Should I buy these green energy hydrogen stocks?

These green energy hydrogen stocks have potential, but one enterprise has more potential than the others, argues this Fool.

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Key points

  • Hydrogen is one of the most exciting green energy technologies
  • There are three companies on the London market specialising in hydrogen technology
  • One stock has brighter prospects than the others

I think the hydrogen market is one of the most captivating green energy industries. The potential for this technology is massive, but it is still in its early stages of development.

Producing hydrogen, especially green hydrogen, which uses renewable energy, is costly. Companies are constructing facilities to increase economies of scale and push down costs, but it will take years for the cost of technology to rival cheaper hydrocarbon. 

Still, a handful of UK companies are working on developing technology to help the commercialisation process. And I think each one looks attractive for different reasons. 

Green energy stocks

There are three companies specialising in hydrogen technology on the London market. These are ITM Power (LSE: ITM), Ceres Power (LSE: CWR) and AFC Energy (LSE: AFC). Each targets a different section of the market, and each is at a different stage in its journey. 

However, all of these organisations are early-stage businesses. This makes them riskier than other corporations. Not only are they trying to develop and commercialise an experimental technology, but they also have limited resources.

Although they have raised money from the market in the past, their ability to attract further funding should not be taken for granted. Running out of cash is probably the biggest threat to their success. As such, there should be a warning label attached to these investments. They are certainly not suitable for the faint of heart. 

Still, I think it would be silly for me to overlook the potential for these companies, considering the growing size of the green energy industry.

Hydrogen potential

Each one of these companies has different qualities. Ceres recently reported a 44% increase in revenues for 2021. It is expecting further growth in the year ahead as major commercial partners continue to place orders for its hydrogen-based solid oxide fuel cell (SOFC) technology. 

ITM’s sales are lagging behind those of its peers, and the corporation has been under pressure recently for its lack of growth. While it has found buyers for its electrolyser technology, it still has a lot to prove.

In my opinion, AFC Energy has made the most progress. Last year, the company unveiled a hydrogen fuel cell charging system at the Extreme E racing series.

The self-contained system produces green hydrogen from a shipping container-sized facility. It is attracting a lot of interest. The enterprise has already received an order from Swiss partner ABB for a 200kW hydrogen fuel cell charging system, based on a similar design. 

I am most excited about this technology being pioneered by AFC. The company is making concrete progress in developing its technology, and it is receiving a lot of publicity as a result. As such, I would buy the corporation as a speculative investment.

ITM and Ceres are yet to convince me they have a unique product that can capture market share. So I would avoid these companies. 

On the other hand, I think AFC has the potential to revolutionise the electric vehicle market over the next couple of years. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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