The startling conclusion of yesterday’s Exponential Investor is today’s thesis. How to get free hydrogen.
Now nothing in the world is free. Even if you’re just talking trade-offs or opportunity costs – the alternative you forgo by choosing something.
But once you follow the breadcrumbs we laid out yesterday, free hydrogen is what you get.
Let’s review the breadcrumbs first.
Renewable energy has a habit of making power when and where it isn’t needed. And you need so much of it to cover subpar production periods that peak production is overkill. On one evening way back in 2015, Denmark produced 40% more power from wind alone than the country needed.
The consequences can appear odd to the layman. It’s why wind farms sometimes get paid to not produce power and consumers can get paid to use it. These “negative prices” look odd, but they’re just a feature of our system under renewables. Presumably Danish parents tell their children to turn the lights on to save the environment.
I’m not judging this negative price oddity and I’m not sure whether people who see it as absurd really understand the nature of the power industry. My colleague James Allen calls such people “fossils” – a reference to fossil fuel thinking and a rare pun on James’ part.
What hydrogen does is create an alternative use for power. A limitless source of demand for electricity which can be used to make hydrogen instead. It can be flipped on and off as needed.
Combine that with negative prices and you can see where I’m coming from with “free hydrogen”. Heck, thanks to negative energy prices, companies might be able to produce hydrogen at a profit before they even sell it… Let that sink in, fossil thinkers.
If renewable energy sources can shift their excess power to produce hydrogen at any time, that hydrogen becomes a highly valuable by-product of the renewable energy industry.
You need to think carefully about where all this puts a nation and its power grid.
A country with large renewable energy potential could overinvest in those renewables in order to reduce the chances of not having enough power during disappointing production times, safe in the knowledge that the excess power won’t go to waste during peak times, nor will it wreak havoc on the grid. Any surplus energy would just go to hydrogen production instead.
That country could also be an exporter of hydrogen – a highly valuable fuel which was produced as a by-product – essentially free.
We’re talking a spectacular energy boom.
The missing part in all this? Well, renewables aren’t exactly dominating energy production yet. They’re still too small a share of the UK’s power source for the above equation to hold true.
And then there’s the challenge of using electricity to make hydrogen. Solve that and you’re off to the races with the winning horse in your trailer.
To be clear, I’m not telling you that hydrogen will be free at the pump for consumers. There are costs involved in other parts of the process beyond production.
My point is that the cost of production could be zero or even negative at times. It could be profitable just to produce hydrogen. Thanks to the renewable energy boom, which produces power in strange places at odd times. And that boom is going to happen – it’s underway already.
Does that means the returns will be poor for hydrogen-producing firms? No, it means an investment boom of epic proportions by renewable energy companies into hydrogen technology. It’ll make their business far more viable by allowing them to produce something valuable as a by-product. Hopefully that’ll in turn cut our energy prices too.
The companies that provide the hydrogen-producing tech will reap the benefits more than anyone. A bit like the fellows selling shovels during a gold rush.
And it’ll be the investors in hydrogen infrastructure and tech who profit in the end. Are you one of them?
The North Sea oil boom didn’t go so well for Britain. We don’t have a trillion-dollar sovereign wealth fund like Norway. The drop in oil production between the peak in 1999 and 2007 was the biggest slump in oil production of an oil-exporting country in the world. We’re a net importer of oil these days…
That comes with risks.
But risks can trigger solutions.
What you might not know is that Britain has a history in all this. Eoin Treacy, who has uncovered Britain’s best hydrogen stocks for his readers, is referring to the hydrogen boom as “Britain’s Second Coming” for a reason.
Ironically enough, it’s our obsolete North Sea oil infrastructure that’s making it possible…
Until next time,
Editor, Southbank Investment Research