In October 2023 the 27 EU member states finally approved a Renewable Energy Directive which includes mandatory use targets for renewable hydrogen and its derivatives.
This will ensure 42% of the all the hydrogen used by EU industry must be green by 2030 (reaching 60% in 2035). This directive should supercharge the demand for green hydrogen to be used in Europe as over 9 million tonnes of grey hydrogen (derived from unabated natural gas) are currently consumed in the EU each year – mostly for fertiliser use, chemical production, and oil refining.
The transition to a climate neutral industry in Europe is essential to combat the climate crisis. The EU has set a target of net zero emissions by 2050 – and this has been codified in the European Climate Law together with at least a 55% reduction compared to 1990 levels.
The production and use of renewable hydrogen is seen as a key lever for the decarbonisation of hard to decarbonise sectors such as steel, chemical, cement, and refinery business.
Decarbonising the industry, transport and heating sectors is crucial as they account for almost 75% of greenhouse gas emissions.
The EU hydrogen strategy plants to ramp up renewable hydrogen production from electrolysis to 10 million tonnes of hydrogen by 2030 and will likely need to import another 10 million tonnes to meet expected demand.
According to Goldman Sachs, decarbonisation and reaching net-zero carbon emissions will require over US$ 5 trillion in investment capital. This could see new hydrogen investment of over US$ 1 trillion by 2050.
Hydrogen investment can be allocated over multiple categories such as infrastructure plays in storage and transport, refuelling stations, hydrogen producers, manufacturers of electrolysers and fuel cells, mobility, shipping and storage, infrastructure assets, and fuel cell applications.
Roland Berger Consultancy in a recent Hydrogen report noted that attention of investors is moving towards real assets such as large scale integrated renewable projects and major infrastructure.
There is yet no ready-to-use transport chains for green hydrogen such as terminals and ships – essential for initiating projects and connecting supply and demand. This is also likely to be a key investment area in 2024 and beyond.
Marcel Werner from Senco Capital in Germany highlighted the unique investment opportunities in Germany and Europe “Germany has world-leading industrial know-how in the field of hydrogen. Critical to success are not only the large industrial, energy and chemical companies, but rather small and medium-sized enterprises…parts suppliers for manufacturers of electrolysis plants or also manufacturers or suppliers of other technologies such as fuel cells”.
In Australia the hydrogen industry and possible investment pathways are still in their infancy. In 2023 the Australian Government committed to investing over A$2 billion in a Hydrogen HeadStart program but it is questionable if this support is enough to move projects past the pilot phase and into commercial scale development and develop the feeder infrastructure and derivative businesses.
For investors looking to invest into listed hydrogen plays on the Australian Stock Exchange with exposure to global Hydrogen macro growth the opportunities are limited. Some options are Fortescue, Provaris Energy and Hazer Group.
Fortescue (ASX: FMG) which makes almost 100% of its revenue from iron ore sales but is committed through its subsidiary Fortescue Future Industries (FFI) to producing green hydrogen containing zero carbon from 100% renewable sources. The Company is investing in and evaluating global projects such as the Phoenix Hydrogen Hub, a green hydrogen project in Queensland and projects in Europe.
Fortescue announced in late 2023 they have secured €200 million in EU funding for a 300MW green hydrogen and ammonia plant in Norway from the EU innovation fund which is financed by income from the EU emissions trading scheme.
graphic of planned Norway Fortescue hydrogen site
The Company’s CEO, Dr Forrest, confirmed in 2023 FFI would be investing tens of billions of dollars in hydrogen projects in the United States because of the substantial benefits from the Inflation Reduction Act. The Company envisages their future to be in infrastructure and enabling technologies of the hydrogen industry “Our future is machines making machines – machine which make electrolyser, machines which make long distance cables, solar panels which can crack hydrogen in the panel”.
Fortescue is also making strategic investments along the value chain and recently acquired 12.5% interest for €8.5 million cost of Norwegian Hydrogen – an operator and developer of green hydrogen projects in the Nordics. Norwegian Hydrogen is currently working to build its first green hydrogen production facilities in Hellesylt, Norway, and in Hjørring, Denmark.
Hazer Group (ASX: HZR) has developed a process to produce clean and low carbon hydrogen with at least a 50% emission reduction compared to other fossil fuel-based hydrogen production techniques. In late 2023 the Company successfully commissioned the Commercial Demonstration Plant (CDP) in Western Australia with hydrogen production expected to commence in early 2024. According to Hazer “the CDP is a world first commercial demonstration of Hazer’s technology, converting natural gas into clean, low-cost hydrogen and solid graphite using iron-ore as a process catalyst”.
Hazer’s technology was developed in Australia from research conducted at University of Western Australia. The process “cracks” methane into hydrogen and solid graphitic carbon, using iron ore as an inexpensive process and catalyst.
Hazer Group's CDP in WA
According to the Company’s CEO and MD Glenn Corrie, a further advantage of the Hazer Process is that it can be inserted into existing LPG supply chains and infrastructure and is effectively a plug-in technology to add to an existing carbon-intensive processing facility such as a refinery or steel plant.
In 2023 Hazer Group signed two major deals. One with European energy giant Engie for a commercial hydrogen and graphite production plant at a Frech LNG terminal and the second with Chubu Electric for a “transformational” similar facility in Japan and will be looking for further global growth opportunities now the CDP has been completed.
Provaris Energy Ltd (ASX: PV1) is an Australian public company and developer of unique, safe, and energy-efficient integrated hydrogen supply chains for regional markets in Asia and Europe.
One of the challenges of hydrogen transportation is the storage and distribution of hydrogen. Due to its low density, hydrogen needs to be compressed or liquified to occupy less space and allow for efficient transportation.
Provaris Energy’s competitive advantage is the intellectual property developed for hydrogen storage and transport of ‘compressed’ green hydrogen, using the proven technology of compression This includes the proprietary design of bulk-scale hydrogen carriers (H2Neo & H2Max) and barge storage solutions (H2Leo).
image of proposed H2Neo Provaris compressed hydrogen transport solution
Provaris is moving fast in Europe with a prototype tank to be developed in first half of 2024 in Norway in collaboration with Prodtex AS – a specialised design and engineering company in Norway using state of the art processes and robotic welding techniques.
In late 2023 the Company signed a non-binding memorandum of understanding (MoU) with German energy giant Uniper. The collaboration will assess the feasibility of supplying green hydrogen to Germany using Provaris unique compressed hydrogen carriers.
Norwegian Hydrogen is a large Norwegian based developer of operator of green hydrogen infrastructure projects including provision of production facilities, distribution systems and refuelling and bunkering solutions. Norwegian Hydrogen was suitably impressed by the potential of Provaris Energy’s solutions they have signed a MoU to collaborate on developing green hydrogen supply chains in the Nordics and beyond.
Provaris Energy sees growth not just in building and selling compressed hydrogen tanks and storage but as a global integrated project development business with multiple revenue streams, bankable projects, and robust financial returns to shareholders.
The drivers and the tailwind including net zero targets, demand for clean energy and decarbonisation for the global hydrogen market are substantial and growing significantly. The hydrogen market is expected to grow from USD$ 130 billion in 2020 to USD$ 201 billion in 2025.
Companies such as Provaris and Hazer Group on the cusp of commercialisation and revenue recognition and Fortescue is making big investment plays and strategic global acquisitions. This creates excellent opportunities for investors to enter early into a significant growth sector with plenty of potential upside.