Essential Infrastructure manager writes about the hydrogen ‘revolution’ for Investment Week
Natasha Thomas, Co-Manager of the Marlborough Global Essential Infrastructure fund, has written an opinion piece for Investment Week about the considerable investment opportunities created by the green hydrogen ‘revolution’.
You can read the full text of the article below.
Investing in the green hydrogen ‘revolution’
Hydrogen is the most abundant element in the universe and when used as a fuel produces only one harmless emission, water vapour.
Little wonder then that many governments see ‘green’ hydrogen as having a key role to play in reducing carbon emissions and ensuring energy security, while creating jobs and underpinning sustainable global economic growth.
This green hydrogen ‘revolution’ presents a considerable long-term opportunity for investors.
Green hydrogen is made by using renewable energy to power the process of electrolysis, which splits water into hydrogen and oxygen.
Buses and cars that run on hydrogen fuel cells are already on the road, although there are only currently around 14 publicly available hydrogen filling stations in the UK. Vehicles using hydrogen fuel cells tend to have a longer driving range, faster refuelling times and weigh less than electric vehicles.
Hydrogen-based fuels could also potentially be used in shipping and aviation, and a lot of research is underway in these areas. In addition, hydrogen can be used for heating and cooking in homes; in industrial processes, such as steel-making; and in power stations, providing a back-up for intermittent renewable sources such as wind and solar. This last application could be a crucial stepping-stone to a world powered entirely by renewable energy.
In September 2022, the European Commission approved €5.2 billion in public funding for hydrogen projects. Plans have been unveiled for a multi-billion-pound pipeline to carry green hydrogen produced using solar power in Spain and Portugal under the sea for use in France and Germany. The pipeline, scheduled to begin operating by 2030, is forecast to transport up to 2m tonnes of green hydrogen a year, which would be 10% of the European Union’s total forecast consumption.
In the US, Joe Biden’s Inflation Reduction Act, which was passed last summer, earmarked $369 billion for clean energy and climate-related projects, including green hydrogen. Since the announcement of the act’s generous tax incentives, plans have been unveiled for projects including a $4 billion green hydrogen plant in Texas.
The UK government wants the country to have the capacity to produce 10 gigawatts of energy from low-carbon hydrogen by 2030. To put that in context, the production capacity of the UK’s electricity grid in 2020 was 75.8 gigawatts.
The scale of the opportunity
Around 680 large-scale hydrogen projects have been announced globally, equating to investments of approximately $240 billion up to 2030, according to the Hydrogen Council, which represents more than 130 companies working in the field.
While this is an increase of 50% on the previous total announced in November 2021, the Hydrogen Council estimates that investment will need to triple to $700 billion between now and 2030 if nations are to meet their global target of net-zero carbon emissions by 2050.
However, the hydrogen sector is still at a comparatively early stage in its development and backing a specific electrolysis technology or fuel cell producer still presents significant risk for investors. In our view, more attractive opportunities exist in the supporting infrastructure that will be needed to power the electrolysis process, specifically wind and solar power generation.
Hydrogen is only a green energy when it is created with electricity from renewable sources. We would expect to see more than £4 trillion in capital expenditure globally between now and 2050 to provide the wind and solar energy capacity required to deliver the amount of green hydrogen envisioned by the Hydrogen Council. This equates to five times the current wind and solar energy market and would represent as much as 20% to 30% of total clean energy capacity by 2050.
As the world begins to wean itself off fossil fuels, we see considerable investment potential in green hydrogen. It is true that technological advances and economies of scale will be required to make its price competitive against other clean energy sources. However, we believe this fuel for the future offers a significant long-term opportunity.
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