LONDONLONDON (Reuters Breakingviews) - Hydrogen stocks are partying like it’s 1999. The potential for the element to play a big role in decarbonisation has led shares in producers to behave like technology stocks before the dot-com crash. Investors trying to find the sector’s future at least have some clues to follow.

Shares in $30 billion U.S. fuel-cell specialist Plug Power are up 20-fold since the start of 2020, and are nearly 70 times this year’s expected sales. U.S. rival Bloom Energy and Canada’s Ballard Power Systems, UK group Ceres Power and Norway’s Nel are all up fourfold or more. Britain’s ITM Power, now worth 3.6 billion pounds, trades at over 100 times next year’s revenue.

The hysteria is understandable. The Energy Transitions Commission thinks hydrogen could account for 15% of global energy by 2050, from next to nothing now. But investors risk backing the wrong horse. Current production, worth over $150 billion a year, is mostly “grey” hydrogen, made by treating steam. It’s cheap, at less than $2 per kilogram, but produces carbon dioxide. The real excitement is “green” hydrogen, made by harnessing renewable electricity to power electrolysis, which splits water molecules into hydrogen and oxygen. It’s more expensive, though costs are falling rapidly. The crucial question is when green becomes cheaper than grey.


It’s possible to take an educated guess. McKinsey reckons green hydrogen for the chemical and refining sectors, and hydrogen-powered trucks, will cost the same as grey by 2030. The consultant says it will take longer for the same to apply to other activities like iron and steel production and heating homes. Yet it also thinks that a possible $100 per tonne government-imposed carbon price, three times the current European level, would make those uses competitive by 2030 too.

That means hydrogen’s nascent Amazon may be lurking in the niche but all-important field of electrolyser manufacturing. Nel, a sector rival to ITM, said on Thursday that it could make green hydrogen for $1.5 per kilogram by 2025. Admittedly, its ambitions are based on renewable power costing $20 per megawatt-hour, less than half offshore UK wind costs. But the scale of investor and government interest is such that, as with wind and solar, dramatic savings are possible. The prospect of backing the sector’s Amazon means that, even at today’s inflated valuations, a punt may be rational.