It's official: The big hydrogen techlash is now history. For decades, there was an undeniable and growing animus towards anything hydrogen by the investing universe, with the technology relegated to niche corners of the market, such as material handling and emergency power backup. Hydrogen technology was considered too costly and impractical, with Tesla Inc. (NASDAQ:TSLA) CEO Elon Musk famously dismissing hydrogen fuel cells as 'fool cells' and 'mind-bogglingly stupid.'
But the tide has gone full circle, and suddenly Wall Street can't stop gushing about the enormous potential of the plentiful, versatile gas to cut emissions from many hard to decarbonize sectors.
Bank of America is the latest analyst to chime in with a bullish note.
According to the giant investment bank, hydrogen could supply our vast energy needs, fuel our cars, heat our homes, and also help to fight climate change. BAC says we have reached the tipping point of harnessing this element effectively and economically and predicts the hydrogen marketplace to reach a staggering $11 trillion by 2050.
BAC has likened hydrogen to smartphones pre-2007 and has advised investors to double-down before it goes fully mainstream.
Hydrogen fuel cell propulsion system
BAC is hardly alone in this adulation.
Morgan Stanley has upgraded Plug Power Inc. (NASDAQ:PLUG) from Equal Weight to Overweight with a $14 price target after the leading fuel cell maker impressed during its investor day presentation. Morgan Stanley's Stephen Byrd believes green hydrogen will become economically viable quicker than investors appreciate saying Plug Power's deal with Apex Clean Energy to develop a green hydrogen network using wind power offers a chance to tap into "very low cost" renewable power and helps accelerate the shift to clean energy. Plug has a goal for over 50% of its hydrogen supplies to be generated from renewable resources by 2024.
PlugPower is no longer content to be viewed merely as a maker of fuel cells for forklifts. The company has announced a partnership with Universal Hydrogen to build a commercially-viable hydrogen fuel cell-based propulsion system designed to power commercial regional aircraft. The initiative will help bring Plug's proven hydrogen ProGen fuel cell technology to new markets.
"Through this partnership, we are taking our first steps toward establishing a complete ecosystem for the aviation market, from powertrain to hydrogen solutions, ultimately enabling a global transportation system powered by green hydrogen," says CEO Andy Marsh.
Plug shares have jumped 13.3% after the latest bullish notes and are now sitting on a 317.4% gain in the year-to-date.
The cost conundrum
Over the years, the hydrogen economy has endured many false dawns, mainly due to technical and, mostly, cost issues. This has led to a situation whereby wind and solar energy are now competitive with traditional fossil fuels in electricity generation, whereas hydrogen remains considerably more expensive. Related: Nigerian Government: Oil Could Become Worthless
For instance, fueling a hydrogen fuel cell vehicle (FCEV) in California costs around $16.50 per kilogram compared to $3.232 per gallon of regular petrol in the same state. Light-duty FCEVs are typically 2.5x more fuel-efficient than comparable gasoline-powered vehicles, which means that achieving price parity with gasoline would require that 1 kilogram of hydrogen sells for not more than $8.08. In other words, hydrogen costs need to fall by 50% to become competitive with fossil fuels.
Luckily, there's hope on the horizon.
According to a recent report by the Hydrogen Council, "...scaling fuel cell production from 10,000 to 200,000 units can reduce unit costs by as much as 45%, irrespective of any major technological breakthroughs, and can impact multiple end-use cases. Scaling up to 70 GW of electrolysis will lead to electrolyser costs of less than $400 per kW."
This already appears to be happening in California: FirstElement Fuel has reported selling hydrogen for $12 per kilogram plus tax for a total $13.11 per kilogram and expects prices to continue coming down as hydrogen production cost falls.
Currently, California has a network of 43 open retail hydrogen refueling stations, capable of dispensing more than 11,800 kilograms of hydrogen each day. That is enough to support nearly 17,000 light-duty FCEVs or more than double California's fleet of 7,000 FCEVs ( 5,000 FCEVs in 2018).
The hydrogen ecosystem has been expanding and has lately added a new application to its portfolio: Using hydrogen to manufacture green steel.
Back in April, Swedish steelmaker Ovako successfully used hydrogen instead of LNG in trial runs at its Hofors steel mill, managing to demonstrate that H2 had no effect on the quality of steel. This marked the first time that hydrogen had been used in commercial scale during steel manufacture.
Given that steel production accounts for ~7% of global carbon emissions, steel made from renewable energy is expected to become a multi-billion industry as countries move to decarbonize.
Not everybody is convinced about the hydrogen hype, though.
Barron's Bill Apton says Wall Street has discovered hydrogen this year and that hydrogen stocks are a bubble. Apton says the huge runup by Plug Power, Ballard Energy, and Bloom Energy has left them trading at more than 50x future cash flow, making it hard for them to grow into their steep valuations. He notes that smaller hydrogen companies are up against big players and deep-pocketed manufacturers, including government-backed rivals in China and the likes of Cummins.
According to Apton, it could take a decade or more before environmentally-friendly hydrogen can become competitive with natural gas on a cost-basis, making hydrogen stocks better long-term picks than the cult stocks they have become.
Famous Wall Street short seller Andrew Left of Citron Research has been even more blunt, labeling PlugPower an anti-Tesla:
"$PLUG back to $7 as it is the Anti- Tesla. Why even look to short $TSLA when $PLUG is twice as expensive with a never profitable business," tweeted the firm.
Citron has been negative on PLUG dating back to 2014.
Wall Street remains overwhelmingly bullish, with 8 out of 10 Wall Street firms covering the stock giving it the nod.
By Alex Kimani for Oilprice.com
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Hydrogen: world production 70 million tons/year, energy density 142 MJ/kg, used mostly for producing ammonia and refinery processes. No significant energy storage/transport use outside NASA.
Crude oil: world production 4480 million tons/year, energy density 44 MJ/kg.