Whether COP26 goes down as a success, failure or something in between, the future of energy is indisputably renewable.
Warming my portfolio with renewable energy stocks
I’ve previously expressed bullish views on the Renewables Infrastructure Group. The company invests in wind, solar and battery assets generating renewable energy. I still like it, but notably it hasn’t invested in hydrogen. You see, hydrogen energy exposure is lacking in my portfolio and I want to change that.
Hydrogen is one of the most abundant elements on the planet. Use cases include fuelling vehicles, heating homes and producing low-cost fertiliser. There’s optimism that hydrogen can create a net-zero emissions world. It can bring efficiencies to other energy sources too. Water can be converted into hydrogen through electrolysers, dispersed through pipelines and converted back into electricity. This can significantly reduce wastage of excess solar and wind power.
Two of the most promising hydrogen technologies are solid oxide cells and polymer electrolyte membrane (PEM). Both see hydrogen reacting with oxygen to release electrons, and clean water is the only by-product. Both have advantages. So let’s take a look at two renewable energy stocks – one for each technology.
UK hydrogen shares
Solid oxide cells are flexible as they can use a range of fuels other than hydrogen. Additionally, they can reduce transmission and distribution losses that occur through the grid, providing greater efficiencies and security. Ceres Power Holdings (LSE:CWR) produces solid oxide cell technology and has interesting collaborative partners such as Honda, Nissan and Bosch. It’s also combining technologies with Chinese engines giant Weichai Power to create engines for China’s electric bus market.
Ceres’ SteelCell can use conventional fuels like natural gas. It also has operating temperatures far below competitor solid oxide cells. This lower temperature allows Ceres to use cheaper materials such as steel and ceramics. This is important as low costs increase scalability.
PEM is less efficient than solid oxide cells and can only use pure hydrogen as fuel. However, due to their smaller size and shorter start-up times, they’re more responsive to sudden demand. They can also quickly convert and store renewable energy to ‘balance the grid’ during periods of low energy demand.
ITM supplies PEM systems with a highly scalable business model. Its technology is used for energy storage, hydrogen refuelling and industrial decarbonisation. To create capacity for widespread PEM adoption, ITM’s semi-automated ‘Gigafactory’ in Sheffield can easily be replicated. The company also has interesting strategic partnerships including a collaboration with energy giant Shell creating Europe’s largest PEM green hydrogen electrolyser. As ‘big energy’ looks to a carbon-free future, it’s easy to see how ITM can play its part.
Undoubtedly, both Ceres and ITM produce innovative, scalable technologies that can empower companies and countries alike to reach their net-zero goals. However, both companies are loss-making and probably won’t be profitable any time soon. Another cause for concern is that both have a history of new stock issuances and stock dilution for shareholders.
Yet I’m confident in the long-term growth of renewable energy stocks and hydrogen power, even though Ceres and ITM still feel slightly speculative. Despite the risks, I believe that the technologies of both companies could shape a green future. I’ll be building a position in both companies.