Hot air? Investors snap up hydrogen stocks in green frenzy

LONDON • An unprecedented rally in "green" hydrogen stocks looks set to extend as investors flock to firms that promise to produce the gas without using fossil fuels.

Hydrogen is Earth's most abundant element but is mostly extracted from fossil fuels, emitting carbon dioxide in the process. "Green" or clean hydrogen requires using electrolysis to split water into its components of hydrogen and oxygen and doing so cheaply is often described as the Holy Grail of green energy.

Share prices of companies in the industry have soared more than 500 per cent in the past year, driven by the rising adoption of zero-emission vehicles, a deadline set by many countries to go carbon-free by 2050 and lately United States President Joe Biden's support for clean energy.

Plug Power, Ceres Power and Fuelcell Energy, which make hydrogen fuel cell systems that power devices ranging from warehouse machines to cars, are leading that charge, jumping 400 per cent to 1,600 per cent in the last year.

"Hot money is flowing towards renewables and clean energy," said Mr Emmanuel Cau, head of European equity strategy at Barclays.

The European Union plans to scale up renewable hydrogen projects across polluting sectors with cumulative investments in renewable hydrogen in the region seen reaching up to €470 billion (S$755 billion) by 2050, the region's commission said.

That has fuelled the stocks of electrolyser makers - Norway's Nel and Britain's ITM Power.

ZeroAvia, a hydrogen plane start-up, last month secured US$37.7 million (S$50 million) in new cash via a funding round led by Mr Bill Gates' Breakthrough Energy Ventures and from the British government to support its bid to develop zero-emission aircraft.

The frenzy in hydrogen-related stocks has led to concerns about a bubble, with companies trading at extreme prices based on expectations that their revenue will surge in future, despite worries about possible headwinds for the sector.

Widespread adoption of hydrogen as fuel for cars is far from a given.

Toyota launched a new hydrogen fuel cell car in December, but it has largely failed to win customers over amid concerns about a lack of fuelling stations, resale values and the risk of hydrogen explosions.

The momentum behind electric vehicles may be another headwind, said Mr Jonathan Bell, chief investment officer at Stanhope Capital. "The problem with hydrogen is that sometimes when you have two competing systems, it's not the better technology that wins, it's the one that gets market share and the network effect first of all," Mr Bell said.

Some investors may avoid the sector altogether, after a similar burst of enthusiasm two decades ago proved short-lived, and much of the latest excitement around green energy is based on Mr Biden's policy plans, which are yet to be passed into law. But no bank is ringing the alarm bells, yet.

JP Morgan analysts advised long-term investors to take advantage of any price pullback and "take an unorthodox approach to valuation..." - in other words, not worry about a potential bubble.

REUTERS