Analysts believe as much as $3.4trn will need to be spent developing the planet’s renewable energy capacity over the next nine years.
With that being the case, I’ve been seeking out green energy assets to add to my portfolio. One of the sectors I have been concentrating on is hydrogen.
The holy grail of energy?
The global hydrogen market is still in its infancy. It was worth around $117bn and is expected to grow steadily to $165bn by 2027.
Hydrogen makes sense for many applications because it can be stored and is relatively lightweight compared to electrical batteries. And when it’s used, water’s the only waste product.
The challenge facing the industry is creating hydrogen that’s both green and cost-effective. If scientists can crack this code, which they’re working towards rapidly, it could be the holy grail of renewable energy.
So I want to have some exposure to the hydrogen sector in my portfolio. However, many of the companies that I consider to be developing transformative technologies are still in their early stages.
I tend not to invest in these sorts of businesses because there’s so much that can go wrong between development and commercial production.
That said, I think the outlook for the sector’s so bright I want some exposure. That’s why I’d use a basket approach. Rather than investing in just one company, I’d acquire three or four.
There are at least three different hydrogen companies on the market right now, which I’d buy for my portfolio.
Renewable energy stocks
These companies are Ceres Power Holdings (LSE: CWR), ITM Power (LSE: ITM) and AFC Energy (LSE: AFC). All of these firms are developing their own solutions to the hydrogen problem.
At this stage, none are profitable. They’ve all negotiated significant contracts with large customers however, suggesting their technology has its uses.
This is why I’d buy all three stocks as a bet on the industry in general and their different technologies.
AFC is developing alkaline fuel cells that use hydrogen to make electricity at the point of consumption. A great example of one use for this technology is electric charging stations, which can be powered by hydrogen.
Ceres produces hydrogen cells and is working on a first-of-a-kind solid oxide electrolyser (SOEC) one megawatt-scale demonstrator. This will allow hydrogen production from a solid oxide, which can be more efficient than other methods. A one megawatt demonstrator is tiny, but it’s all about proving the concept at this point.
The final stock is ITM. This company is developing membrane electrolysers for hydrogen production. Its products are being designed to lower the cost of hydrogen production.
The common theme linking all of these companies is reducing the cost of hydrogen production and increasing the adoption of hydrogen technologies. This is the primary reason I’d buy these renewable energy stocks today.
However, I should say they’re all incredibly speculative. As noted above, none are profitable. There’s also no guarantee these technologies will have commercial uses. Any one of the firms could run out of cash at any point. Therefore, these stocks are unlikely to be suitable for all investors.
