Hydrogen made with renewable electricity has the potential to be a game changer when it comes to powering heavy industry and transportation. But most hydrogen these days is still made with natural gas, a fossil fuel that, while cleaner than coal, is still a major contributor to climate change.
The industry for green hydrogen — made with renewably generated electricity used to separate water into hydrogen and oxygen using a device called an electrolyzer — is still in its early days.
Due to industry headwinds, green hydrogen stocks have declined in value quite a bit, with both exchange-traded funds (ETFs) listed in this article down about 40% this year through Nov. 14. That means that patient investors may be able to find bargains among strong green hydrogen companies that show promise.
Cost is one of the biggest hurdles for green hydrogen. Because it remains much more expensive than hydrogen made with natural gas, green hydrogen isn’t competitive at commercial scale.
“In the hydrogen space, financial viability of projects has proven difficult due to the high cost of currently available production methods without subsidies to underpin them,” says Whit Irvin Jr., CEO of Q Hydrogen. “However, there are new innovations nearing the commercialization phase.”
Low natural gas prices in the U.S. have made green hydrogen less attractive. Supply chain disruptions and inflation have also made renewable energy developments more expensive.
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Although interest rates have been coming down recently, they’re still well above where they’ve been over much of the past 15 years, which makes financing green hydrogen projects more expensive.
Time lags between policy announcements and implementation have caused developers to delay projects. And the requirements for qualifying for one of the biggest potential boons to green hydrogen, a tax credit within the Inflation Reduction Act, have proven stricter than the industry anticipated.
The election of Donald Trump also introduces a question mark for the green hydrogen industry. But Trump’s pro oil-and-gas stance doesn’t necessarily mean doom and gloom for green hydrogen projects, as Big Oil companies including Exxon Mobil Corp. (ticker: XOM) and Chevron Corp. (CVX) have been exploring the technology.
“Trump 2.0 does not mean all climate progress made to this point will be for naught,” Irvin says. “The Trump administration is driven toward business and economic progress, so the focus has to be on perfecting technologies and proving sensible returns.”
A tax credit for green hydrogen was created by Congress in the Inflation Reduction Act. Although the Treasury Department is still hammering out details for its implementation, it would take another act of Congress to repeal that support, which includes some Republican backing.
“It is difficult to see how the votes would be there for a repeal, if such an effort were even attempted,” says Raymond James Analyst Pavel Molchanov.
Still, a lot of climate funding is on the line under a Trump administration, which means clean-tech producers will have to prove both economic viability and their ability to decarbonize high-polluting industries, Irvin says.
With that in mind, let’s take a look at the six best green hydrogen stocks and ETFs to buy:
— FuelCell Energy Inc. (FCEL)
— Bloom Energy Corp. (BE)
— Plug Power Inc. (PLUG)
— Ballard Power Systems Inc. (BLDP)
— Global X Hydrogen ETF (HYDR)
— Defiance Next Gen H2 ETF (HDRO)
FuelCell Energy Inc. (FCEL)
Although green hydrogen is a nascent market around the world, adoption is moving faster in nations with higher natural gas prices, including China, most of Europe and South Korea, Molchanov says.
FuelCell Energy has been a key player in the green hydrogen expansion in South Korea, with its technology producing more than 100 megawatts of sustainable electricity across the nation.
Fuel cells essentially perform the reverse operation of electrolyzers to convert hydrogen into electricity.
As a manufacturer of fuel cell energy platforms, FuelCell is right in the middle of the green hydrogen trend.
Bloom Energy Corp. (BE)
Among green hydrogen stocks, Bloom is one of the blue chips. The company makes both fuel cells and electrolyzers, so it’s involved in the twin pillars of the green hydrogen space.
Bloom’s fuel cell systems can run on hydrogen, biogas and natural gas, giving the company a larger market until green hydrogen becomes more widely adopted. The company’s technology can be used by utilities and the transportation industry, giving it an edge in two sectors that are facing pressure to decarbonize.
On Nov. 14, the company announced a deal to supply American Electric Power Co. Inc. (AEP) for up to one gigawatt of its products, marking what Bloom says is the largest commercial procurement of fuel cells in the world to date.
Plug Power Inc. (PLUG)
This company is another blue chip in the green hydrogen world. It makes hydrogen fuel cells for fuel cell electric vehicles, positioning it well if green hydrogen eventually becomes a serious competitor to battery-powered EVs.
That’s a possibility because hydrogen-powered vehicles can cover longer distances than automobiles powered by lithium-based batteries, an advantage given that range anxiety has been a hurdle to EV adoption.
Plug Power reported third-quarter electrolyzer sales increased 285% compared with the second quarter. During the third quarter, the company announced a 25-megawatt order from a BP PLC (BP) and Iberdrola SA (OTC: IBDRY) joint venture in Spain.
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Ballard Power Systems Inc. (BLDP)
Ballard makes fuel cells that can power buses, commercial trucks, trains, ships, passenger cars and forklifts, making it another play on decarbonized transportation.
Earlier this month, the company reported what CEO Randy MacEwen called a “tough” third quarter marked by weak revenue and new orders amid industry challenges, “strained” gross margin, adverse order book adjustments and a $16.1 million restructuring charge on top of non-cash impairments of about $147 million.
Ballard in the third quarter initiated a corporate restructuring program it says will reduce total yearly operating costs by more than 30%, with much of the savings expected next year.
Global X Hydrogen ETF (HYDR)
There aren’t that many publicly traded pure-play green hydrogen companies, and the ones that exist are relatively new, which makes the diversification offered by green hydrogen ETFs attractive.
These funds package multiple stocks under a single ticker symbol, allowing investors a way to hedge against company-specific risks, especially in a niche market like green hydrogen, which is populated by small companies.
The Global X Hydrogen ETF is diversified by jurisdiction and industry, with the fund’s literature noting that the shift to renewable energy isn’t just happening in a single sector or region. Most of its holdings are in the industrials sector, but it also has holdings in the consumer discretionary, materials, communication services and utilities sectors.
The fund includes companies involved in hydrogen production, integrating hydrogen into energy systems and making fuel cells, electrolyzers and other technologies related to using hydrogen as an energy source.
The fund has an expense ratio of 0.5%, or $50 per year for every $10,000 invested.
Defiance Next Gen H2 ETF (HDRO)
This fund tracks the BlueStar Global Hydrogen & NextGen Fuel Cell Index, which includes a group of globally listed companies that generate at least half of their revenue from hydrogen-based energy sources, fuel cell technologies and industrial gases.
This fund and the Global X offering count Bloom and Plug Power as their top two holdings.
Defiance says its fund “provides diversified access to this disruptive and innovative space, which has the potential to transform energy production and use toward a more sustainable, decarbonized, greener future.”
This ETF has an expense ratio of 0.3%.
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6 Best Green Hydrogen Stocks and ETFs to Buy Now originally appeared on usnews.com
Update 11/15/24: This story was previously published at an earlier date and has been updated with new information.
