GREEN HYDROGEN’S STRONG OUTLOOK FOR 2022

DEFIANCE ETFs | February 11, 2022

As we approach the end of the year, it’s a good time to look back at what 2021 brought for green hydrogen stocks, and consider analyst predictions for what we can expect for the year to come. In brief, things are looking good for hydrogen companies’ stock, both in the short term and the long term.  

“Nearly everything has doubled”

Overall, 2021 was a good year for renewable energy, despite the general economic low due to the pandemic. Deloitte analysts agreed that “In 2021, the renewable energy sector remained remarkably resilient, driven largely by strong core fundamentals combined with a supportive policy environment.“

It’s a year that saw more awareness of and commitment to sustainability, in the form of more companies and organizations setting clean energy and zero carbon targets, a rise in public and private sector investment in renewables and green hydrogen, and a surge of green hydrogen projects. 

By late 2021, 48 out of America’s 55 investor-owned utilities had set carbon emission targets, more than 40 countries have published or are developing a hydrogen strategy, and $11.4 billion has been made available globally for low-carbon hydrogen projects each year between now and 2030. In the US, over 70 renewable energy and climate-related state policies were enacted by mid-October 2021.

As a result, “nearly everything has doubled already this year in the world of clean hydrogen,” said Martin Tengler, lead hydrogen analyst at BNEF, adding “and we expect the momentum to continue in the months ahead.“

Public sector support races ahead

2021 could be the inflection point for investment in green hydrogen, not least thanks to President Biden’s landmark $1.2-trillion Bipartisan Infrastructure Framework (BIF), which includes $9.5 billion of funding to help advance clean hydrogen. The US Energy Secretary also announced a “Hydrogen Shot” program to lower the cost of hydrogen fuel, and Congress is considering hydrogen tax credits as part of the BBB Reconciliation Act.

Outside of the US, the German government began auctioning sites in the North Sea for green hydrogen production, and allocated close to €170 million for a number of green hydrogen projects. The EU’s Fuel Cells and Hydrogen Joint Undertaking (FCHJU) plans to roll out 45,000 fuel cell trucks and buses, 500,000 fuel cell light commercial vehicles (LCVs), 3.7 million fuel cell passenger vehicles, and 3,700 refueling stations by 2030. In the UK, £105 million has been earmarked to advance a low carbon hydrogen economy, with the goal of producing 5GW of hydrogen power by 2030.

Japan and South Korea each approved proposals to invest more than $100 million in hydrogen fuel cell technology development, plus Japan approved 2 projects worth up to 370 billion yen ($3.4 billion) to accelerate green hydrogen R&D and adoption. China’s carbon neutral policies caused the number of electrolyzers imported to double in 2021, and that’s predicted to quadruple in 2022.

Private investment is following suit

Public sector support encouraged the proliferation of investment in green hydrogen startups and projects, and boosted the price of green hydrogen stocks. India’s two richest men are competing to be kings of green hydro; Europe’s private investment house Ardian and Five Hydrogen built an investment platform to support clean hydrogen infrastructure stocks; and seven of America’s leading businesses formed Breakthrough Energy Catalyst, with the goal of advancing climate-smart technologies like green hydrogen.

Overall, there are more than 90 industrial green hydrogen projects under development worldwide. Public sector funding for green hydrogen amounts to at least $37 billion, and private sector investment is at least $300 billion, representing a significant rise in commitment over the past 12 months.

Green hydrogen costs are expected to keep dropping

Lowering the costs of green hydrogen production is key to sustained adoption, and the signs are positive. Currently, a kilo of green hydrogen costs around €3 to €5 ($3.4-$5.6) to produce in parts of the Middle East, Africa, Russia, the US, and Australia, and between €3 and €8 ($3.4-$9) in Europe.

It’s widely expected that costs will decrease swiftly until 2030, from which point the rate drop will be slower but continue through to 2050. ETC director Faustine Delasalle expects the price to drop below $2/kg by 2030 in most geographies, and as low as $1/kg in areas such as Australia which have very cheap renewable energy sources, a view broadly shared by PWC analysts.

…and green hydro production to keep rising

Since January 2021, hydrogen generators have almost doubled their planned turbine capacity and over the last 5 years, global electrolyzer capacity doubled to more than 300MW. Europe leads the way, but it’s expected that Australia will catch up within the next few years, and Latin America and the Middle East will rush to follow. 

Aurora Energy Research forecasts global hydrogen fuel production to rise by over 200GW, or more than a thousandfold, by 2040, with Europe alone increasing capacity from 200MW to 40GW by 2030. Part of the growth will be due to a jump in the average size of a hydrogen electrolyzer project, from 1-10MW today to 100-500MW by 2024. 

The IEA (International Energy Agency) is more optimistic, predicting that the 350 hydrogen projects currently under development could drive global capacity to 54GW by 2030, and to 8Mt in the same timeframe if other projects still under consideration are all actualized. 

Hydrogen projects keep breaking new records

2021 saw many headline achievements for green hydrogen stocks. Plug Power broke ground on its fourth US hydrogen refinery and announced plans to build a fifth, intended to be the world’s biggest, by 2024. Bloom Energy started testing the use of nuclear energy to create clean hydrogen, which could affect the future of hydrogen fuel production; ITM Power opened a new gigafactory in the UK; and August saw the first shipment of decarbonized steel made using green hydrogen.

Looking ahead, a number of projects have been announced that bode well for green hydrogen stocks. The construction company JCB signed a deal with Australian firm Fortescue Future Industries (FFI) to buy 10% of the green hydrogen it produces, and Spanish power company Iberdrola and Sweden’s H2 Green Steel announced a partnership to develop a green hydrogen facility with 1GW capacity by 2026.

Sinopec, China’s government-controlled oil giant, plans to establish a green hydrogen project in 2022, and the CCP also aims to build 1,000 hydrogen filling stations across the country. The Dubai Electricity and Water Authority (DEWA) will release its hydrogen strategy in 2022, and a Dh 50 million hydrogen pilot project to build a 300KW park is underway, while Egypt plans to launch its first hydrogen plant in November 2022.

Hydrogen markets keep looking up

Global hydrogen market forecasts naturally differ, but they all agree in predicting growth for the sector, with expected CAGR (Compound Annual Growth Rate) ranging from 5.4% over 9 years to 54.7% over 7 years, reaching figures that range from $2.94 billion by 2025 to over $219.2 billion by 2030. While figures vary, the trend is clear: the only way is up for the green hydrogen market. 

PWC’s analysis concludes that demand for green hydrogen will grow at a moderate yet steady pace through 2030, by which time the infrastructure should be mature enough for growth to accelerate more rapidly. Analysts envision a series of green hydrogen import and export hubs around the world to meet demand for up to 500 million metric tons of hydrogen per year. 

Deloitte shares this prophecy, with analysts predicting green hydrogen development to grow to keep pace with the demand for renewable energy that’s now coming from most market segments, as well as highlighting the key role played by the Biden administration’s vision to decarbonize the US economy. Utilities companies and much essential infrastructure also face the pressing need for resilience, which could include adoption of green hydrogen microgrids and private grids. 

Finally, at least one energy thought leader predicts that 2022 will be the year that Africa becomes a major green hydrogen player, with green hydrogen projects already under development in Namibia, Mali, Tunisia, Egypt, and South Africa. 

2022 looks bright for green hydrogen stocks

Hydrogen companies’ stock have benefited from a good year, and the signs look good for the coming year and beyond. Investors in hydrogen energy stocks will feel reassured by these indications of the strength of the market, while those who are still on the fence about investing in hydrogen might feel encouraged to take the plunge. 

One option for people who are uncertain about how to choose the best hydrogen stocks is to invest in a hydrogen ETF like Defiance’s HDRO, in order to spread their investment across a number of promising hydrogen fuel cell stocks, hydrogen fuel stocks, and other companies involved in this corner of the clean energy market.