Long-term investment or hot air?

Van Eck
Friday, August 5, 2022 07:35

This article previously appeared in the VanEck newsletter

When we launched the VanEck Hydrogen Economy UCITS ETF almost 18 months ago in March 2021, our timing was far from perfect. In retrospect, we did it at a time when there was a lot of interest in tech companies and clean tech in particular: this optimism evaporated in the 2022 market routine.

The consequence? Our hydrogen ETF has fallen sharply in price, as has the larger technology market.

And yet great progress has also been made in the search for ways to make hydrogen part of the carbon-neutral economy of the future as a partial replacement for fossil fuels. That makes hydrogen more important as a long-term investment than when we launched the ETF, even though the shares themselves are significantly cheaper.

‘Green’ hydrogen can make an important contribution to reducing the amount of CO2 because it is produced using electrolysis. No CO2 is emitted when it is produced with renewable energy. In addition, hydrogen can fill certain gaps in the future energy spectrum due to its high energy density and other specific qualities. This means it is a viable fuel for heavy transport, such as trucks and aircraft, as well as for steel production and certain types of heating.

Governments have great faith in hydrogen. This is clearly reflected in the EU’s target of having 40 GW of electrolysis cells installed by 2030. And while green hydrogen now accounts for less than 0.1% of the global energy mix, some estimates say it could grow to a quarter by 2050.1

A number of major companies are already making significant investments and putting the world’s most abundant gas at the center of their energy transition plans. These initiatives are now clearly being translated into action. In 2022, there are concrete plans to develop hydrogen products and companies.

For example, Airbus announced in 2020 that they want to bring a CO2-neutral commercial aircraft to market by 2035. They will begin testing the hydrogen technologies required for an A380 aircraft in 2022. However, it appears that they will surpassed by a small Dutch company, Hydrogen Aircraft Powertrain and Storage System, which aims to fly a passenger plane for 40-80 people from Amsterdam to London by 2028. That’s six years from now.

In the steel sector, H2 Green Steel wants to use hydrogen to reduce CO² emissions in steel production by 95%. This is one of the most difficult sectors to achieve CO2 neutrality. They have recently received permission to build their first plant in Boden in northern Sweden.

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And finally, Shell, one of the largest oil and gas suppliers, recently announced that they will build the first green hydrogen plant in Rotterdam.

In addition to the climate crisis, Russia’s horrific invasion of Ukraine is another important factor making green hydrogen more central to our lives. Because of the war, all countries are now aware of the risks of energy security. Now that Russia is using energy as a weapon, green hydrogen is a form of energy that can be produced within a country’s borders.

For those investors who think this is a good time to invest in hydrogen, the VanEck Hydrogen Economy UCITS ETF is the best and cleanest ETF to do so. In such a young sector, there are still no companies that can already generate all their revenue from hydrogen. But our ETF tracks companies that derive at least half of their revenue from products and services related to green gas.

1 BNEF Hydrogen Economy Outlook.

VanEck Asset Management BV, the management company of the VanEck Hydrogen Economy UCITS ETF (“ETF”), a division of VanEck UCITS ETFs plc, is a UCITS management company under Dutch law and registered with the Netherlands Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland and tracks a share index. The value of the ETF assets may fluctuate. This is largely the result of the investment strategy used. If the value of an underlying index falls, the value of the ETF also falls.

Investors should consult the prospectus and key investor information before investing in a fund. These documents are available free of charge in English at www.vaneck.com or from the management company.


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