COP26 and the growing momentum behind hydrogen

As we head into COP26 the expectation is that there may be an uptick in relation to not only policy support for alternative fuel sources, but also international policy coordination. This, together with the significant tailwinds of significant interest from private capital in alternative fuel sources, together with an upsurge of capex spent on hydrogen research & development programs, has seen the hype around hydrogen continue to increase.

So where does the hype around hydrogen originate from?

• Hydrogen and Ammonia are presently considered by many to be the likeliest options to decarbonise some of the highest carbon emitting industrial and transport sectors, such as steel and alumina production, cement production and long-haul shipping.
• If proven to be technically and commercially viable, incumbent fossil fuel businesses may look to pivot to hydrogen through the potential repurposing of existing infrastructure and supply chains.

What are some of the technical challenges with hydrogen?

• Energy efficiency conundrum – Many who have pinned their decarbonisation hopes on hydrogen note that it is the most abundant element in the universe. However, it costs a lot of money to go out into the universe, so we should focus closer to home. Hydrogen is also abundant on Earth, but it’s bonded with other elements and therefore needs energy to separate it into a pure gas or liquid form. Given this, using renewable energy to create hydrogen for use in a fuel cell vehicle means over 70% of the energy is lost along the way, while when putting the same renewable energy into a battery electric vehicle only 20-25% of the energy is lost . Therefore, it will be prudent to direct the use of hydrogen to decarbonisation applications where it can have the most benefit first.
• Storage – Hydrogen needs to be kept really compressed or really cold, or some combination of both, the energy requirements to do so are many orders of magnitudes beyond traditional liquid fuels we use and transport today. There are some innovative material science solutions being utilised at small scale today, however, the technology to store and transport large quantities of hydrogen efficiently are still not widely available.
• Competition – Batteries and hydrogen share many of the same potential end use applications. Given there are already considerable R&D resources focused on battery technology and battery solutions are already commercially viable in many end use cases, there is a risk that battery technology becomes so widely deployed or innovates even further before hydrogen can commercial viability is affected before it can scale.The JANA Infrastructure Research Team will be releasing a follow up article in November on whether there is currently an investment opportunity for hydrogen within the infrastructure asset class, including further consideration of the commercial challenges that need to be overcome and the risk return profile.

COP26 may be a catalyst for the hydrogen economy but it will still require investment managers to have a high degree of skill and knowledge to discern whether the investment opportunity stacks up now, or whether the challenges will continue to weigh on hydrogen’s growth potential. Active management is therefore key to correctly identify the viable opportunities at the right time, as opposed to potentially overpaying early to get in on an apparent winning technology that is subsequently superseded. Looking through the hype of media reports on both COP26 and hydrogen will be important over the coming weeks to truly understand if policy support has tipped enough in hydrogens favour to accelerate the promise that it holds.

1 www.transportenvironment.org