Introduction
The whole idea of hydrogen economy is that you can source hydrogen from water and use it to produce an enormous amount of energy. The combustion of this process would only release water to the atmosphere. As a result, the exploitation of hydrogen technology can alleviate the over reliance on fossil fuels and potentially solve the problem of global warming. Hydrogen technology has been in discussion for around 20 years, but it has always been too expensive in terms of R&D spending and general implementation. Nevertheless, with the current concentration of investor’s eyes on the ESG investments, hydrogen technology can get a second wind in a not so distant future. This article will provide you with an industry outlook as well as an overview of one of the industry leaders, Plug Power.
The current state of the industry
To begin with, hydrogen can be extracted from fossil fuels and biomass, from water, or from a mix of both. Natural gas is currently the primary source of hydrogen production, accounting for around three quarters of the annual global dedicated hydrogen production of around 70 million tonnes. Gas is followed by coal, due to its dominant role in China, and a small fraction is produced from the use of oil and electricity. Unfortunately, only around 0.01% of global hydrogen production is sourced from water. This suggests that the cost of producing hydrogen currently is directly related to the prices of fossil fuels, which are now at a much lower price comparatively to the previous year.
Today, hydrogen is most commonly used in petroleum refining, fertilizer production, steel production and methanol production, but it has still not realized its potential to support clean energy transition. Hydrogen’s potential to de-carbonize many industries coped with unprecedented business and political momentum for clean energy, makes the hydrogen industry one of the most promising industries in the world. Some estimates suggest that the hydrogen industry can reach a market capitalization of $160 billion by 2026, while as of 2019 it was only around $117 billion.
Plug Power
One of the hydrogen stocks which can be considered a leader in the industry is the Plug Power (NASDAQ: PLUG). Despite the coronavirus outbreak, the stock price of this company has already grown by around 1220% since the beginning of 2020.
Figure 1, Plug Power, 1 year performance
This company can already be considered a strong market player due to its agreements with Amazon and Walmart. These giants use Plug Power’s cell technology to power the forklift. Hydrogen fuel cell which Plug Power produces are basically power generators which combine hydrogen and oxygen to produce electricity. The by-product of this process is heat and water. This technology can be potentially used to power anything from commercial vehicles to drones and can be extremely useful in the fight against climate change. One negative factor about the company which should definitely be mentioned is that it has been running out of cash quite speedily for the past few years. This can be explained by the fact that the company invests a lot into new projects and infrastructure. For instance, it has recently raised around $1 billion of capital in order to fund the construction of 4 green hydrogen plants in the United States. The first two of these plants are expected to start operating in 2022. In addition to this, the CEO of the company Andrew Marsh is confident that the company will be able to generate around $1.2 billion in revenue, which makes a $250 million in profit by 2024.
To conclude, it can be said without a doubt that the hydrogen industry is on the rise right now mostly due to the increasing amount of attention both from policymakers as well as investors all over the world. Stocks like Plug Power and many other companies in the hydrogen fuel industry are definitely worth taking a closer look at, as the technologies these companies are trying to capitalize on can become extremely profitable anytime soon.
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