Hydrogen Stands Out
Joshua Kaplan, CFA, Global Head of Research
In the search for the ultimate renewable energy source, hydrogen stands out. Not only is it the most abundant element in the atmosphere, but unlike wind & solar, it can be stored and transported with relative ease.
For these reasons1 Bank of America estimates that hydrogen will account for nearly one-quarter of our energy needs by 2050. And while the hydrogen energy industry is expected to generate several trillion dollars of investment opportunity over the coming decades, the current investable universe of pure-play hydrogen and fuel cell stocks is worth just over USD 90 billion.
Through a process called electrolysis, electricity is applied to water to split the hydrogen molecule from its oxygen counterpart. Electrolysis is a technique that can be replicated at a large scale and done efficiently employing surplus electricity when power is abundant. The hydrogen can then be stored and transported for later use, generating energy where and when it is needed.
It is important to distinguish between so-called “grey” hydrogen versus the “green” process noted above. A majority of hydrogen is currently produced using a byproduct of fossil fuels, most notably, methane, through a process called “steam reforming”. But increasingly, alternative energy sources like wind and solar are being used to produce the electricity that drives the electrolysis process thus generating “green” hydrogen.
Fuel cells then convert hydrogen’s energy into a useable form of electricity. In one portion of the fuel cell the hydrogen’s electrons and protons are separated. The protons pass through a membrane while the electrons are forced through a circuit, thus creating an electric current. In the end, the electrons re-connect with the protons, are exposed to oxygen, and create water as the only byproduct.
Hydrogen has already been adopted in all sorts of industrial settings -- from fueling fork lifts to replacing traditional distributed back-up power sources -- however, as the cost of generating hydrogen decreases, and the industry advances, hydrogen can be used to power all types of vehicles including ships, trains, planes and passenger cars, as well as in centralized/decentralized power generation for both the home and industrial usage alike.
To help investors capture the hydrogen energy opportunity MVIS has launched two hydrogen and fuel cell indices that are pure-play, diversified and investable: The BlueStar Hydrogen & NextGen Fuel Cell Index and the MVIS Global Hydrogen Economy Index. Both indices capture leaders in hydrogen generation and fuel cell technologies in a modified market cap weighted strategy.
1“Thematic Investing: The Special 1 – Hydrogen primer,” Bank of America Securities, Global Research, 23 September 2020, p.1 and 6.