Hydrogen in Australia: Can we expect massive adoption in the next 10 years?

Nick Sundich Nick Sundich, April 18, 2024

When will we see hydrogen in Australia? Not as a fad, not as an idea, but as a widespread energy source as we are all being told it will be? It will be several years away, and it is anyone’s guess. Nonetheless, you have to start from somewhere, and there will be billions of dollars in capex invested by governments and corporation in the forseeable future. We thought we’d look at just why hydrogen is a big deal, when we might see it and how investors can gain exposure to it.

 

4 reasons hydrogen a big deal

We see four reasons. First, to state the blatantly obvious, it is a renewable energy source. When hydrogen is used in fuel cells, it produces water as the only by-product, making it a zero-emission fuel. OK, but there are plenty of other renewable sources like solar and wind. What makes hydrogen better? We’ll deal with these in the remaining three reasons.

The second of our four reasons why hydrogen is a big deal is having high energy density by weight, which making it significantly more efficient than other common energy carriers such as batteries. Specifically, hydrogen contains approximately three times the energy per mass of gasoline, which means it can store more energy for the same amount of weight. This property is particularly advantageous in transportation sectors such as aviation and shipping, where weight is a critical factor.

The third is hydrogen’s Versatility and Flexibility to be used in a variety of applications. It can generate power through fuel cells, be burned to create heat, or be used as a raw material in industrial processes. Furthermore, it can be integrated into existing energy systems. It can be used to store and transport energy generated from other renewable sources, such as wind or solar, thus addressing one of the major challenges of renewable energy: intermittency.

And finally, it can serve not just as an energy source, but as a storage medium, enabling surplus energy from renewable sources to be stored and then used when needed. This is an issue that renewable energy sources like solar and wind face, they are dependent on weather conditions and time of day. By converting excess electricity into hydrogen, energy can be stored indefinitely and then converted back to electricity through fuel cells as demand requires.

 

So, when will we see hydrogen in Australia?

Realistically, we won’t see hydrogen in Australia for another decade – at least to see the dreams of governments and NGOs (non-government organisations) hoping to mitigate climate change. This has not stopped them, and private companies investing in projects, both small and large scale to prepare for such a future.

Australia has its own National Hydrogen Strategy, first launched in 2018 and has published an annual report since then. The most recent one found that Australia’s hydrogen and derivatives industry has an investment pipeline of A$230-300bn, worth 40% of all global projects announced to date.

The Australian Renewable Energy Agency (ARENA) supports several projects, including the development of a green hydrogen plant, that align with Australia’s green hydrogen strategy. This strategy is integral to ensure not only that Australia can realise its ambitions from an environmental standpoint, but from a supply chain one too.

According to Norwegian renewable energy advisory company DNV, the world will need 15% of its global energy to be from hydrogen by 2050, if it is to meet targets from the Paris Climate Change Agreement. It could help avoid up to 534PJ of natural gas, 20mt of coal equivalent and 360 kilo-barrels per day of oil.

 

Can I gain exposure to hydrogen on the ASX?

Yes, if you want exposure to hydrogen in Australia, there are listed companies in this space. Iron ore miner Fortescue (ASX:FMG) has a specific division (Fortescue Future Industries) that is dedicated to hydrogen. In April 2024, it opened an electrolyser manufacturing facility in Queensland. It will be the first of its kind in Australia to do this on a commercial scale. Soon to be acquired Origin Energy (ASX:ORG) is looking at building a Hydrogen Hub in the Hunter Valley to service Orica’s plant. First production is targeted for 2026.

At the same time, many individual ASX Hydrogen stocks (even those that have committed money to the cause) are at early stages. In other words, don’t expect to see them producing hydrogen any time soon. Yet if they can capitalise on the trend, there is a significant opportunity for these companies to make money and have a positive impact on the world in doing so. And if you invest in the larger companies, there are non-hydrogen catalysts for growth in the short to medium term that could create shareholder value.

 

Investors need to be realistic

So often on the ASX, investors are lured into investing in dud companies by the promise that these companies are onto the next big trend and will capitalise. We don’t recommend investors buy into hydrogen small cap stocks right now.

At the same time, we wouldn’t advise avoiding large-caps that are making early stage forays into the sector, like Fortescue are, although investors need to approach these companies looking at their primary business first and foremost. Hydrogen will have a big role to play in Australia’s future, but slow and steady will win the race. And those without the capex to invest will not even be able to start!

 

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