From Barron's, July 25:
Wall Street discovered hydrogen this year. It has been around for 13 billion years, but the big bucks earmarked for green-energy projects, and a fresh craze for shares of companies aiming to make hydrogen-fueled trucks, have raised the investment profile of all things connected to this ubiquitous gas.
That includes shares of hydrogen fuel-cell makers such as Plug Power, Ballard Power Systems, and Bloom Energy, the first two of which are up fourfold in the past 12 months. Trading at more than 50 times future cash flow, the stocks look priced to disappoint.
Fueling the fuel-cell bubble is a growing consensus that hydrogen will provide green energy in places where solar and wind can’t, such as heavy transport, backup power, and industry. The European Union unveiled a plan this month to invest hundreds of billions of euros in technologies enabling it to get a substantial share of its energy from hydrogen by 2050. The news lifted the shares of big hydrogen-gas sellers Linde (ticker: LIN) and Air Products & Chemicals (APD), and it ignited a stampede into hydrogen pure plays Plug (PLUG), Ballard (BLDP), and Bloom (BE).
In the race to stop global warming, hydrogen power can’t arrive soon enough. But it could take a decade before environmentally friendly hydrogen is competitively priced with natural gas. Moreover, small companies are up against big players, including government-backed rivals in China and deep-pocketed manufacturers, such as Cummins (CMI).
A fuel cell is a battery-like device that combines hydrogen gas with oxygen to generate electricity that can power a forklift, train, or data center. The fuel cell’s only other outputs are heat and water, making it much cleaner than internal combustion. Most hydrogen today is made from natural gas in a process that emits carbon exhaust. To be a climate-change solution, hydrogen must be made in a carbon-neutral way.
Bubble, BubbleWall Street’s infatuation with hydrogen-powered trucks has inflated the shares of hydrogen gas sellers and fuel-cell makers. Smaller companies could face formidable competition, however.
* Adjusted. Last four quarters.Source: Bloomberg
Industrial-gas suppliers Air Products and Air Liquide (AI.France) get about 24% and 10% of their revenue, respectively, from hydrogen. Linde gets about 5%. The hydrogen suppliers’ interim solution is to capture their carbon exhaust and sequester it underground, but the goal is to power most hydrogen production with solar or wind farms. These renewable energy sources will drive electrolyzers— devices that use electricity to separate water into hydrogen and oxygen, in a process that’s the reverse of a fuel cell.....MUCH MORE
On July 8, the EU announced a plan calling for Europe to have at least six gigawatts of renewable hydrogen electrolyzers by 2024, versus one gigawatt (a billion watts) of electrolyzers in the bloc today. By 2050, the EU aims for 500 gigawatts. China, Japan, and Korea also have ambitious hydrogen goals.
If the sort of government incentives and mandates that spawned industries in solar, wind, and electric cars come to hydrogen, it will be good for polar bears and electrolyzer makers, such as the New Power unit of Cummins, and European specialists like NEL (NEL.Norway) and ITM Power (ITM.UK), which have soldiered through years of modest sales and negative cash flow. Their stocks were neglected until hydrogen’s star started rising....
