The Hydrogen Revolution Has Begun – Seeking Alpha




The Hydrogen Revolution Has Begun – Seeking Alpha.


The leader of the periodic table is poised to play an important role in decarbonizing the global economy – presenting a potential mega-theme for long-term investors.


The world’s most abundant element is starting to get a lot of attention. We believe Hydrogen is poised to play an important role in decarbonizing the global economy, thereby presenting a potential mega-theme for long-term investors.


Burning hydrogen to produce electricity generates only water vapor, helping reduce the carbon footprints of powerplants, buildings, vehicles and vessels. Spurred by the global net-zero carbon transition, the number of new hydrogen-project proposals grew to than 1,000 by the end of January 2023 from just 684 in May 2022.1 By Deloitte’s estimate, the market for “clean” hydrogen—including “blue” and “green” hydrogen—is expected to grow exponentially, to $1.4 trillion in 2050 from $160 billion in 2022.2


Broad adoption of hydrogen power likely will take time: Ironically, harnessing such a ubiquitous substance is difficult to do at scale. Making blue hydrogen—a product of compressed steam and natural gas—requires capturing the carbon emissions, while making green hydrogen involves splitting water molecules into oxygen and hydrogen, a process that demands plenty of electricity (derived from renewable power) and plenty of water.


Despite these production challenges, however, we believe hydrogen adoption could be at a critical inflection point. Global policymakers in the U.S., Europe and Asia—all aiming to achieve their net-zero climate-transition targets—have put forth a flurry of hydrogen-friendly initiatives and tax incentives. Indeed, the estimated value of subsidies made available for hydrogen-related projects has grown six-fold, to $300 bn, in just the last few years.


That’s why we believe select opportunities along the burgeoning hydrogen value chain could present attractive returns for keen-eyed, long-term investors.


For example, renewable energy leader NextEra Energy sees significant potential to invest over $20 bn in green hydrogen,3 which benefits from tax credits in the Inflation Reduction Act. Green hydrogen is expected to provide yet another avenue of clean energy growth in addition to wind, solar, and battery storage.


Air Products (APD) and Linde (LIN)—with more than 60 years of collective experience in producing, handling and transporting hydrogen—are upping their bets, too. Air Products said it plans to invest $15 bn toward hydrogen-related initiatives over the next three years; Linde, meanwhile, has a $3.2 bn backlog of signed clean-energy projects, including low-emission hydrogen production.4


While the hydrogen revolution is still in its early innings, all signs suggest to us that this transition is truly accelerating and should benefit from increasing interest and investor capital.


The leader of the periodic table is poised to play an important role in decarbonizing the global economy—presenting a potential mega-theme for long-term investors.


Sources: (1) Hydrogen Insights 2023, McKinsey, May 2023; (2) Deloitte’s 2023 Global Green Hydrogen Outlook; (3) The Most Valuable U.S. Power Company Is Making a Huge Bet on Hydrogen, WSJ, May 9, 2023; (4) NEOM Green Hydrogen Complex, Air Products; Investor Teleconference Presentation, 3rd Qtr, Linde, Oct. 26, 2023.


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