Growth at hydrogen play AFC Energy is poised for take-off in 2024. The stock could rocket
Rupert Hargreaves Investment columnist
This stock is a highly speculative opportunity in the hydrogen sector. This may seem a waste of time. After all, hydrogen is still in its infancy and remains far more expensive than fossil fuels. And that’s the angle from which I have approached this idea. The returns could be tremendous if it secures even a sliver of the market. At this stage, hydrogen is not an economical or efficient alternative to fossil fuels owing to the energy required to produce the element. We are still a decade or more away from efficient green hydrogen. There are two main types of hydrogen: green hydrogen, which is produced using renewable energy, and blue hydrogen, made using fossil fuels such as natural gas.
In a perfect world, green hydrogen would be produced when the grid is in a state of oversupply. That usually tends to be on windy nights when there is lots of energy from wind power, but not enough demand to soak it up. Currently, when this happens power prices turn negative on the spot market and energy users are paid to take the excess from the grid. One of the biggest users of this cheap, green energy is pumped-storage power plants: giant reservoirs that work in much the same way as traditional hydroelectric plants, but with one key difference. When the water has passed through the facility, using gravity to turn turbines and generate power when demand is high, it’s pumped back up using cheap power when the grid is in a state of oversupply. These facilities are essentially giant batteries.
The production of green hydrogen when the market is oversupplied would lean on the same principle. Green hydrogen costs between €3 and €8 per kilogram (kg) today, according to consultancy PwC. That cost could halve by 2030 and fall to €1/kg in some regions by 2050 as the world gets better at balancing energy demand and supply from renewable sources.
Generating power
These costs suggest that hydrogen won’t be cost-competitive with fossil fuels for decades, even with a well-developed market. Therefore, it is unlikely that hydrogen will replace the entire diesel market. The future will be dominated by a mix of fuels. Diesel and petrol may remain relevant, alongside hydrogen vehicles and generators, battery electric-vehicles, and other alternatives. Our power system has transitioned
