Is it hydrogen's time to shine?

Hydrogen may finally be taking centre stage in the energy transition after years of hesitant investor sentiment. Though other areas of the cleantech market have somewhat stalled among uncertain macroeconomic conditions, hydrogen has continued to see interest from investors.

Investment in the global hydrogen economy increased by almost 2.5x from 2022 to 2023 according to BloombergNEF's annual report on energy transition investment trends released last month. The data includes storage, pipelines, refuelling stations, commercial and passenger fuel cell vehicles (FCVs), production (via electrolysers and thermochemical generation), and other parts of the hydrogen supply chain and ecosystem.

There is particular interest in FCVs for transportation, as they mitigate the range issue present in battery EVs. For this to become a reality, however, refuelling station development must pick up, as it currently lags far behind EV charging implementation.

Hydrogen for industrial manufacturing is another area which has gained traction in recent years. Clean ammonia and clean steel are two subsectors where investment grew substantially in 2023, contributing significantly to overall hydrogen and energy transition investment growth. Additionally, investment in production has seen an uptick, particularly in the electrolyser subsegment, which reflects the innovation being made in this area.

The Financial Times published an article on 18th February which reported on a (theoretical) newfound abundance of natural hydrogen sources. New calculations by geologists suggest that there may be up to 5 trillion tonnes of hydrogen trapped in underground reservoirs. The extreme case projected demand, c. 500 million tonnes a year, indicates that even accessing a small portion of these reservoirs could provide a sufficient supply for the long term. This could shift investment away from hydrogen production and towards hydrogen exploration.

The heightened interest in hydrogen is indicative of the need for more creative thinking around decarbonisation. Despite the wide range of clean technologies on the market, new technologies and solutions continue to emerge. We at Aalto Capital anticipate hydrogen’s role in the broader energy transition developing further over the next year as investment pays off and continues to accelerate the pace of development and innovation in the hydrogen market.