The switch from gray to green hydrogen isn’t just hot air.
Green power from sustainably produced hydrogen will likely play a big role in the energy transition. Emissions from hydrogen fuel cells are clean, but the production of hydrogen itself has a ways to go before it’s environmentally friendly. Most hydrogen these days is “gray hydrogen,” which is made using fossil fuels. Then there’s “green hydrogen,” made with renewably produced electricity that’s used to separate water into hydrogen and oxygen using a tool called an electrolyzer. The pure-play companies are relatively new, but they could have a bright future as environmental, social and governance, or ESG, criteria continue to gain traction among investors. Here’s a look at six of the best green hydrogen stocks and ETFs to watch.
Defiance Next Gen H2 ETF (ticker: HDRO)
With batteries for heavy transport vehicles being hefty and slow to charge, hydrogen may be a better choice for this sector unless there are some battery breakthroughs, says Earth Equity Advisors CEO Peter Krull. “There are, of course, two major obstacles: making the hydrogen in an environmentally friendly way and constructing a nationwide network to distribute it,” he says. Krull normally prefers choosing individual stocks, but because the green hydrogen space is so new, he uses the Defiance Next Gen H2 exchange-traded fund. “I like this particular ETF because it’s global in scope, with over 75% domiciled outside of the U.S.,” he says. “Which isn’t surprising considering that we’re lagging in many alternative energy areas.”
Direxion Hydrogen ETF (HJEN)
Another ETF for hydrogen investors to consider is this offering, which contains companies involved in hydrogen generation and storage, fuel cells, stations and hydrogen-based vehicles. Like the offering from Defiance, some companies in this ETF aren’t pure-play green hydrogen companies. But major players in the gray hydrogen business, such as Linde PLC (LIN) and Air Liquide (AIQUY) — both of which are in the top 10 holdings in each ETF — are expanding into the green hydrogen space. With their long expertise in the hydrogen business, those holdings help add to the diversification of these ETFs.
Air Products and Chemicals Inc. (APD)
Here’s another legacy hydrogen company that is expanding into the green hydrogen world. In March, the company said it will build, own and operate a facility to produce green liquid hydrogen in Arizona. While the company isn’t a pure-play green hydrogen producer and makes products other than hydrogen in general, it has a long track record and is a stable company compared with other green hydrogen startups. “If someone is interested in green hydrogen tech and believes that it may find wider adoption in the coming years, it may be wiser to pick both large-cap participants, like Air Products, and emerging ones, like Ballard Power, to at least reduce some risk that comes with heavy concentration in any particular stock or sector,” says Kunal Sawhney, CEO of Kalkine Group.
Ballard Power Systems Inc. (BLDP)
Fuel cells are the beating heart of the hydrogen economy. They produce electricity by combining hydrogen and oxygen in a process that is essentially the opposite of the electrolyzer. Ballard makes fuel cells that can power buses, commercial trucks, trains, ships, passenger cars and forklifts. The hydrogen its cells use can be created with fossil fuels or renewable energy. But as the green hydrogen economy grows, it seems likely that Ballard’s fuel cells will play a role. In July, the company said it had received an order for one of its fuel cell modules from Fusion Fuel Green PLC (HTOO), a green hydrogen solutions company. Fusion Fuel will use some of the green hydrogen the company produces for a project in Portugal that will provide the local grid with more than 240 megawatt hours of electricity from Ballard’s fuel cell.
Fusion Fuel Green PLC (HTOO)
With Europe ahead of the U.S. when it comes to green hydrogen, investors may want to think about geographic diversification. Ireland-based Fusion Fuel Green says its solar-powered electrolyzers will be able to make green hydrogen as cheaply as gray hydrogen by next year. The company sells its electrolyzer technology to customers wanting to produce their own green hydrogen. It also sells the fuel from its own green hydrogen farms through long-term purchase agreements. As the European Union forges ahead with its climate policy, which includes ramping up electrolyzer use, Fusion Fuel seems well-positioned to capitalize.
Plug Power Inc. (PLUG)
Batteries that use lithium are common in electric vehicles. But as Julia Spina, quantitative finance researcher with Tastytrade, points out, the lithium supply chain is vulnerable to disruptions, requires significant infrastructure, and can be environmentally toxic if proper recycling measures aren’t taken. Hydrogen fuel cells are positioned for competitiveness with lithium-based batteries, she says. As a maker of electrolyzers and hydrogen fuel cells, Latham, New York-based Plug Power seems to be well positioned to take advantage of growth in demand for hydrogen-powered vehicles. On April 19, the company said it had entered an agreement with Walmart Inc. (WMT) for an option to deliver up to 20 tons per day of liquid green hydrogen for lift trucks at distribution and fulfillment centers in the U.S.
6 green hydrogen stocks and ETFs to watch:
— Defiance Next Gen H2 ETF (HDRO)
— Direxion Hydrogen ETF (HJEN)
— Air Products and Chemicals Inc. (APD)
— Ballard Power Systems Inc. (BLDP)
— Fusion Fuel Green PLC (HTOO)
— Plug Power Inc. (PLUG)
More from U.S. News
Update 04/27/22: This story was published at an earlier date and has been updated with new information.