The hydrogen economy is a matter of time

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According to many experts, sustainable growth in the long term is only possible with green hydrogen. Capital Group therefore believes that investors cannot ignore the hydrogen economy.

In recent years, much has been said about the role of hydrogen in the energy transition. Some think it’s hype. In order to get hydrogen, in addition to water, you also need electricity. The annoying thing is that a lot of energy is lost when green electricity is converted into green hydrogen (via electrolysis). The same applies to the conversion of hydrogen into electricity. It is therefore better to use as much green energy as possible directly.

Despite this, many energy experts believe that the transition to a carbon-neutral world is only possible with hydrogen. Hydrogen has the advantage that it can be produced where not so much electricity is needed, for example in the Sahara, after which it is transported to the places where the industry is located. It is much more difficult with electricity.

Secondly, there are processes that cannot be carried out with electricity or with great difficulty, but which can be carried out with hydrogen. Think of the steel industry and aviation and shipping. Finally, hydrogen can be used as a raw material for the chemical industry.

Future

Seema Suchak and Cheryl Wilson from Capital Group therefore believe that hydrogen has a great long-term future. They are also based on the International Energy Agency (IEA).

This organization expects that if the energy transition is taken seriously, the demand for hydrogen will double up to and including 2030 and continue to rise at the same rate until 2050.

Scale size

In principle, it makes no difference to industry whether hydrogen is green or gray (made with non-green electricity). Most of the hydrogen currently consumed in the chemical industry and refineries is still gray.

However, Capital Group expects this to change in the coming years, as small pilot projects are replaced by large installations (scale size) and infrastructure is built up.

“Most of the hydrogen currently consumed in the chemical industry and refineries is still gray”

The Inflation Reduction Act

Capital Group also expects a lot from the USA, where hydrogen has hardly played a role so far. That may change with the so-called The Inflation Reduction Acta law that provides support to the renewable energy sector with a capital injection of DKK 369 billion. USD.

One of the industries that will change dramatically is the steel sector. But investors must be patient, Capital Group believes. Because in order to make competitive green steel or aluminum, a lot of research and development is still needed. It is expected that this will only become a serious theme from 2035 onwards.

The electricity sector

It is different with electricity companies. Here, it can be expected that the role of hydrogen will increase more rapidly. How quickly depends, among other things, on the price tag attached to the CO2 emissions. The higher the price, the less favorable it becomes, e.g. to keep coal-fired power plants open.

Incidentally, the chance of cars running on hydrogen is small, but it is different for trucks and other heavy vehicles such as airplanes and ships.

“There is little chance of cars running on hydrogen”

Hydrogen economy

Capital Group finds it difficult to assess which sectors will be the first to use hydrogen on a large scale. What is becoming more and more clear is that the energy transition without hydrogen is doomed to failure.

Suchak and Wilson therefore believe that companies related to the hydrogen economy deserve a place in the portfolio, especially for investors with a long-term view.

  • What does The Economist think about hydrogen energy? The business magazine has dedicated a special video to it.

That Editors of IEXProfs consists of several journalists. The information in this article is not intended as professional investment advice or as a recommendation to make particular investments. It is possible that editors have positions in one or more of the listed foundations. Click here to get an overview of their investments.

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