Hydrogen over-hyped ?

The share prices of hydrogen fuel companies are flying higher than a hot-air balloon. But they might be about to fall out of the sky like they have in the past.

Definition

It is the lightest and first element on the periodic table. Since the weight of hydrogen is less than air, it rises in the atmosphere and is therefore rarely found in its pure form. (Source: Wikipedia)


Hydrogen is a clean (zero-emission) fuel that, when consumed in a fuel cell, produces only water. Today, about 95% of all hydrogen is produced from ‘steam reforming’ of natural gas. Steam reforming is a high-temperature process in which steam reacts with a hydrocarbon fuel to produce hydrogen. It can also be produced by separating water into oxygen and hydrogen in a process called electrolysis. (Source: energy.gov)


Below the BBC gives an example of how a ‘zero-emission’ hydrogen train would work:

How a zero-emission train works

 

The Story

There is a global push for ‘green energy’ with wind and solar energy forming a bigger part of national electricity grids and Tesla is leading innovation in battery technology to enable the wide adoption of EVs. Now there is a growing belief that hydrogen fuel cells will be a complimentary part of the green energy economy alongside lithium batteries.


In July this year, the European Commission unveiled a near-half trillion investment plan for the hydrogen industry. In August, UK supermarket chain Asda committed to buy hydrogen equipment for its forklift fleet from Plug Power.

 

Chart

Hydrogen company shares vs. the S&P 500 (year-to-date)

hydrogen stocks

 

Risks

We see two simple but serious risk factors for investing in hydrogen fuel technology in the stock market right now.


1) Valuations
As can be seen from the chart above, the share prices have already boomed. This is not to say they cannot go higher but the prices have become very detached from the fundamentals. Few of the hottest hydrogen companies shown turn a profit.


2) Lessons from History
20 years ago, a similar boom happened in the shares of hydrogen companies that ultimately turned out to be a bubble and burst. While Hydrogen has a lot of promise, the high cost and the un-green use of fossil fuels in hydrogen production meant it never took off. With no infrastructure in place to make hydrogen fuel use easy, consumer demand for hydrogen transport never materialised.

 

How to play it

Whether you're looking to ride the move up or position for a possible bust, the following instruments are tied to the Hydrogen sector.

 

Individual shares
NKLA = Nikola
CWR = Ceres Power
MCPHY = McPhy Energy
PLUG = Plug Power
BLDP = Ballard Power Systems
BE = Bloom Energy -
FCEL = Fuel Cell Energy

Alternative Energy ETFs
QCLN = First Trust NASDAQ Clean Edge Green Energy Index Fund
PBW = Invesco WilderHill Clean Energy
CNRG = SPDR Kensho Clean Power ETF
ICLN = iShares Global Clean Energy ETF
KARS = KraneShares Electric Vehicles and Future Mobility Index ETF

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