I’ve tended to avoid the hype around the impending hydrogen revolution. It’s not that I don’t think that hydrogen has a role to play – in fact, I’m going to point to a research report that very sensibly maps out a series of uses. My main caution is that ever since the first fuel cell hype phase in the first decade of this century I have tended to mentally pigeonhole hydrogen as something a bit like nuclear fusion. Always just twenty years away. I realize that’s a bit unfair because there is a huge grey hydrogen sector in existence already but I’ve never quite taken the bait on fuel cells. Also, if one looks down the list of amazing, high performers in funds land over the last year, it’s full of clean energy funds jam-packed with highly speculative North American hydrogen stocks, many of which have gone up by many multiples in the last 12 months. That slightly makes me feel that even if there is something real going on, I’m probably late to the party.

But its also obvious to me that Bill Gates is right when he says that we need to focus much less on the low-hanging fruit of climate change technology – electric cars and wind turbines – and more on the hard-to-crack technologies bundled up within the industrial sectors. If we are truly to hit our targets we need to find a way to decarbonize everything from concrete to heavy goods lorries and shipping. On this latter score, much less progress has been made. Hydrogen clearly might have a big role to play in this space.

That at least is the idea behind a new ETf from the LGIM ETFs stable. The L&G Hydrogen Economy UCITS ETF is shiny brand new and you can find out more here : https://fundcentres.lgim.com/uk/professional/fund-centre/ETF/Hydrogen-Economy/

The table below shows the main constituents, most of which look suitably grimy and industrial to my untrained eye. The other observation I would make is that this list largely seems to avoid the ‘hype’ end of the spectrum: that means staying away from Fuel Cell manufacturers, eg. Ballard Power, Bloom Energy, Ceres Power, and pure-play providers of PEM Electrolysers, eg. ITM Power, McPhy Energy and NEL.


Top 10 constituents (%)

Cummins 4.4
Johnson Matthey 4.2
Kolon Industries 4.1
Daimler 4.1
Toyota Motor 4.1
Kyocera 4.0
Air Products & Chemicals 4.0
Linde 4.0
Uniper 3.9
Siemens 3.9

What this new ETF has prompted make me do is to root around for some useful reading material on the industrial side of the opportunity set. Cue a Morgan Stanley report from the beginning of March called The Age of Electrification – Quantifying the Hydrogen Opportunity by analysts Ben Uglow, Katie Self and Victoria Irving.

The core argument here is that hydrogen will serve a valuable purpose as an energy carrier i.e a way of carrying concentrated energy in a mobile form for more industrial uses. That sort of seems to make sense to me. The other obvious point here is that we are obviously talking about a shift from grey hydrogen – the dirty stuff – to green hydrogen.

On this basis, the MS analysts reckon that the industrial hydrogen market should grow to >$600bn+ by 2050. Based on estimates by the Hydrogen Council and IEA, the volume of hydrogen produced is set to increase from ~70mt today to ~545mt by 2030 (~8x). Crucially Hydrogen usage will shift from a feedstock in Ammonia and Petrochemical Refining to a clean energy vector used in Power, Industry, and Transportation. “At a minimum, we believe that these end-markets can become meaningful (eg. ~$4-9bn each) in a relatively short timeframe, ie. over the next decade. However, we suspect that the growth dynamic could be quite similar to solar and wind, where many of the early-stage companies failed to survive.

The best way of playing this opportunity set, they argue, is to “play the demand side via rail – because the economics of using hydrogen fuel cells on trains are more persuasive than in passenger cars – the technology is already being deployed” as well as PEM Electrolysers. “For PEM Electrolysers, our base assumption is 8.7% CAGR through 2050 to $19.5bn; bull case 11.7% to $44.1bn. For Hydrogen Trains, base case assumes 12.9% to $24.2bn; bull case 15.6% to $48.4bn”.

Handily for private investors, the MS report also contains a useful map of all the players in this space…overvalued or otherwise. Like Morgan Stanley, I think I’d be more interested in the top left-hand corner of this diverse universe.

So, which stocks should we be researching? The Morgan Stanley reports highlights two very well known names:

Siemens Energy, with a price target of 40 euros which is already strong in electrolysis and co firing gas generator units. “(1) We think that domain knowledge in Process Industries and Power Generation are going to be important in the Hydrogen Transition – it already works with these customers. (2) With an annualised R&D budget of ~€1bn, Siemens Energy is well-placed to invest in and develop new technology. (3) Its relationship with a majority-owned Wind company (Siemens Gamesa) is unique. (4) The investment opportunity is tangible in electrolysers alone, ie. the idea is ‘fuel-cell agnostic’.

Alston, with a price target of 59 euros, strong in Hydrogen rail – “(i) the significant first-mover advantage: Alstom began development of its hydrogen platform in 2013, and launched commercial operations in 2018. The trains
have since clocked up >200,000km in commercial use and have been ordered or certified for use in multiple countries; (ii) Alstom remains the only Rail OEM globally to have a fully hydrogen-powered train under operation.”