The global energy landscape is evolving, and hydrogen is emerging as an attractive alternative to fossil fuels. A clean and versatile energy carrier, hydrogen could play a major role in the transition to a sustainable, low-carbon future. However, addressing the practical and investment challenges related to cost, infrastructure and renewable energy integration will be vital if its full potential is to be unlocked.
Industrial uses of hydrogen such as ammonia production and refining petroleum products still account for the bulk of hydrogen consumption. Yet many new applications are emerging as the energy transition gathers momentum.
Mobility is one such use. Vehicles equipped with fuel cells (FCVs) emit only water vapour, which considerably reduces their carbon footprint. From individual cars to road freight, the market for fuel cell vehicles is expected to reach USD 6 billion by 2028, compared to USD 0.57 billion in 2021.
Hydrogen also has a role to play in decarbonising electricity production. When combined upstream with renewable energy sources, it can be stored in isolated locations and used later to produce electricity on demand (Power-to-Power) or injected into local gas networks (Power-to-Gas) to supplement natural gas.
Hydrogen exists in different forms, primarily grey, blue, green, and turquoise depending on how it is produced. The low/no carbon-emission — blue, green, turquoise — hydrogen market is still in its early stages. Most production is of ‘grey’ hydrogen, that is, produced from fossil fuels via steam methane reforming.
However, ‘blue’ hydrogen (made from fossil fuels, but with carbon capture and storage) and the ‘holy grail’ of ‘green’ hydrogen, produced using renewable energy through electrolysis, and turquoise hydrogen, produced using methane pyrolysis, are gaining traction on the back of environmental concerns and government support for carbon reduction.
There are diverse drivers of growth in the global hydrogen market, which is expected to reach USD 201 billion in 2025, compared to USD 130 billion in 2020:
- Governments worldwide are setting ambitious climate targets, driving demand for clean energy solutions such as hydrogen to reduce carbon emissions
- Industries such as transportation, steel, and chemicals are looking to hydrogen to decarbonise operations and reduce their reliance on fossil fuels
- Ongoing research and advancements in hydrogen production and storage technologies are making hydrogen more economically viable.
Already some (big) baby steps…
It may be early days in developing sustainable uses for hydrogen, but there are already major industrial and materials players in Europe and the US making significant technological advances.
One US-based group, a global leader in liquefied natural gas (LNG), has developed proprietary technology that is used in hydrogen, hydrogen fuel infrastructure and hydrogen powered applications. It has several major hydrogen projects underway, including a USD 4.5 billion blue hydrogen project in Louisiana, a USD 7 billion carbon-free hydrogen joint venture in Saudi Arabia and a USD 1 billion net zero hydrogen project in Canada due to come on stream in the next few years.
Technology developed by another US multinational is powering the world’s first hydrogen-powered passenger train operating in locations across Europe. The company is involved in the world’s first hydrogen refuelling station for ships, cars, trucks and industrial customers in Antwerp, Belgium.
…but many challenges, too
Adequate funding and investment in production and infrastructure lie at the core of ensuring that hydrogen realises its full potential on the road to net zero. However, falling costs and increasing investment provide a positive outlook.
According to BloombergNEF, the cost of green hydrogen fell by 40% between 2015 and 2020. It is expected to fall further – by up to 85% – by 2050. If these forecasts prove accurate, it will be competitive with ‘grey’ hydrogen produced from natural gas.
According to McKinsey, the hydrogen economy could support global revenues of more than USD 2.5 trillion per year by 2050, with jobs for more than 30 million people, and would help avoid six gigatonnes of CO2 emissions.
The optimally produced form of the gas for numerous applications – green hydrogen – has been referred to as the ‘Swiss army knife of long-term decarbonisation’, but so far it accounts for a small proportion of overall hydrogen output.
One challenge is the need to scale up renewable energy to power green hydrogen production. This is regarded as essential to ensure a sustainable hydrogen market and reduce dependence on fossil fuels.
Investment coming on stream
The green hydrogen industry stands to benefit from major government and private funding to expand production. The Hydrogen Council expects USD 300 billion to be invested globally over the next decade and hydrogen is a key pillar of the US Inflation Reduction Act, with a new tax credit for clean hydrogen.
The growth of hydrogen-based transport will require the necessary infrastructure, such as fuelling stations on roads, which so far remains limited. The same goes for storage. Nevertheless, several projects have emerged in recent years to address this issue.
In the US, the Hydrogen Program Plan announced in November 2020 includes significant efforts to decarbonise hydrogen. And China announced a megaproject in Inner Mongolia in 2021.
Investing passively in the hydrogen economy
For investors seeking exposure on a passive basis, the ECPI Global ESG Hydrogen Economy index is an equally weighted index designed to offer exposure to companies most active in the sustainable hydrogen economy.
Within the index, companies selected can be assigned to one of these two subclusters:
• Hydrogen → Companies significantly involved in the provision of solutions at the core of the sustainable hydrogen economy either as producers, suppliers, storing, or consumers of hydrogen fuelled solution.
• Clean energy → Companies significantly involved in the production of electricity from renewable sources that is used in sustainable hydrogen production plants.
The hydrogen market is positioned for significant growth as the world strives to meet ambitious climate goals. Advancements in technology, supportive policies, and the growing demand for clean energy solutions point to a promising future. A passive investment via the ECPI Global ESG Hydrogen Economy index offers investors scope to benefit from the sector’s potential for future growth.
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