Chief Investment Strategist
Summary: Hydrogen is seen by many as the solution to decarbonize the economy over the coming decade and hydrogen related stocks are off to a strong start to the year driven by several big orders in the industry. This suggests that this year could maybe be the big breakthrough for hydrogen. While renewable energy sources can be built out faster than nuclear power and is greener than burning natural gas it is not a stable energy source but with clean hydrogen it can lead to baseload electricity and stabilise prices, but the technology is still expensive.
Our best performing theme basket this week has been our energy storage basket gaining 10.2% catapulting the basket to the second-best performing basket this year. The big gainers have predominantly been the fuel cells & hydrogen companies such as Plug Power, Bloom Energy, Ballard Power Systems, Nel, and FuelCell Energy. This industry has seen quite some big orders in the beginning of the year suggesting that 2023 could be the big breakthrough year for the industry.
We have written extensively about the energy crisis last year and specifically about power prices and Europe’s baseload problem. Renewable energy is an intermittent energy source and such as the share of renewable energy increases the volatility of electricity prices increases unless you baseload to stabilise the grid and prices. That has previously been nuclear power in France and cheap gas from Russia. With corrosion problem in French nuclear power plants and rapidly rising gas prices due to Russia’s lower supply Europe’s baseload problems have intensified. With electric vehicles and air-to-water heat pumps demand growing rapidly the demand for electricity will also grow rapidly. This will put more pressure on Europe’s grid in the years to come. Clean hydrogen produced from excess renewable energy seems like a good short-term solution but it also comes with higher costs.
Nuclear power takes too long to build out and fusion energy technology is far from ready for commercialisation. Natural gas has become more expensive and with Russia out of the equation using natural gas power plants for baseload has less appeal these days. Renewable energy capacity can be build out faster but it does not solve the baseload issue. But with electrolyzers excess energy from renewable energy sources can be used to split hydrogen from water. This clean hydrogen can then be stored and later burned in power plants for baseload electricity. This technology will be more expensive than burning gas if Russian gas was part of the equation but it might be the only solution short-term to decarbonise the power production in Europe.
Energy storage will increasingly become a key technology for our transition to a greener society but also absolutely necessary as more parts of the economy is electrified. Battery manufacturers are already seeing massive adoption due to electric vehicles and we remain very positive on those companies and lithium miners. But this year could be the year when hydrogen related stocks get their big breakthrough.
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