Plug Power, the hydrogen and alternative fuel cell technology company, received a boost from investors who believe strongly in the future of the hydrogen fuel market, as JP Morgan upgraded the company’s rating. Plug Power reported a net loss of$476.3 million, and negative revenue of $316 million, in Q4 2020, which caused shares to drop in value. But JP Morgan’s head analyst Paul Coster upgraded the company from Neutral to Overweight and set a price target of $65.
The decision reflects a rising interest in hydrogen fuel as a significant alternative to fossil fuels and a more reliable option than other alternative fuel possibilities. Governments and the general public are displaying increasing concern about sustainability, climate change, and the impact of carbon emissions on both the environment and on public health. There’s a renewed demand for “green” alternative fuels that provide a similar level of reliability and power but with far lower levels of pollution, which is in turn driving investor interest in clean energy ETFs.
Hydrogen makes up about 90% of the earth’s atmosphere, so it’s present in huge quantities for fuel production. It’s usually found as part of a compound with other elements, most commonly in water, so the hydrogen molecules need to be separated and harvested through electrolysis before they can be used as fuel. The hydrogen molecules are stored and transported in pressurized containers, then transferred into a fuel cell such as those made by Plug Power, in order to release the energy as fuel. When the power for electrolysis comes from renewable energy, the hydrogen is “green” hydrogen with very few emissions.
Other green fuels such as wind, solar, and biomass energy can’t provide an energy supply that is consistent, sufficient, and cost-effective enough to replace a significant percentage of fossil fuel use. Electrification alone won’t reduce emissions sufficiently, and it’s not suitable for certain “hard-to-abate” use cases, like industrial manufacturing, which require molecule-based fuels. But thanks to its energy-dense nature, hydrogen has long-duration discharge cycles and can meet peak demand by collecting excess energy created at certain times or locations and distributing it elsewhere.
Analysts like Coster are convinced by the promise of hydrogen fuel for the long term and see any setbacks as temporary, which bodes well for patient investment in a fuel cell ETF. While acknowledging that Plug Power is a “high-risk investment” because the company is still at its beginning stages, Coster made it clear that the long-term potential of the hydrogen fuel sector makes this pullback an attractive buying opportunity. “Investors generally seem attendant to the risks associated with this company (particularly a potential rotation from momentum into value), but take the view that PLUG is a leading contender for meaningful share of [the] future Hydrogen economy, in 5 – 10 years,” said Coster.
Plug Power was founded in the US in 1997, and has dedicated years to R&D to develop viable commercial hydrogen fuel cell solutions, rising to become one of the leading purveyors and developers of hydrogen fuel cell technology. It’s one of the first enterprises to offer a commercially viable hydrogen power solution, beginning with hydrogen fuel-cell-powered forklifts for indoor use. Amazon, Walmart, Home Depot, BMW, and Whole Foods are among their customers.
The company sells hydrogen and green fuel cell engines to businesses that want to replace lead-acid batteries with a more environmentally friendly and efficient power solution. In 2014, Plug Power rolled out its turnkey hydrogen power solution, GenKey, which allows companies to reduce their carbon footprint while cutting operating costs and improving productivity. Plug Power offers care and maintenance for all its solutions through GenCare, its ongoing service program for fuel cells.
Today, Plug Power has a number of hydrogen solutions on the market, including GenDrive, which powers material-handling electric vehicles; the GenFuel system for delivering, storing, and dispensing fuel; and GenSure, which provides modular PEM (proton-exchange membrane) fuel cell power for backup and grid support to telecommunications, transportation, and utilities companies.
Plug Power has a number of strategic partnerships that are aimed at advancing the practical use of hydrogen fuel. It recently announced an expansion in its partnership with Universal Hydrogen to develop the first hydrogen-powered regional passenger aircraft, as part of its growing involvement in the aerospace industry. Air travel is a major polluting industry, and developments to lower emissions and make it more environmentally friendly are high on the list for Plug Power and for environmental campaigners. Plug Power have also formed a joint venture with Renault, the French car manufacturer, to develop hydrogen-powered light commercial vehicles.
Plug Power is also investing in hydrogen fuel infrastructure, with plans to build 5 regional green hydrogen facilities across the US. A state-of-the-art green hydrogen plant has been approved by the State of New York and is expected to provide 500 tons of green hydrogen per day by 2025. The fuel produced by the new plant will serve as a competitively-priced alternative to diesel for freight transportation purposes. A recently announced joint venture with Spanish company Acciona will advance hydrogen fuel delivery, storage, and use in Spain and Portugal, while collaborations with partners in South Korea aim to improve hydrogen fuel production and usage in Asia.
The hydrogen ETF Defiance Next Gen H2 (HDRO), recently launched by Defiance to track the rules-based BlueStar Global Hydrogen & Next Gen Fuel Cell Index, offers a way to invest in the burgeoning hydrogen fuel sector while mitigating the risk of overexposure to single one of the relatively new clean energy and hydrogen fuel cell stocks. JP Morgan’s recent decision demonstrates confidence in the future of the hydrogen fuel market, as the senior investment bank points to signs of long-term future growth and the disruptive and innovative potential in green hydrogen stocks.1
1BlueStar Global Hydrogen & Next Gen Fuel Cell Index tracks the performance of equities and companies that generate at least 50% of their revenue from developing hydrogen-based energy sources, fuel cell technologies, and industrial gases.