UK investment research and advisory firm Edison Group has published a new report ‘The Hydrogen Economy – Decarbonising the Final 20%’ that sheds a light on the progress of the global hydrogen industry.

The report recognises that renewable hydrogen will be crucial to decarbonise the final 20% of global energy consumption and limit global warming to 1.5oC by building upon the renewable progress achieved by cheaper renewable power combined with battery storage.

While popular renewable methods such as wind and solar look set to take hold in sections of the transport and power sectors, according to the report, hydrogen will be greatest in “hard-to-reach” applications such as steel making, heating, and heavy-duty freight transport.

For instance, hydrogen’s high energy-to-mass ratio makes it suitable to replace coal and gas industrial processes and makes it useful to support transport where fuel cells are a better fit than batteries.

It also works best when used in addition to applications and fuel cell technologies that don’t rely on widespread availability of pure hydrogen and applications such as steelmaking where hydrogen is used as a chemical reagent rather than just an energy source.

Yet even in the most promising industries, success is not yet guaranteed.

On the other hand, hydrogen is less likely to power cars and other mass markets products due to the heavy competition it faces with batteries in the light duty passenger vehicle market.

Edison Group TMT group global head Dan Ridsdale says: “We do not see a significant market for hydrogen here. Prospects are brighter in other transport sectors where the level of energy required is much greater and where hydrogens high energy per mass gives it a big advantage.”

The findings in the report indicate that share prices of many hydrogen and related stocks have doubled or quadrupled during 2020, but many are potentially highly sensitive to setbacks, especially considering hydrogen’s history of false dawns from the early 2000s.

Hydrogen lacks support

Whilst falling production costs are helping to reduce the cost of green hydrogen, many potentially viable parts of the market will not reach self-sufficiency unless governments provide investment and implement policies that explicitly encourage hydrogen adoption.

Edison Group director of research Neil Shah said: “It is difficult to imagine net-zero being achieved without significant growth in green hydrogen. Yet governments must lead from the front through prolonged investment and the right policy frameworks, and this level of support will go a long way to dictating how the next decade will look from an investor viewpoint.”

Without such support, the industry cannot scale sufficiently, and costs will not reduce to the point below which subsidies become unnecessary. This would stall market growth and some companies may fail to live up to investors’ current expectations.

“Explicit government support, in various forms can help bridge the gap, ensuring deployment at sufficient scale to accelerate the pace of cost reductions. Support can be in various forms: R&D, supporting hydrogen hubs, co-ordinating infrastructure investment, planning, taxes, setting deployment targets, etc. Arguably, the policy with the single greatest potential to improve the economics of hydrogen vs existing fuels are carbon taxes,” Ridsdale says.

Given these sensitivities, Edison’s report has looked into 18 listed companies that are currently better positioned than the rest, headed by Ballard Power Systems, Ceres Power, ITM Power, NEL Hydrogen, McPhy, and Plug Power.