Play the Coming Green Hydrogen Boom With Plug Power Stock

With the demand for green hydrogen poised to boom around the globe, betting on one of the world’s leaders in the space definitely makes sense for long-term investors. At this point, that is one of the most important reasons why I continue to recommend Plug Power (NASDAQ:PLUG) stock for such portfolios.

Source: Shutterstock

I’m not alone in this recommendation. Asset managers have been taking increasingly bigger stakes of PLUG stock for their portfolios. According to ETFdb.com, the shares are included in the holdings of 116 exchange-traded funds, for a total market value of $1.93 billion. Those flows have occurred as Plug Power stock has underperformed the Global X Hydrogen ETF (NASDAQ:HYDR). That ETF has PLUG stock making up 12% of its portfolio, the second-largest holding there. (see chart below)

Green hydrogen is defined as hydrogen that has been obtained from water using electricity obtained from clean, renewable fuels, principally solar energy and wind energy.

As of November, the company planned to produce ” 500 tons-per-day of liquid green hydrogen by 2025.” It’s also partnering with (green hydrogen maker) Lhyfe for the development of green hydrogen plants throughout Europe.

Next year, Plug expects its green hydrogen business to begin “to approach break-even,” before generating gross margins of about 30% in 2024. But in the second half of this year, the margins of the company’s green hydrogen business are expected to rebound.

Why Green Hydrogen Is Poised to Boom

Green hydrogen is the solution — or at least one of the main solutions — to multiple problems that the world is facing as it tries to decarbonize. As many know, solar panels and wind turbines can’t produce electricity when, respectively, there’s no sun and no wind.

Price chart of PLUG stock vs. HYDR ETF
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Source: Koyfin

Moreover, storing the electricity produced by solar panels and wind turbines has proven to be quite problematic. That’s because lithium-ion batteries, which are by far the most prevalent type of batteries, are quite expensive and can only store electricity for a maximum of eight hours at a time.

While there are companies working on developing other types of batteries for energy storage, no such batteries have even started to be embraced by major firms and governments.

Additionally, as I’ve pointed out in multiple, past columns, batteries are not a practical solution for trucks that have to carry large cargoes over long distance. Nor can batteries, for the foreseeable future, practically be used to power airplanes or ships.

Finally, green hydrogen can, in the medium-to-long-term, largely replace natural gas as a companion fuel for renewables. That, of course, will be “music to the ears” of the European nations that are looking to eliminate their dependence on Russian natural gas.

Green hydrogen can replace natural gas because, like natural gas, large amounts of green hydrogen can be generated and then kept available for use when the sun is not shining or the wind is not blowing. Also importantly, green hydrogen is, according to some, competitive, from a cost and practicality standpoint, with fossil fuels.

Green hydrogen “is now a full-fledged commodity, able to compete with coal, oil and natural gas in both costs and volumes, the perfect weapon at scale against the climate crisis and skyrocketing energy prices,” explained Thierry Lepercq, the CEO of Spain’s DH2 Energy, part of a joint venture that’s building a huge green hydrogen plant.

Others sound less upbeat than Lepercq, saying that green hydrogen will only be “cost competitive with fossil fuels” in 2030. But 2030 isn’t so far away, and up until that point, subsidies from governments can make green hydrogen as attractive for companies as fossil fuels. Moreover, with oil and natural gas prices spiking, green hydrogen could become cheaper than fossil fuels much sooner than 2030.

Many Large Green Hydrogen Projects

Adding to my optimism about the future demand for green hydrogen, companies are beginning to propose and undertake huge green hydrogen projects around the world. For example, Southern California Gas (OTCMKTS:SOCGP) has proposed a project that would be the biggest green hydrogen project in the U.S., with output that would replace nearly 25% of the huge firm’s natural gas.

In Western Europe, the joint venture to which I referenced earlier has undertaken a large, 7.4 gigawatt green hydrogen plant. Steelmaker ArcelorMittal (NYSE:MT) and European fertilizer manufacturer Fertiberia have already agreed to buy green hydrogen from the project.

Finally, a large, 6 GW green hydrogen project has been announced in Australia.

I believe that these companies would not undertake large green hydrogen projects unless they were sure that they were feasible and likely to be profitable. And if those undertakings are feasible and profitable, many other green hydrogen projects around the world will also have those characteristics.

The Bottom Line on PLUG Stock

PLUG stock is currently selling for 48% below its 52-week high of $48.35 a share reached on March 11, 2021. The closest it’s been since is $45.40 on Nov. 19.

Meanwhile, green hydrogen is poised to boom, and Plug Power is going to become a huge supplier of such hydrogen, leaving it very well-positioned to capitalize on the trend in the long term. Consequently, I recommend that long-term investors buy PLUG stock for their portfolios.

On the date of publication, Larry Ramer held a long position in PLUG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.


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