What do you get if you cross the next big thing with a PR pin-up?

Kit Winder here. Your usual editor, Nick Hubble, is happily away on paternity leave, having just had his first child, so it’ll be me for the next two weeks. Apologies in advance!

Actually scrap that – I’m not sorry, I’m excited. Because I knew this was coming, I’ve been saving up a few nice ideas I’ve been thinking about and developing which I hope you’ll find interesting, challenging or enjoyable in various quantities. So without further waffling, I’ll get on with it.

By the way, you can skip today’s email if you’re not interested in solving climate change or investing for profit.

See what I did there?

I wonder what percentage of people who read this tech-focused investment newsletter aren’t interested in at least one of those things.

So I’ve probably only lost less than 1% of readers, and they wouldn’t have liked what I’m going to say anyway.  

And now, you know what I’m going to write to you about today.

It’s the word on everyone’s lips in the energy industry, and in investment meetings across the country.

HYDROGEN HYDROGEN HYDROGEN HYDROGEN HYDROGEN

That was “hydrogen” in case you didn’t catch it the first time. (!!!)

It’s something that is going to play a huge part in global de-carbonisation. In our efforts to stop climate change. To clean up the air that our children breathe in on their way to school. Keep temperatures within reasonable levels.

It will be used to power cars, buses, trucks, bikes, heavy machinery, ships, trains, drones, and planes.

It’ll be used to power and heat our homes simultaneously, using combined heat and power (CHP) systems based on exciting fuel cell technologies.

And it’s also one of the best opportunities for investors, not just in the energy markets but across all asset classes.

Are you a long-term, buy-and-hold investor? Perfect, because some of these companies, the best of them, are set for multiple decades of growth, until they become the Shells and BPs of the future.

Or do you prefer quick gains, more like short-term investing or trading? Well there’s something for you too, because some of the smaller, more niche companies have been making 10%, 20%, or even 50% moves in a single day’s trading. Day after day after day.

So much of this environmental, social, and governance (ESG) greenwashing of investments is puff and waffle in my opinion. We’re seeing oil tanker stocks issuing “green bonds”. Give me a break!

Yeah, the movement will probably do some good.

But money needs to be flowing to the entrepreneurs, the new technologies and business models, the disruptors and creators.

Schumpeter’s creative destruction is definitely in action in this sector, and means they won’t all be winners. But some will, and they will change the world.

So what do you need to know about hydrogen?

Well, I’ve been lucky enough to work closely with James over the last 12 months, and hydrogen has taken up a large focus of my time lately. So If you don’t mind, I’d like to give a brief and simple explanation as to what it is, why it’s important, how it’s being used and why it’s so exciting.

H2

Hydrogen gas is the most abundant element in the world, which is great, but on Earth it doesn’t occur naturally.

Rather, it appears in “compounds” – ie, bonded with other elements, like oxygen. H2 + O = water. See how that works? Easy.

Hydrogen is also found in all fossil fuels, as they are also hydrogen compounds. Specifically, they are compounds of hydrogen and carbon – you’ve probably heard them described as “hydrocarbons”.

The reaction of forming or separating these compounds either creates or requires electricity.

If you want to get hydrogen from water, you need to use electricity to force them to break apart. This happens in machines called electrolysers.

If you put hydrogen and oxygen together under the right conditions, they do the opposite – creating electricity rather than using it.

This is the process that happens in fuel cells.

You may have heard of fuel cell vehicles, for example. These are like battery electric cars, except you don’t charge them with electricity, rather you fuel them with hydrogen, and the on-board fuel cell converts the hydrogen into electricity.

In such a car, the only emission is water, because it’s hydrogen reacting with oxygen, as I outlined above. In fact, because it’s just H2 and O, it’s pure water. So pure you can drink it – straight out of your exhaust. Really.

So that’s how hydrogen gets from the lakes and reservoirs into the fuel tank in your next car.

It’s split in two, and then put back together again.

Why now?

It’s the most reasonable question to ask, because hydrogen is hardly new.

People have long thought it to be on the cusp of revolutionising the energy and automotive industry using hydrogen.

But in reality, the technology, investment, applications and government/public support just weren’t there.

They are now.

Governments the world over are putting hydrogen targets in for heating homes and powering vehicles. Japan wants to make this summer’s Olympics the Hydrogen Olympics.

Thanks to Greta Thunberg, climate emergency awareness is higher than it has ever been. She’s wrong to say nothing is being done though. All over the world, especially in Britain I’m happy to say, people are coming up with and working on incredible solutions to the problems that stopping climate change entails.

Here in the UK, we’ve got global leaders in building electrolysers (step 1 of 2 in the process above – water into hydrogen). We also have tiny companies making breakthrough improvements in fuel cell technology, lowering cost and lengthening their efficiency.

Investors are giving hydrogen companies the capital they need to invest, and improve their products and business models. This is helping shorten the time it will take for hydrogen to be cost-competitive with fossil fuels.

By the mid to late-2020s, leading figures (Deloitte, Bloomberg, and more) are estimating that hydrogen will fall in cost by half, and hydrogen cars will be cheaper over their whole life than petrol or electric vehicles.

Hydrogen can replace natural gas in heating our homes, which will be a huge contribution to lowering our carbon emissions.

My favourite projection at the moment is this – Bloomberg expects renewable hydrogen, produced by electrolysis, to ramp up in volume by over 1,000 times in the next few decades. That kind of growth is widely predicted, and indeed it must happen if we are to clean up our energy and industrial sectors.

So yes, in many ways, we’ve seen the hype before with hydrogen. Just look at the Hindenburg blimp disaster in the 1930s.

But what we haven’t seen before is this convergence of private and public sector support, innovation, economic benefit or urgency for action.

It’s a great time to get learning more about this incredible fuel, and the ways in which people are using it.   

The next Shell?

I am sure some of you already know all this – and here at Southbank Investment Research I know we’ve written about it before, but it’s going to come up a lot over the coming weeks, months and years, so I thought I’d give a nice brief introduction to it all.   

Until next time,

Kit Winder
Investment Research Analyst, Southbank Investment Research

PS Feel free to send any thoughts or responses to kit@southbankresearch.com.

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