Is green hydrogen the ultimate solution to the climate problem?

Now that we’ve made a start on the journey towards a climate-neutral energy system, hydrogen is increasingly coming into the picture as a source of energy for the future. And that creates opportunities for investors.

Europe regards green hydrogen as an important element in the Green Deal which is intended to make the EU climate-neutral by 2050. ‘To evolve towards a climate-neutral energy system, we need to eliminate the CO₂ emissions that result from burning fossil fuels. The electrification of our economy is an important piece in the puzzle; the rollout of electric vehicles is a good example. But not all applications lend themselves for electrification – large-scale industrial processes, for example. And that’s where hydrogen comes into the picture as a potential miracle cure’, says Joris Franck, Materials sector analyst at KBC Asset Management.

Green hydrogen has the great advantage that burning it produces no CO₂. ‘In principle, it’s also possible to store hydrogen for long periods, enabling energy supply and demand to be balanced across the different seasons’, says Freddy Van Bogget, Innovation Manager at KBC Group. Hydrogen thus offers an alternative to renewable energy from wind and solar power, production of which is dependent on the natural elements. Franck: ‘Hydrogen has the potential to become the great all-rounder of the modern economy.’

Hydrogen is a remarkable element in the periodic table. It is the most commonly occurring and lightest chemical element on earth. It never occurs in pure form in nature, but always binds to other chemical elements. So hydrogen gas is something we have to produce. There are two ways of doing that. One is to heat natural gas under high pressure. That produces hydrogen, but also CO₂, which can of course not be the intention for a green energy source. But you can also generate hydrogen by electrolysis: passing a current through water releases both hydrogen and oxygen. And if the current is generated using renewable energy, that means you get green hydrogen.

Despite its great potential, green hydrogen is not yet produced on a large scale, because it requires an enormous amount of electricity. We simply don’t have enough renewable energy to do that today. Van Bogget: ‘There’s still a long way to go before hydrogen can be deployed on a large scale. We’re only just taking the first steps.’

There’s also an economic reason. Franck: ‘Producing green hydrogen is currently much too expensive. That cost can only reduce if it can be produced at sufficient scale, which is not yet the case. In the early phase, governments will therefore have to support the sector with subsidies. Once production has been scaled up sufficiently, it will become economically viable. It’s the same story as we’ve seen happen with solar panels.’

‘Several companies in different sectors are focusing on hydrogen. That can offer interesting investment opportunities’, says Franck. In the first instance, the equity analyst is thinking about producers of renewable energy. ‘That production really has to step up several gears in the coming years in order to meet the growing demand from the hydrogen sector.’

Another subsector in the hydrogen universe comprises chemical companies that are using their know-how to develop the hydrogen economy. And then there are the producers of appliances which are used to produce hydrogen or the fuel cells needed to convert hydrogen into electricity. ‘A whole new energy sector is unfolding. Investors can profit from that’, concludes Franck.