December 22, 2020

Is Hydrogen the Great Renewable Hope?

Institutional investors are wary of betting on the gas until it proves itself, as the technology is nascent. But its stocks are surging anyway.

Reported by Larry Light

Art by Harry Campbell

Hydrogen, the most abundant element in the universe, has tremendous promise as a renewable fuel that can replace carbon-based standards such as oil, natural gas, and coal. But, right now, it remains mostly a promise because the technology isn’t in place to put it into widespread use. Solar and wind power are far ahead.

That is about to change. Hydrogen is getting a lot of attention lately, in Europe and elsewhere, as governments and businesses gear up to make the gas cheaper, easier, and cleaner to use. Encouraged by forecasts that hydrogen could command as much as a quarter of the globe’s energy output by mid-century, investors are starting to take notice. This year, four US companies that specialize in hydrogen have enjoyed surges in their stock prices.

“Hydrogen is just getting started,” said John Mitchell, a partner at environmentally oriented Blue Horizon Capital, which just launched a green-energy exchange-traded fund (the Blue Horizon BNE ETF) that lists stocks in solar, wind, and other renewables—including the nascent hydrogen efforts, which are 7% of the portfolio.

Among many institutional investors, hydrogen at this stage is too experimental to commit money to, although they say it bears watching. Take the California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension plan and an ardent advocate of green energy investing. “The integration of hydrogen into the economy is a tremendous opportunity,” CalPERS said in a statement. But as it “currently is in an earlier stage of development,” the stuff is overly risky for the plan, it said.

Among renewables, wind and solar have established themselves firmly, even without government subsidies. Since 2009, the cost of producing solar power in the US has dropped by 90% and wind by 70%, a Lazard study found. What’s more, renewable-charged batteries, vital to store solar and wind power, have fallen in price by 87% over a similar period, says BloombergNEF (BNEF). Wind and solar are nearing the point where they can be price-competitive with fossil fuels.

Right now, though, hydrogen is nowhere near the others in price terms. In addition, producing hydrogen is dependent on government aid: Fueling equipment for hydrogen stations is eligible for a federal tax credit of 30% of the cost, not to exceed $30,000. Solar and wind producers find they increasingly don’t need any government help.

Making matters worse, a daunting 99% of hydrogen currently comes from fossil fuels, namely natural gas and coal. Alas, producing hydrogen from these sources generates greenhouse gases.

The goal is to find a way to cost-effectively make hydrogen from water, which eliminates the greenhouse gas issue; today water conversion to hydrogen costs three times what the carbon-based variety does to process. Encouragingly, the cost of producing so-called “green hydrogen,” the kind that comes from water, has dropped by more than half in recent years.

Once such problems are solved, hydrogen proponents say, there’s a ready market for the substance, which is more easily stored than solar and wind energy: It’s put into a tank, like propane, and often takes up less room than a battery would. Hydrogen could find uses powering heavy vehicles (small car are problematical), furnishing energy for industry such as a steel mill, and backing up the electric grid, an area that wind and solar target.

A Goldman Sachs report argued that such clean hydrogen, as a source for electric utilities, could be a $12.2 trillion global market by 2050. “Clean hydrogen addresses the tougher to de-carbonize emissions (industry, heating, heavy transport) that make up 20% of global GHG emissions,” Goldman contended, referring to greenhouse gas.

In the US, according to a McKinsey study, hydrogen could bring $140 billion in yearly revenue by 2030, along with 700,000 jobs. Plus, it could meet 14% of America’s energy needs come 2050.

Lighter Than Air, Buoying Hopes

The initial step in creating hydrogen power is to separate it from water, or coal and natural gas, using a device known as an electrolyzer. Hydrogen is transformed into electricity via what’s called a fuel cell.

The first one was crafted in 1839 by British physicist William Grove. As hydrogen is four times lighter than oxygen, it has been employed for decades to lift blimps. The National Aeronautics and Space Administration (NASA) depends upon hydrogen for power during space flights, since it doesn’t give off heat or pollution into spacecrafts.

But hydrogen also is combustible, as is gasoline. The difference is that hydrogen doesn’t burn as intensely, according to the US Department of Energy. “A number of hydrogen’s properties make it safer to handle and use than the fuels commonly used today,” the agency wrote in a 2017 report. Since the substance is nontoxic and is lighter than air, it poses less of a fire threat than petroleum products. Should it leak, the gas quickly dissipates. Unless it is in an enclosed space, like a blimp.

The cautionary tale about hydrogen is the 1937 Hindenburg disaster. This was a German airship, which was bringing passengers from Europe when it exploded while docking at Lakehurst, New Jersey. The hydrogen that kept the blimp aloft had a leak on the craft’s surface, and a “discharge of atmospheric electricity” ignited the gas, per History.com. Within almost 30 seconds, the airship was destroyed, and 36 of 97 people aboard were killed.

Isolating hydrogen and storing it is an energy-consuming process. Hydrogen fuel cells are currently far less energy efficient than batteries. Owing to their combustible nature, the fuel cells are also more dangerous. Hydrogen fans minimize that, saying that a crash in a gasoline-fueled car can bring an explosion from the fuel tank.

Nevertheless, hydrogen fuel cells can be recharged faster than batteries, as seen in cars: five minutes for a hydrogen-powered Toyota Mirai, versus 10 hours for a battery-run Tesla Model 3. That’s why it’s touted as an ideal propellant for large commercial conveyances like trucks and trains. A hydrogen tank would overwhelm a compact-sized car. But larger vehicles can travel several hundred miles on hydrogen. Certainly, a customer pays for the privilege. The Mirai costs about $60,000, compared to the Tesla, at about $38,000 (that’s before subsidies, in both cases).

Commercial Energy

Amid the hoopla that hydrogen has recently attracted, the quartet of US companies pioneering the gas’ commercial use have seen their stocks levitate faster than a blimp. They remain unprofitable, although some of their revenues have perked up. In contrast, top solar stocks have been churning out earnings over the past several years.

The biggest Wall Street winner is Plug Power, whose shares rose 10-fold this year. Its fuel cells run heavy equipment such as forklifts and delivery vans. The company has for several years had a deal with Walmart to power the retail chain’s vehicles. Plug Power also has 100 hydrogen refueling stations in North America and is building a green hydrogen plant, slated to open next year.

Meanwhile, Ballard Power Systems focuses on buses and boats, and its stock has increased 2.5 times. FuelCell Energy powers Toyota’s factory in Long Beach, California, and has seen its shares leap to $10 from $2. Bloom Energy, whose stock has tripled, actually attained positive free cash flow last year, although that proved temporary. One glitch has been its unsuccessful effort to make fuel cells to power homes. Instead, Bloom serves as a backup power system for factories and a storied Los Angeles convention venue, the Staples Center. The company didn’t respond to a request for comment.

This sector has its goats, however: Mainly Nikola, which makes trucks that run on hydrogen and also solar batteries. A short seller, ironically called Hindenburg Research, charged in September that the company had overstated the capabilities of its power sources. Management disputed that accusation, but its stock has fallen by two-thirds since.

National Plans

The US thus far hasn’t put forward any broad federal framework to promote hydrogen, and that aim has remained at the talking level in Washington. President George W. Bush remarked in his 2003 State of the Union that “the first car driven by a child born today could be powered by hydrogen and pollution free.” President-elect Joe Biden has proposed a $2 trillion program to combat climate change, calling for producing carbon-free hydrogen at the same cost as that of shale gas.

In the US, much of the governmental push has come from California, whose state Energy Commission plans to spend $230 million on hydrogen products by 2023. It has 40 hydrogen refueling stations, with dozens more under construction

Europe has far more ambitious plans to expand hydrogen’s scope. The European Union has earmarked $558 billion for hydrogen development by 2050. One objective is 40 gigawatts in electrolyzer capacity by 2030. BNEF believes that will cut the cost of producing hydrogen by 60% to $1.50 per kilogram. Chile has a program to deliver the world’s cheapest green hydrogen by 2030. Japan has marshaled hydrogen to be ready for a massive electrical system failure.

“This is a multi-decade” undertaking, Blue Horizon’s Mitchell said, about building up hydrogen’s position in the energy arena. But the quest is worthwhile in a world threatened from fossil fuel’s harm to the climate, he added. “When you burn hydrogen, all you get is water vapor.”