Analysis 27
moneyweek.com 8October 2021 MoneyWeek
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henceproducingzero carbonemissions).Thereisa
risk that thestrategywill causeBritainto commit too
heavilytothebluestuff andso keepthecountry locked
into fossil-fuel-basedtechnology, saysJess Ralston
of theEnergyandClimate IntelligenceUnit. Butthe
thinkingingovernmentisthatbluehydrogencould be
ausefulbridge, replacingfossilfuels whilethereis not
enoughgreenhydrogenavailable,andhencegiving
Britain acompetitive advantageinthe race to buildthe
cominghydrogeneconomyandbecomeaglobal leader
in theindustry. It will also,asanindustryexperttold
theFinancialTimes,helpbreaktheCatch-22, whereby
hydrogensupplyremainslowwithoutsufficient
demand,yet demandstaysstuckuntil supply rises.
This “bluebridge”will help ensurethesector
attracts thevital investmentneededforthelongterm
andcreatethescalenecessary to buildtheecosystem
of aplausible hydrogeneconomy, says Ambrose
Evans-PritchardinTheDailyTelegraph.Thetwin-
trackapproachwillalsoexploit Britain’s competitive
advantageintheformof “pipelines anddisused
fieldsin theNorth Sea, half acenturyofoffshore
engineeringskillsandanoilandgasindustry seeking
anewpurposeinlife”.Greenhydrogenmaywellwin
outover bluein thelongterm. But“in themeantime
thereisahugegaptofill andthelucrativehydrogen
prizewill goto thosewhomovefastest,intheright
sequence...Britain’stwin-prongedblueandgreen
strategyis acalibratedhedgethatplaysto thisisland’s
NorthSeastrengths. It is well-judgedandlegitimate.”
Despite alltheannouncements andexcitementover
newtechnologiesandtheshinygreenfuture, it would
“It’shard
toimagine
thepolitical
windsbehind
thesector
willabate;
investors
remain
excited”beaswelltorememberthatglobalproductionofgreen
andbluehydrogeniscurrentlyminimalandnotone
singlecountryhasyetputpoliciesinplacethatwould
helptomakehydrogencost-competitivewithgrey
hydrogen(producedfromunabatednaturalgasorcoal),
saysCollins.Infact,nonationhasdefinitivelydecided
whatitspolicyshouldbe,witheverystrategypublished
todatepushingkeydecisionsintothefuture.The
strategiesthus“offeradirectionoftraveltopotential
investorsthatcanencourageinvestment”,butsofar
represent“merelyambitionsorwishfulthinking”.Howtoinvest
Still,it’shardtoimaginethatthepoliticalwinds
behindthesectorwillabate–thebroaddirectionof
travelissupportedbyallthemainpoliticalparties–
andinvestorsremainexcitedbythestory.Research
groupBloombergNEFsaysthatlastyearinvestors
pouredmorethan$ 50 0bnintotheso-called“energy
transition”togreenertechgenerally,twiceasmuchas
in 201 0.ThePWCconsultancyestimatesthatbetween
2013 and 2020 venture-capitalinvestmentsinclimate
techgrewatfivetimestherateofoverallglobalstart-up
funding,reportsTheEconomist.Thisfloodofgreen
moneyhasliftedhydrogen-relatedinvestments.The
hydrogenplayswesuggestedbackinFebruary 2020- CeresPower(Aim:CWR),ITMPower(Aim:ITM)
andMcPhyEnergy(Euronext:MCPHY)–haveall
soaredsince,thoughhavefallenbackfromtheirpeaks
sinceFebruaryofthisyear.AFCEnergy(Aim: AFC)
is anotheroption. It remainslikelythathydrogenwill
findsomenicheapplicationwithin theoverall transition
awayfromfossil fuels–especiallyif, asexpected, costs
comedown–evenifthe more ambitiousvisions of
anentirely hydrogen-basedeconomydon’tcometo
fruition.But buyinghydrogen-related stocks is agamble
that youare gettingontheright sideof that transition
andchoosingthecompaniesthatwillmakeprogress
(andhopefully profits) over thenext20to30years.
Thereare anumberofother ways to ridetheboom
whilehedgingyourbets.Oneis to buythebigger
engineeringgroupswhose fortunes arenot entirely tied
to theriseof thehydrogeneconomy,but whichmight
profitfromit should it takeoff at alater date –Siemens
(Xetra:SIE),for example, whichisaworld leader in the
manufacture of hydrolysisequipmentfor thelarge-scale
productionof hydrogenandhas itsfingersinmany
promisingpies; andJohnson Matthey(LSE: JMAT),
whichhas beeninvestingto expanditsexposureto
hydrogen.Thesecondis to getexposuretogreenenergy
more generally. Hydrogencanonlyliveupto thehypeif
it is able to ridethecoattailsofamoregeneraltransition
to apost-carbonfuture, so thehydrogenwe’re talking
aboutwill have to beof the“green”variety, which
will in turndependonthegrowth anddevelopment
of renewableenergy.Youcanplaythisthemewith
exchange-tradedfundssuchasiShares Global Clean
Energy (LSE: INRG)andtheLyxorNew Energy
(LSE: NRJL).Amonginvestmenttrusts, consider the
RenewablesInfrastructureGroup (LSE: TRIG).
Butperhaps themostintriguingoptionis suggested
byEvans-Pritchard, whosaysheownssharesinoil
giants becauseheconsiders themhydrogenplays: BP
hasannouncedplansfor theUK’slargest bluehydrogen
facility;Shell hasalreadyopenedEurope’s largest
electrolysertoproduce greenhydrogeninGermany;all
theother bigoilmajorshavesimilar plans. AndasCris
SholtoHeatonpointedout forMoneyWeek recently,
markets areputtinglittle valueonthelong-term
prospectsofShell(LSE: RDSA)andBP (LSE:BP)in
particular.Withdividendpayoutsstartingtorise,then
“solongas theworld doesn’tabandonoilfaster than
seemslikely, both lookextremelycheapplaysinacheap
sector”. Allthe moreso if they getaliftfromhydrogen.