Hydrogen is everywhere – literally and, for many investors and policymakers, figuratively too. Two of the long-term themes on which we focus are disruptive technology and sustainable resources, so we have been following these developments for some time too.
To help investors understand this complex and dynamic area, we have compiled our thoughts on some of the most frequently asked questions put to us on hydrogen. If there is anything else we can address, please let us know!
What is hydrogen technology and why are people now talking about it?
Hydrogen is used as a source of energy in a number of sectors and across a variety of applications. It has come to the fore recently as hydrogen-based technologies gain more traction in areas where electrification alone or other energy-storage technologies can’t compete on the path to decarbonisation.
Hydrogen currently feeds into many industries, from fertilisers to oil refiners, but we believe it has the potential to serve as an alternative heat source for many other heavy industries too. Furthermore, certain mobility applications – such as heavy-goods vehicles and industrial transportation – may increasingly adopt hydrogen-based solutions as they seek to cut emissions.
These expanded uses are supported by a combination of low-carbon government policies (particularly in Europe), technological advances, and cheaper components.
Can hydrogen become the dominant energy technology of the future?
Perhaps, but one challenge to overcome for that to happen is that the hydrogen economy is not yet truly clean. At present, according to the International Energy Agency, over 99% of hydrogen is made using fossil fuels. However, the ground is currently being prepared for hydrogen’s evolution into a green economy. To accelerate this transition, the cost of the electrolysers used to generate green hydrogen – that is, hydrogen that is produced solely with renewable power – needs to fall.
This is already in motion: the price of the wind and solar energy that will power the electrolysers has decreased by 70-90% over the past decade, according to Bank of America Research, while the cost of electrolysers has fallen by up to 50% in the past five years and is projected to become a further 40-60% cheaper by 2030. Cheaper green energy could then open the doors for the adoption of hydrogen across a wider variety of applications, so in time it could serve as a viable alternative to conventional sources of energy.
In investment rather than scientific or policy terms, what is the hydrogen economy?
In our view, the hydrogen value-chain can be split into three categories: production, from hydrogen producers to electrolyser manufacturers; distribution, which comprises hydrogen storage, transportation, distribution and infrastructure providers; and application (fuel-cell manufacturers and key industrial technology owners). Some integrated supply-chain players span more than one category.
In the near term, this value chain is likely to be focused on demand for green hydrogen from:
• industries that already consume hydrogen (such as fertiliser production and oil refining);
• industries such as cement, glass and steelmaking where hydrogen can be an alternative energy source; and
• long haul and industrial mobility applications such as heavy trucks, forklifts and potentially large passenger vehicles.
Medium- to long-term demand could then be sustained by other applications such as mass transportation, heating applications and power generation.
What is the potential size of the hydrogen economy?
Bank of America Research expects the hydrogen economy to be worth $2.5 trillion of revenues and $11 trillion in infrastructure potential by 2050. We believe the hydrogen economy is on the cusp of entering a multi-decade growth phase as the economics, technological innovation, and policy support start to converge.
In our view, the key contributors and early adopters in the first wave of growth will be those who are engaged in the production of green hydrogen, those pioneering technologies to make green hydrogen production more efficient, those playing a critical role in the hydrogen supply chain, and those catering to specific heavy-mobility applications.
How real is the policy support?
Governments around the world are already putting legislation and real money behind hydrogen. Joe Biden campaigned on a pledge to “rapidly commercialize” renewable hydrogen, the EU published a hydrogen strategy in July, in November the UK made “driving the growth of low-carbon hydrogen” the second of its 10-point plan for a ‘Green Industrial Revolution’, and China has plans to make Wuhan a ‘world hydrogen city’ by 2025.
What makes us think these statements aren’t just words? Put simply, along with improving economics and scientific advances, it is the determination by more and more countries and businesses to meet net-zero carbon goals. Electrification through clean energy and battery technology can only cater to certain applications to help take the world some of the way to net zero. Many areas of the economy – such as heavy-goods vehicles, shipping, and some aspects of heavy industry and home heating – will be hard to decarbonise with just those technologies. Hydrogen is the key to lowering emissions in industries where electrification alone is not enough.
How does hydrogen fit into the broader mix of green technologies?
Broadly speaking, we believe the clean energy industry can be divided into three key segments: clean power producers, clean power storage and distribution, and clean power applications. We think that clean power production shouldn’t be confused with power storage and distribution as these two areas, although closely interconnected, have different supply and demand drivers.