Earlier this year, I named the three megatrends I see flourishing this year.
While prosperity is not exactly synonymous with “immediate profitability,” I do believe that 2023 is going to be a year full of critical growth in many sectors. And the more they grow, the more likely the coming years will reward investors.
So, today, I want to talk about green hydrogen; we’ve discussed this topic a handful of times before, but recent developments in this space require our attention again.
I’ll reveal more about this next week, but until then, here’s your green hydrogen refresher…
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A New Wave of Clean Tech
Hydrogen, as a fuel, is carbon-free. But the typical processes that produce hydrogen are not. That’s why the renewable energy industry uses a palette of colors to designate the source of hydrogen fuels. I won’t go over the “greys” and “blues” of it; the only color you need concern yourself with is green.
“Green hydrogen” is the new kid in town. Think of it as the love child of water and renewable energy. Green hydrogen results when a renewable energy facility powers an electrolyzer that splits water into hydrogen and oxygen.
Conceptually, therefore, green hydrogen is the ultimate carbon-free fuel. It combines a limitless supply of water with renewable energy to create a zero-emission fuel.
Additionally, green hydrogen can integrate easily with fossil fuels and with the entire fossil fuel ecosystem. Green hydrogen, for example, can blend with existing fuels to create synthetic fuels like e-Methane, e-Methanol, e-Diesel, e-Gasoline, or e-Jet fuel.
This story is so alluring that green hydrogen seems an inevitable future leader of the multi-decade clean tech boom.
It has not yet achieved that status for two main reasons…
- Green hydrogen is more expensive to produce than the grey variety.
- Green hydrogen technologies have not yet achieved the scale that could drive its price down to competitive levels.
But eventually, maybe sooner rather than later, green hydrogen could become a key solution for what one energy market observer calls a “molecule crisis” – i.e., not enough hydrocarbon molecules to continue powering the world at a reasonable cost.
This particular opportunity is so early in its development that none of the sector’s leading companies are booking profits… yet.
But Bank of America Corp. (BAC) compared the current phase of the hydrogen market to the smartphone market just before the first iPhone launched, or the 1999-era internet, just as companies like Amazon were emerging. The bank estimates that hydrogen will generate 24% of our energy needs by 2050, creating as much as $11 trillion in investment opportunities over the next three decades.
Therefore, even though some investors might consider green hydrogen to be a “tomorrow fuel,” I believe it has become a “today opportunity,” thanks to at least three main near-term catalysts…
Catalyst No. 1: Urgent Energy Security
Because many European countries now realize their dangerous overreliance on Russian gas imports, they are scrambling to find replacements. Traditional renewables like solar and wind will certainly play a role. But by themselves, they will not be able to replace the “missing” Russian gas.
Europe will require an “everything solution” immediately. In this context, green hydrogen offers two especially valuable benefits…
- First, it can boost the total energy output from wind and solar installations.
- Second, because green hydrogen is the only combustible renewable energy source, it is the only one that can blend seamlessly with fossil fuels.
One fascinating example is a plan by the Los Angeles Department of Water and Power to convert a coal-fired power plant to green hydrogen… in stages.
Initially, the Department will convert the plant to a blend of 70% natural gas and 30% green hydrogen. From there, the plant will transition to 100% green hydrogen by 2045.
Catalyst No. 2: Onshoring or “Near-Shoring” Supply Chains
Now that Western companies and countries understand the risk and expense of maintaining fragile, far-flung supply chains, they are moving quickly to onshore – or “near-shore” – those chains. We talked a bit about this on Saturday.
Energy is a critical part of most supply chains, as many German factories are now discovering. Some of them are reducing or suspending production for lack of an energy supply.
Green hydrogen could help to solve that problem because it lends itself to localized production. In theory, any location with a water supply and access to a renewable power source could produce green hydrogen.
Catalyst No. 3: An Imminent Investment Tsunami
Both the private sector and national governments are pouring billions of dollars into green hydrogen production. Importantly, this massive investment is just beginning to sweep across the renewable energy industry.
Bottom line: I believe hydrogen, especially “green hydrogen,” will become an increasingly vital clean technology, due mostly to its unique ability to decarbonize heavy industry and revolutionize clean mobility.
Regards,
Eric
P.S. Deglobalization has been a hot topic I’ve followed for years. But right now, a huge deglobalization event is unfolding right in the center of the American heartland.
Specifically, I believe we’re about to see an all-American surge in one of our fastest growing markets… and it’s going to take a lot of folks by surprise.
America hasn’t seen anything like this in decades – follow this link for details.
