When discussing sustainable investment, one sector meeting ESG criteria and holding significant promise is green hydrogen.
So, what is green hydrogen? Why is it crucial for the society? And how can one invest in this new resource? This article aims to provide a comprehensive explanation of what green hydrogen is and how to invest in it.
What is and how does green hydrogen work?
Hydrogen, an alternative to methane (natural gas) to generate energy, stands as the most abundant chemical element, constituting about 75% of the universe's mass. While it's prevalent in living organisms and substances like water, its existence as a gas on Earth is extremely scarce, comprising less than one part per million in volume.
Hydrogen can be produced from a variety of resources, such as natural gas, nuclear energy, biogas and renewable energies, such as solar and wind. The challenge lies in utilising hydrogen on a large scale for powering homes, industries, and businesses efficiently. Infrastructure development, storage solutions, and cost-effective production methods are crucial to harnessing hydrogen's potential as a widespread energy source.
The importance of hydrogen is gaining recognition due to its potential as a clean energy carrier especially in reducing greenhouse gas emissions. When produced from renewable sources, such as wind or solar energy, it is known as green hydrogen.
Global demand for hydrogen has been increasing, driven by efforts to decarbonise industries like transportation, manufacturing, and energy production”
Uses of green hydrogen
Hydrogen has diverse applications across industries. Historically, its primary use has been in industries such as oil refining, chemical production, and manufacturing processes. It's used as a feedstock in the production of ammonia, methanol, and other chemicals.
However, significant attention has been directed toward hydrogen's potential in the automotive industry. Hydrogen fuel cell vehicles (FCVs) are one of the most prominent examples. These vehicles use hydrogen as a fuel and produce electricity through a chemical reaction in a fuel cell, powering the vehicle's electric motor. They emit only water vapour as a byproduct, making them environmentally friendly.
Generating electricity through green hydrogen
Green hydrogen refers to hydrogen produced using renewable energy sources, such as wind or solar power, to electrolyse water, separating hydrogen from oxygen. This process results in clean, sustainable hydrogen without emitting greenhouse gases.
There are two primary methods to produce green hydrogen: water electrolysis, which uses electricity to split water into hydrogen and oxygen, and steam methane reforming where hydrocarbons react with steam. The latter method, although less common, can also be made sustainable if the carbon emissions are captured and stored. Once produced, green hydrogen can be stored and used in various ways. One common application is using hydrogen in fuel cells to generate electricity.
One of the essential aspects of transitioning to clean energy involves not only using clean sources but also having the ability to store excess energy for times when demand is higher than immediate production. Green hydrogen storage has emerged as an increasingly attractive option for this purpose.
Renewable energy sources like solar and wind often generate more energy than is immediately needed. This surplus energy can be utilised through electrolysis to produce green hydrogen. Electrolysis converts the excess renewable energy into hydrogen gas, which can be stored efficiently in tanks for extended periods.
The stored gaseous hydrogen serves as an energy reservoir, and when electricity demand is high or when renewable energy generation is low, the hydrogen can be converted back into electricity through a process called Power-to-Gas (P2G). This process involves using fuel cells or other technologies to convert hydrogen back into electricity, making it available for use when needed.
Green hydrogen as car fuel
Green hydrogen has gained significant attention in recent years, especially since the pandemic, due to its potential use as a fuel for cars and trucks. It presents a viable alternative to traditional fossil fuels like gasoline or diesel.
Using green hydrogen as a fuel for vehicles offers the prospect of zero-emission driving, reducing greenhouse gas emissions and lessening dependence on oil. Vehicles like the Hyundai Nexo, introduced in 2022, have showcased the feasibility of using green hydrogen as a power source for cars.
Despite these advancements and initial pilot tests, widespread adoption of cars and trucks powered by green hydrogen will likely take several years. Infrastructure development, including the establishment of refuelling stations, technological advancements, cost considerations, and market acceptance, are some of the factors contributing to this timeline, which is why investing in oil remains a top choice among investors.
Global production of green hydrogen
Considerable expectations rest on green hydrogen as a future alternative energy source. Current data, derived from the “Global Hydrogen Review 2022” by the International Energy Agency (IEA), indicates that global green hydrogen production marginally exceeded one million tonnes in 2022. However, looking ahead, the IEA projects a substantial increase.
By 2030, production is estimated to range between 16 and 24 million tonnes, with a projection to reach approximately 300 million tonnes before mid-century. While long-term projections are speculative by nature, this scenario represents a plausible, pragmatic, and adaptable transition.
UK: home to the most ambitious hydrogen projects in the world
The government has announced £4 billion in investment to kick-start a hydrogen economy and create over 9,000 jobs in the UK by 2030. The plan could cover 20-35% of the UK's energy consumption by 2050, lowering the demand and use of oil and gas.
Types of hydrogen: grey, blue, and green
The debate about hydrogen energy is receiving more and more attention. Something that used to be a niche raw material product is now at the forefront of decarbonising the world of transport and shipping.
Hundreds of billions of dollars are being invested in projects aimed at helping to achieve net-zero goals. In that context, let's take a closer look at the different options available.
The most common form of hydrogen is created from fossil fuels and the process releases carbon dioxide that is not captured. The process of creating hydrogen from natural gas is called steam methane reforming (SMR), in which high-temperature steam (700°C–1000°C) is used to produce hydrogen from a methane source, such as natural gas.
Steam reforming is endothermic, meaning heat must be supplied to the process for the reaction to take place. There is also a gasification process that uses coal as a feedstock, creating brown hydrogen, which releases carbon dioxide and can be put in the same category as grey.
Blue hydrogen uses the same process as grey hydrogen, except this time the carbon is captured and stored. This makes it much more environmentally friendly, but it carries additional technical challenges and a huge increase in cost.
Carbon capture and storage has been around for a while, with the technology being used by companies burning fossil fuels. The technology can capture up to 90% of the CO2 produced, so it's not perfect, but it's clearly a huge improvement.
When it comes to hydrogen production, blue hydrogen is often seen as a stepping stone from grey to green, and it has been shown to create divisions among industry professionals.
The utopian vision of the future is a net-zero world where all our electricity and fuel are produced from emission-free sources. That means a large-scale, global green hydrogen industry.
For hydrogen to be a significant part of the energy transition, clean-burning fuel must also be produced cleanly.
More and more, companies are producing “green hydrogen” made with renewable electricity that is used to split water into hydrogen and oxygen using a tool called an electrolyser. Plus, excess electricity can be used to create hydrogen, which is then stored as gas or liquid until it is needed.
The technology faces many challenges, but governments around the world recognise the potential benefits and develop policies to help drive adoption.
Instead of using fossil fuels, green hydrogen is produced through a process called electrolysis to split water into hydrogen and oxygen. If that process is powered by a renewable energy source, such as wind or solar energy, then it is said that the hydrogen is green.
And by the way, since to get the coveted green hydrogen, the blue liquid is essential, you may want to check out our article on investing in water, since it is a commodity that is highly correlated with hydrogen.
Why invest in green hydrogen?
The future is clean energy, or so the International Energy Agency (IEA) hopes. The autonomous intergovernmental organisation based in Paris set the goal of a net-zero economy by 2050, meaning that all greenhouse gases produced by human activity will be offset by emissions reductions and other activities that absorb carbon dioxide.
If there's one thing investors love, it's investing in the future. And, one way to invest in the future of clean energy is green hydrogen.
We have a long way to go, but the energy revolution has already started. Green hydrogen could provide up to 35% of our energy needs in the UK by 2050, helping to reduce emissions by around a third.
Here are some of the main reasons to invest in green hydrogen:
- 100% sustainable: Green hydrogen emits pollutants neither during combustion nor during production.
- Storing: Hydrogen is easy to store, allowing it to be used for other purposes and at different times than immediately after production.
- Versatile: Green hydrogen can be transformed into electricity or synthetic gas and used for commercial, industrial or other purposes.
How to invest in green hydrogen?
There are not many pure green hydrogen companies listed on the stock exchange, and those that exist are relatively new, so exchange-traded funds in hydrogen are more attractive at this time. Below, we will look at the different ways to invest in green hydrogen.
Green hydrogen stocks
Here are some stocks:
|Fusion Fuel Green
Here is more information about some of the selected stocks:
- Repsol, producer of green hydrogen: The company has already announced that it is among its strategic plans to lead the green hydrogen market in the Iberian Peninsula, and for this, it plans to invest more than EUR 2,500 million before 2030. In addition, it already has a project, together with Naturgy and Reganosa, to achieve a total production of 30,000 tonnes of renewable hydrogen, around 2025.
- Iberdrola: Together with Repsol, the other company aiming to lead the green hydrogen market in Spain (and part of Europe). It has more than 90 renewable initiatives and aims to reach EUR 15,000 million in investment thanks to partnerships with around 150 SMEs and large companies.
- Plug Power: a manufacturer of electrolysers and hydrogen fuel cells. That is why it seems to be well-positioned to take advantage of the growth in demand for hydrogen-powered vehicles. The firm announced an agreement to supply green hydrogen to Walmart (US supermarket giant) for forklifts.
- Fusion Fuel Green: It has projects in Portugal and Spain. The company sells its electrolyser technology to customers who want to produce their own green hydrogen. It also sells fuel from its own green hydrogen farms through long-term purchase agreements.
Green hydrogen ETFs
Another alternative is investing in green hydrogen ETFs. ETFs are exchange-traded funds that pool together a large number of companies, providing diversification benefits.
In fact, these ETFs represent a good investment opportunity for sustainable investment overall.
Let's see some of the green hydrogen ETFs in which you can invest:
|BNP Paribas Easy ECPI Global ESG Hydrogen Economy UCITS ETF
|L&G Hydrogen Economy UCITS ETF USD Acc
|VanEck Hydrogen Economy UCITS ETF
|Global X Hydrogen UCITS ETF Acc USD
Green hydrogen mutual funds
One of the few green hydrogen mutual funds is Carmignac Green Investment Fund, which focuses on these sustainable themes and whose portfolio positioning also incorporates assets related to green hydrogen.
Some other examples include the SBI Contra Fund – Direct Plan, or the SBI Contra Fund. They have an accumulated return of more than 20% in the last three years.
If you are attracted to the idea of diversifying into funds, you can consult our investment funds guide.
If you prefer to see the composition of a hydrogen index, we can find the E-Hygrogen North America Index (DE000SL0A2B7) with a return of 54.91% in the last year at press time. This index began trading in July 2020.
In short, there are multiple options for investing in green hydrogen. Keep in mind that ESG criteria in investment may help you to be more profitable, but also to contribute to a healthier and safer world while protecting the environment.
Learn more about investing in commodities
- Investing in commodities
- Investing in metals
- Investing in precious metals
- Investing in silver
- Investing in agriculture
- Investing in wheat
- Investing in copper
Advantages and disadvantages of investing in green hydrogen
Here are some of the main pros and cons of investing in green hydrogen:
|Advantages of green hydrogen
|Disadvantages of green hydrogen
|✅ 100% renewable
|❌ Very capital intensive
|✅ Many uses
|✅ With great potential for growth
FAQS about green hydrogen
How is green hydrogen obtained?
Green hydrogen is obtained from water using renewable energies. The process involves splitting water molecules (H2O) into oxygen (O2) and hydrogen (H2). Historically, hydrogen has been obtained from fossil fuels, which is now known as grey hydrogen.
What type of energy is used to produce green hydrogen?
To be called green hydrogen, it must be obtained from wind, solar, or nuclear energy.
What type of water is used to produce green hydrogen?
Right now, only fresh water can be used to produce green hydrogen, which represents an issue due to fresh water scarcity. However, over time, producers aim to use salt water purified in plants – a process that is very expensive for now.
When will green hydrogen be profitable?
According to the latest report from the International Renewable Energy Agency (IRENA), the cost of hydrogen production could be reduced by up to 80% in the long term. This, combined with the cost reduction of renewable energies due to efficiency, means that green hydrogen could be profitable around 2030.