27th May 2022
December 2021 brought a stock market wobble for hydrogen energy stocks, as investors turned bearish in response to the spread of Omicron, but the underlying reasons for investing in hydrogen fuel stocks remain compelling. For those interested in this emerging technology, the dip could be a good opportunity to widen portfolios.
2021 has been something of a rollercoaster year for hydrogen fuel stocks. A roaring start to the year saw Plug Power’s stock price rocket up to 73.18 USD by January 25, a staggering 115% increase over the January 1 base rate, leaving the S&P 500 far behind as it climbed just 2.5% in the same period. By mid-May those gains had been wiped out, only to rally again by mid November to 31.4% over the January base rate. Of course past performance is no guarantee of future results; though the pattern was replicated elsewhere –
Bloom Energy showed a similar trajectory, as did Ballard Power Systems .
And then December came along, bringing with it another dip. Plug Power’s stock price dropped 27.6%1 over the course of December, while Bloom Energy’s share price dropped 20.3%2, and Ballad 16.5%3. So why the tank?
Hydrogen fuel cells are an emerging technology, and key players in the industry are often startups. The innovative character of hydrogen fuel companies means that they can grow their revenue much faster than the market average, making them growth stocks. However, this comes with drawbacks.
As growth stocks, hydrogen energy stocks are facing harder economic headwinds than more established companies precisely because their long-term success is more uncertain by nature. As hydrogen fuel technology is still in the early stages of implementation, most start-ups in this sector have yet to turn a profit, making investors skittish in more volatile markets – hence the recent dip.
December brought a new pandemic variant in the form of Omicron, and with it, economic uncertainty and a range of virus-containing policies that created drag on the economy. Further headwinds were forged by uncertainty over whether the Fed was about to raise interest rates earlier than expected, in a bid to contain high inflation. When this happens, investors typically favor bonds over stocks as a safer alternative.
A further blow was dealt to hydrogen stocks in particular, in the form of US President Joe Biden’s Build Back Better Act stalling4 in the senate, after Senator Joe Manchin (D-WV) confirmed5 he would not be voting in favor. The bill had earmarked more than $550 billion for environmental initiatives6, including $3.5 billion for conversion to electric vehicles, and $200 million for the provision of hydrogen fueling equipment through State Energy Programs, in addition to a range of tax breaks and other grants7.
Public and private investment in the industry remains strong
Despite these setbacks, investment in hydrogen fuel technologies remains robust, both in the public and private sectors.
While the Build Back Better Act appears to have reached a dead end, in November Biden signed the Infrastructure Investment and Jobs Act, which included a much more substantial $9.5 billion to advance clean hydrogen as a fuel source8.
November also brought with it the COP26 United Nations climate conference in Glasgow, where the mood was favorable to green hydrogen from government, producers, and industry consumers alike9. The conference saw the Green Hydrogen Catapult10, a private-public partnership launched in 2020, announce a commitment to develop 45 GW of electrolyzers with secured financing by 2026, with targeted commissioning the following year.
Electrolyzers are the leading technology for synthesizing green hydrogen, a zero-carbon fuel which uses renewable energy sources to split water into hydrogen and oxygen.
“We will already produce hydrogen below $2/kg within the next five years, and now we need to educate the heavy industry sectors and policymakers on the economic benefits of this new low-cost fuel, including benefits of reduced air pollution and other health and safety considerations,” commented11 Paddy Padmanathan, CEO of ACWA Power, a member of the Green Hydrogen Catapult.
Fellow member Julie Shuttleworth, CEO of Fortescue Future Industries, was in agreement. “We are not waiting. The time is now to build the green hydrogen industry,” she said.
Hydrogen fuel companies have had a good year
Players in the hydrogen fuel industry continue to be optimistic, forging ahead with deals that will secure revenue for years to come.
In mid December 2021, green hydrogen leader Plug Power announced that it had signed an agreement with Cretarus, North America’s leading transporter of compressed natural gas, to supply up to 10 tons of green hydrogen per day from its North American hydrogen production network, with initial deliveries beginning in early 202212.
“We are building out a green hydrogen ecosystem, with the goal to deliver 500 tons per day of green hydrogen by 2025 and 1,000 tons per day by 2028,” said Andy Marsh, CEO of Plug Power. “The partnership with Certarus is a meaningful step in building out the green hydrogen ecosystem to serve large energy sectors and in providing Plug Power the ability to flex and scale our overall delivery capabilities.”
The announcement was followed a day later by another, this time of a deal with Edison Motors, a leading Korean electric car manufacturer and Seoul’s largest electric bus manufacturer, to develop and bring to market a hydrogen fuel cell-powered electric city bus. The prototype is expected by the second half of 2022, with it’s launch coming in 202313.
Overall, Plug Power is projecting annual sales worth $3 billion in 2025, which goes some way to explaining why its share price has risen an astounding 2293.4% since 2017, against the S&P500’s rise of 105.9% in the same period.14
And the company wasn’t the only hydrogen fuel specialist signing deals in December. On the 16th, Bloom Power, Chantiers de l’Atlantique (CdA), and the cruise division of MSC Group together announced plans to build the world’s first cruise liner operating on solid oxide fuel cell technology, with Bloom agreeing to supply 150 kilowatts of Bloom fuel cells, reducing carbon equivalent emissions by up to 60%.15
Days later, Bloom Power announced that its technologies had been selected to power India’s first green hydrogen microgrid. “Reducing carbon emissions is the number one priority in the fight against climate change, and green hydrogen will be critical to India’s decarbonization objectives,” said Venkat Venkataraman, executive vice president and chief technology officer, Bloom Energy. “Bloom’s technology is well-positioned to help India transition to a net-zero, hydrogen-powered economy, and we are excited to collaborate with NTPC to bring the country’s first green hydrogen microgrid to life.”16
Hydrogen companies’ stocks remain a compelling investment opportunity
The economic contraction caused by the pandemic prompted the Fed to boost the economy by lowering interest rates, buying up bonds and increasing the cash supply, some of which was used to invest in stocks, driving up the market.
As they dial back on that policy, volatility is being created in the market. However, while it may be tempting to withdraw to the perceived safety of bonds or cash, riding the wave can offer greater reward in the long term.
“Anyone holding cash and bonds last year, those cash and bonds buy fewer goods and services than they used to, and that’s not going to reverse.” Lyn Alden, founder of Lyn Alden Investment Strategy told U.S. News17. “Cash can still be useful as a volatility reducer, as a way to rebalance back to risk assets when they have a correction,” Alden says, but she warned that cash is yielding below the inflation rate, meaning it’s losing value in real terms.
The bottom line is: if the reasons for investing in a new market are sound, turbulence along the way should be discounted as white noise. Governments around the globe are committed to net-zero carbon emissions by 2050, and to get there, will need to invest $4 trillion18 annually throughout this decade. That means the underlying conditions are ripe for both blue and green hydrogen technologies to thrive.
If you would like to invest in this exciting sector but are unsure where to start, Defiance’s EFT HDRO offers diversified access to this innovative space, allowing you to capitalize on the investment potential of clean energy. (See here for a list of HDRO’s holdings, some of which are included above)
4 Is President Joe Biden’s ‘Build Back Better’ plan dead? https://www.deseret.com/utah/2021/12/16/22839693/president-joe-biden-build-back-better-plan-dead-joe-manchin-mike-lee-mitt-romney-child-tax-credit
5 Manchin Statement On Build Back Better Act. https://www.manchin.senate.gov/newsroom/press-releases/manchin-statement-on-build-back-better-act
6 Apparent death of Build Back Better has climate scientists searching for a solution https://www.marketplace.org/2021/12/20/apparent-death-build-back-better-has-climate-scientists-searching-solution/
7 Hydrogen Forward Commends Inclusion of Hydrogen in the Build Back Better Acthttps://www.hydrogenfwd.org/hydrogen-forward-commends-inclusion-of-hydrogen-in-the-build-back-better-act/
8 Key Hydrogen Provisions of the Bi‐Partisan Infrastructure Plan https://www.orrick.com/en/Insights/2021/08/Key-Hydrogen-Provisions-of-the-Bi-Partisan-Infrastructure-Plan
9 COP26 Made Clear That the World Is Ready for Green Hydrogen https://rmi.org/cop26-made-clear-that-the-world-is-ready-for-green-hydrogen/
11 The Green Hydrogen Catapult Announces Expansion of World-Leading Green Hydrogen Deployment https://rmi.org/press-release/the-green-hydrogen-catapult-announces-expansion-of-world-leading-green-hydrogen-deployment/
12 Plug Power and Certarus Partner on Green Hydrogen Supply and Expansion of Distribution Infrastructure. https://www.ir.plugpower.com/Press-Releases/Press-Release-Details/2021/Plug-Power-and-Certarus-Partner-on-Green-Hydrogen-Supply-and-Expansion-of-Distribution-Infrastructure/default.aspx
13 Edison Motors and Plug Power Inc. Sign Agreement for Mass-Production of Hydrogen-Powered City Buseshttps://www.ir.plugpower.com/Press-Releases/Press-Release-Details/2021/Edison-Motors-and-Plug-Power-Inc.-Sign-Agreement-for-Mass-Production-of-Hydrogen-Powered-City-Buses/default.aspx
15 Bloom Energy, Chantiers de l’Atlantique, and MSC Chart a Course for Cruise Ships Powered by Clean Energy https://www.bloomenergy.com/news/bloom-energy-chantiers-de-latlantique-and-msc-chart-a-course-for-cruise-ships-powered-by-clean-energy/
16 Bloom Energy to Power India’s First Green Hydrogen Microgrid https://www.bloomenergy.com/news/bloom-energy-to-power-indias-first-green-hydrogen-microgrid/
17 How Fed Decisions Impact the Stock Market