With COP26 underway in Glasgow this week, countries are being asked to come forward with ambitious 2030 emission reduction targets and roadmaps to achieve those. Hydrogen is seen by an increasing number of countries as a strategic tool to achieve decarbonisation.

The Hydrogen Council believes that hydrogen could represent about 20% of global energy demand in the long term and represent a circa £2 trillion market. It’s no surprise then that a growing number of countries are making significant public investments. For example, Saudi Arabia announced last month its ambition to become the biggest supplier of hydrogen by 2030. We are also seeing oil majors pushing for hydrogen to become a green alternative.

As hydrogen is the most abundant chemical substance in the universe, the prospects for this alternative source of energy sound exciting. However, it is important to know that there are different types of hydrogen and not all in our opinion should be promoted.

Grey hydrogen

The cheapest way of producing hydrogen is to take a natural gas molecule (for the chemists, that’s a CH₄) and then, using a process called “steam reforming”, to blast the natural gas molecules with water molecules (H₂O). This splits the natural gas molecule to create hydrogen and CO₂ molecules with the latter by-product being released into the atmosphere.

Blue hydrogen

With the advent of carbon capture technologies, a major advancement has been made within the process of Grey Hydrogen. Carbon capture allows manufacturers to suck most of the molecules of CO₂ out of the air during the steam reforming process thereby reducing (but crucially not eliminating) the greenhouse gas emissions. Once pressurised, this captured CO₂ can then be stored geologically (far underground) where there is no risk of it entering the Earth’s atmosphere and contributing to climate change. The imperfection of carbon capture and the reliance on an existing dirty electricity grid means that while this is an improvement, it cannot continue into the long-term at scale.

The energy revolution

Over the last 20 years, the cost of generating renewable energy has fallen dramatically to the point where today, the marginal cost of bringing Solar PV and Onshore Wind projects online is below that of fossil fuels. That’s even when you adjust project costs to remove subsidies that currently benefit renewables. As this trend deepens and its impact reverberates around global energy markets, cheaper renewable energy has begun to unlock new ways of doing things which have historically not been economical. One such example is Green Hydrogen.

Green hydrogen

This is entirely different to Grey or Blue Hydrogen. Instead, it uses a process called electrolysis to break-down water molecules (H₂O) into their constituent parts. In practice, two electrodes are placed into the water and an electric current is then passed through resulting in hydrogen appearing at one electrode and oxygen appearing at the other. Until now, the problem has been that this process is incredibly energy intensive, and that Grey or Blue Hydrogen has been far more cost effective. It has however the potential to become a long term solution to help our societies achieve net zero targets.

Fad or future?

While the hydrogen industry has seemingly been on the cusp of a revolution for decades, the proliferation of cheap renewable energy is the inflection catalyst for which this technology has been waiting. For now, the industry is nascent and underdeveloped, but there are few opportunities to invest within listed markets. For this reason, we are excited for the technology and are excited by a small number of companies within our portfolios taking advantage of this new revolution. Here are some examples:

Ceres Power plc is a UK listed business with a division focusing on developing alternative fuel cells which can be run on hydrogen. The business also has a division which develops systems to carry out the electrolysis process which will produce green hydrogen.

Ballard Power Systems Inc is a US listed company that develops hydrogen fuel cell technology with a focus on the automotive sector.  Beyond road vehicles, the company also develops fuel cells for trains, marine applications and back-up power systems for critical infrastructure.

ITM Power plc is another UK listed company which focuses on energy storage and clean fuels. The company designs and manufactures products which generate hydrogen using only renewable energy and tap water.

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