it too”. As an FT editorial points out, Germany has already set out a recovery plan with an estimated €40bn of detailed green measures. France has pledged almost a third of its €100bn recovery fund to green investments, including hydrogen. All this is a “far cry from what the British government has announced so far”.

To read the whole of this article, subscribe to MoneyWeek magazine

Subscribers can see the whole article in the digital edition available here