14th Oct 2021
There’s been a lot of investor activity recently in the green/alternative energy sector, as stocks enjoy the effects of public anxiety about climate change and authorities pressure a switch away from fossil fuels. The Wall Street Journal reports that in Q1 2021, assets in investment funds with at least a partial environmental mandate reached $2 trillion globally, a threefold increase in three years1.
But even among climate-concerned investors, there’s still a lot of uncertainty about which green energy stocks to choose, particularly when it comes to hydrogen stocks and lithium stocks.
What are hydrogen stocks and lithium stocks?
Hydro stocks are involved in the production and/or distribution of hydrogen-based power, or in R&D to improve it. Hydrogen’s energy-dense nature supports long-duration discharge cycles, enabling it to capture excess energy and then release it later at times and places of peak demand. Hydrogen fuel cells are increasingly used in vehicles of all classes, including buses, heavy trucks, and ships; for backup power grids; and for residential use.
Like hydrogen, lithium is energy dense and can store fuel at times of peak supply for later release. Lithium stocks are involved either in the production of lithium-ion batteries (LIBs), or in the mining and refining of lithium ore. Lithium batteries are mainly used for electric vehicles and distributed energy storage, and are beginning to be adopted for large-scale grid-storage installations and as backup power for data centers.
There are hopes that both lithium batteries made by some of the best lithium stocks, and green hydrogen fuel cells, can help to replace fossil fuels, decarbonize certain high-polluting sectors, and cut emissions.
Lithium stocks may not be as green as they are portrayed
Despite the excitement around lithium, its green credentials are only significant when you compare them with traditional fossil fuels. While it’s estimated that the planet contains 43 million tons of raw lithium, only around a third of that is accessible. Lithium extraction involves evaporation from salt flats, which uses massive amounts of water with predictably terrible consequences for local wildlife. There are fears that the rush for lithium for “eco-friendly” cars will cause irreparable damage to fragile ecosystems.2 Alternatively, it can be mined in the form of spodumene (a lithium aluminium silicate), which has to be processed at very high temperatures using vast amounts of energy.3
Additionally, lithium batteries contain other minerals, specifically cobalt and nickel, which are mined in extremely problematic conditions. The majority of the world’s cobalt mines are located in the Democratic Republic of Congo (DRC) and are rife with human rights abuses.4
People are looking for ways to lower the environmental and human cost of lithium extraction. In Cornwall, UK, groups are exploring sustainable lithium mining, but it’s still under development and may not even prove to be practical on a large enough scale.
Attention has turned to recycling batteries, not least in order to prevent another environmental issue: the rising amount of landfill from disused batteries. The EU has set a goal of 45% of used batteries to be collected, but few of them are lithium-ion. LIBs tend to be built into their devices, making it difficult to remove and reuse them.5
Hydro stocks can be green through and through
In contrast, green hydrogen has a miniscule carbon footprint. Hydrogen power is derived from hydrogen molecules, which are present abundantly across the planet as water.
Hydrogen companies use electrolysis to harvest hydrogen molecules, store them in pressurized containers, and then pass them into fuel cells for release as energy. When powered by fossil fuels, the results are termed “gray hydrogen”, but hydrogen produced using fuel from renewable sources is “green hydrogen” and the only byproducts are clean water.
Hydrogen fuel cells are also more compact and faster to recharge than lithium batteries for EVs. A lithium battery for a 40 tonne truck weighs around 23 tonnes6, comprising 20–30% of their entire vehicle curb weight7.
Weight for weight, a hydrogen fuel cell elective vehicle (FCEV) can travel further on a single charge than a lithium EV, and recharge faster for the next journey. “For large vehicles like trucks, this could be a key benefit. Long recharge time and the frequent need to recharge are two key restrictions on the growth of battery-powered electric vehicles.” writes Motley Fool analyst Rekha Khandelwal.8
Additionally, while LIBs can deliver around 350 Wh/kg total cell energy at the beginning of their life, performance drops over time. “Unfortunately, this energy content is not sufficient to meet the automotive energy targets once this performance is converted to usable, pack end-of-life values,” note researchers at the Ford Motor Company.9
Hydrogen is attracting more public interest
A number of governments have already committed to investing in green hydrogen, seeing it as the best way to achieve their zero-carbon promises. For example, the Infrastructure Bill that was recently passed in the US includes provisions to advance hydrogen adoption, including funding for R&D to produce more efficient and lower-cost electrolyzers.10
The EU plans to deploy over 4 million hydrogen fuel cell vehicles, as well as 3,700 refuelling stations, by 203011, and cumulative investments in renewable hydrogen in Europe could reach €180-470 billion by 2050.12 Japan too has plans to use hydrogen power to achieve zero carbon by 2050, and recently announced the investment of up to 370 billion yen ($3.4 billion) to accelerate green hydrogen R&D and adoption.13
The World Bank has already recommended avoiding LNG bunkering in favor of hydrogen and ammonia fuel, as part of its zero-carbon shipping strategy14.
Hydrogen stocks and lithium stocks: are they both stable?
While lithium is primarily relevant in batteries for EVs and energy grid storage, green hydrogen has far more potential use cases. Lithium enthusiasts point out that as the cost of production falls, more use cases will open up, but these are still limited to transportation, back-up grids, and power balancing.15
“Experts generally agree that LIBs are going to hit limits. They are being installed for 4- to 6-hour storage applications, sometimes 8 hours, and someday may even aspire to 12 hours. But beyond that — for the weekly or even seasonal storage a renewables-based grid will need — some other technology or technologies will have to step in.” admits David Roberts, editor of Canary Media.16
In contrast, green hydrogen has use cases that include residential heating, grids, heavy transportation, planes and shipping, and industrial feedstock. An EU report concludes that “hydrogen can replace fossil fuels in some carbon intensive industrial processes [and] offer solutions for hard to abate parts of the transport system, in addition to what can be achieved through electrification and other renewable and low-carbon fuels.”17
That said, there’s still potential for investors in the best lithium stocks. The market for lithium-ion batteries is projected to grow to $100 billion in 2025, largely thanks to the rise in demand for EVs, and the global market for EV batteries alone is expected to reach close to $1 trillion by 203018.
Ongoing investment in lithium-ion battery production has increased manufacturing capacity and cut the cost by about 80%, making it more competitive19, but there are concerns that at some point, lithium supplies will run out. In May 2021, the International Energy Agency issued a warning about the supply of critical minerals for electric vehicles20.
At the same time, the hydrogen market is taking off. The Bank of America believes that hydro stocks will generate $2.5 trillion in direct revenue and the total market potential could reach $11 trillion by 2050. The main downsides to hydrogen power are the cost, and the limited hydrogen infrastructure for FCEVs. But like with LIBs, the cost of hydrogen production is dropping rapidly, while investment in infrastructure is continuing apace.
A report from the California Energy Commission predicted that green hydrogen could fall to around $1-2/kg by 205021, and another source estimated that hydrogen fuel production costs will have dropped by 30% by 203022. Meanwhile, hydro companies are swiftly expanding the network of hydrogen refueling stations in the UK, EU, and US. Hydrogen supply is also rising, with the EU rolling out a plan to reach 2×40 GW of electrolyzers by 203023.
The energy market has room for multiple green energy stocks
Ultimately, it’s likely that the world will need both green hydrogen companies stocks and the best lithium stocks. Analysts predict that clean hydrogen could meet 24% of energy world demand by 205024, but that still leaves space for other alternative energy sources like lithium. If you’re wondering whether to invest in hydrogen or which lithium stocks to buy, a hydrogen ETF like Defiance HDRO offers exposure to a broad range of some of the potentially best hydrogen stocks with a single investment.
1 “Green Finance Goes Mainstream, Lining Up Trillions Behind Global Energy Transition” March 22, 2021 https://www.wsj.com/articles/green-finance-goes-mainstream-lining-up-trillions-behind-global-energy-transition-11621656039
2 “California’s electric car revolution, designed to save the planet, also unleashes a toll on it” July 21, 2021 https://www.latimes.com/politics/story/2021-07-21/californias-electric-car-revolution-designed-to-save-the-planet-inflicts-a-big-toll-on-it
3 “Lithium-ion batteries need to be greener and more ethical” June 29, 2021 https://www.nature.com/articles/d41586-021-01735-z
4 “The long road to sustainable lithium-ion batteries” July 5, 2021 https://www.chemistryworld.com/features/the-long-road-to-sustainable-lithium-ion-batteries/4013838.article
5 “Lithium-ion batteries need to be greener and more ethical” June 29, 2021 https://www.nature.com/articles/d41586-021-01735-z
6 “David Kempton: Hydrogen and EV stocks to supercharge portfolios” March 5, 2021 https://citywire.co.uk/funds-insider/news/david-kempton-hydrogen-and-ev-stocks-to-supercharge-portfolios/a1473925
7 “Opportunities and Challenges of Lithium Ion Batteries in Automotive Applications” January 29, 2021 https://pubs.acs.org/doi/10.1021/acsenergylett.0c02584#
8 “Should You Buy Fuel Cell Stocks in 2021?” January 4, 2021 https://www.fool.com/investing/2021/01/04/should-you-buy-fuel-cell-stocks-in-2021/
9 “Opportunities and Challenges of Lithium Ion Batteries in Automotive Applications” January 29, 2021 https://pubs.acs.org/doi/10.1021/acsenergylett.0c02584#
10 “Biden Details $2 Trillion Plan to Rebuild Infrastructure and Reshape the Economy” March 31, 2021 https://www.nytimes.com/2021/03/31/business/economy/biden-infrastructure-plan.html
11 Hydrogen Vehicle Market Forecast, Trend Analysis & Competition Tracking – Global Review 2021 to 2031 https://www.factmr.com/report/685/hydrogen-vehicle-market
12 “COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS” July 8, 2020 https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf
13 “Japan Sets Aside $3.4B for Hydrogen R&D” May 18, 2021 https://www.oedigital.com/news/487734-japan-sets-aside-3-4b-for-hydrogen-r-d
14 “The Potential of Zero Carbon Bunker Fuels in Developing Countries”, 2021, The World Bank, can be downloaded from here https://openknowledge.worldbank.org/bitstream/handle/10986/35435/158013.pdf?sequence=6&isAllowed=y
15 “Why lithium-ion batteries are so important” April 14, 2021 https://www.canarymedia.com/articles/why-lithium-ion-batteries-are-so-important/
16 “Why lithium-ion batteries are so important” April 14, 2021 https://www.canarymedia.com/articles/why-lithium-ion-batteries-are-so-important/
17 “COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS” July 8, 2020 https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf
18 Automotive Lithium-ion Battery Market: Global Opportunity and Trend Analysis, 2019-2030 https://www.rootsanalysis.com/reports/view_document/automotive-li-ion-batteries-market/273.html
19 “Opportunities and Challenges of Lithium Ion Batteries in Automotive Applications” January 29, 2021 https://pubs.acs.org/doi/10.1021/acsenergylett.0c02584#
21 “Roadmap for the Deployment and Buildout of Renewable Hydrogen Production Plants in California. CEC. Publication Number: CEC-600-2020-002” Reed, Jeffrey, Emily Dailey, Brendan Shaffer, Blake Lane, Robert Flores, Amber Fong, G. Scott Samuelsen. 2020. https://cafcp.org/sites/default/files/Roadmap-for-Deployment-and-Buildout-of-RH2-UCI-CEC-June-2020.pdf
22 “Hydrogen in aviation: how close is it?” October 8, 2020 https://www.airbus.com/newsroom/stories/hydrogen-aviation-understanding-challenges-to-widespread-adoption.html
23 “COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS” July 8, 2020 https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf
24 “COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS” July 8, 2020 https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf