The green hydrogen investor dilemma
(Photo by Matti Blume, a hydrogen bus in Berlin)

The green hydrogen investor dilemma

Is the growth potential more than just hype and can companies grow profitably? Focus: Green hydrogen, heavy industry, hard to decarbonise, steel, chemicals, fertiliser, ammonia

Summary: One of the big challenges for investors in analysing industries that have massive growth "potential", is disentangling what is hope from what is likely. And if the growth potential is not just hype, working out if companies can actually grow profitably. We argue that green hydrogen is a classic example of this challenge.

Why this is important: We can see a great future for green hydrogen as an industrial feedstock, replacing existing hydrogen produced with fossil fuels and acting to assist in decarbonising industries such as chemicals and steel.

The big theme: Green hydrogen is often portrayed as the Swiss army knife of energy sources, something that can turn its hand to almost any application. And as a result, many studies forecast a massive surge in demand. But as Michael Liebreich so eloquently expresses in his Clean Hydrogen ladder, some uses make sense, but for many applications, we actually have better alternatives. Yes, demand will probably rise strongly, many of the "best" applications are in heavy industry - which has material implications for which companies will create and retain value.



The details


The green hydrogen investor dilemma

One of the big challenges for investors in analysing industries that have massive growth "potential", is disentangling what is hope from what is likely. And if the growth potential is not just hype, working out if companies can actually grow profitably. We argue that green hydrogen is a classic example of this challenge.

Yes, it could become an enormous industry, meeting most of our energy needs. But that doesn't look like the most likely outcome, with many applications containing a fair bit of hype. Realistically, we expect green hydrogen to replace existing "dirty" hydrogen, plus over time become a major industrial feedstock. To be clear, this is still a massive market, but this balance of end markets has a big impact on what will make a successful company for investors.


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