Hoppa till sökfunktionen Hoppa till innehållet

Hydrogen, key to a green future

Image of car on a road in a forest.

Hydrogen technology companies have been red-hot in the stock market over the past year. A number of countries have recently declared national hydrogen strategies, and many large companies will be accelerating their hydrogen-related investments after the coronavirus crisis. “Green” (or “clean”) hydrogen – produced from renewable energy sources − offers solutions to many of the remaining purely technical barriers to the transition of our societies to renewable energy. Half of the necessary emission cuts in the European Union by 2050 could potentially be solved by increasing the use of hydrogen.

This is a summary – read a longer article on pages 20-24 of the latest Investment Outlook.

Everyone is joining in

Recently governments, companies and not least the European Union have been competing to launch the most ambitious investments in hydrogen and related technology. The EU wants to increase the region's green hydrogen production capacity to 40 gigawatts (GW) by 2030 while importing an equal amount from neighbouring regions.

International corporations are investing USD 7 billion in a giant hydrogen project in Saudi Arabia. A consortium of large Danish firms will build up 1.3 GW of electrolysis capacity by 2030. This hydrogen production will be based entirely on electricity from wind power. At least seven steel companies around the world are working on projects in which hydrogen will replace coal in the production of steel.

These and other well-publicised developments have fuelled the risk appetite of investors. A group of eight European (including Nordic) and North American shares with exposure to hydrogen technology − focusing on fuel cells, electrolysis and vehicles − has soared by 150-560 percent in just one year.

Green, blue or brown hydrogen?

Green hydrogen is extracted from water with the help of electricity from renewable energy sources, primarily solar and wind power, but 96 per cent of all hydrogen for industrial use is still produced by separating hydrogen from natural gas or by using gasification of coal – so-called brown hydrogen.

One intermediate strategy is to combine this with carbon capture and storage (CCS), which is called blue hydrogen. In practice, it is very difficult to eliminate carbon dioxide emissions, but they can be reduced by about 90 per cent at a reasonable cost.

This analysis focuses on green hydrogen, while noting that blue hydrogen might play a significant role as a transitional solution.

Vehicle fuels

With the help of fuel cells, hydrogen can be converted into electricity, providing an alternative to batteries. In passenger cars, batteries enjoy a lead over fuel cells, but in heavy long-distance haulage, batteries are not yet commercially viable and time is running short to come up with emission-free solutions.

Japanese automaker Toyota Motors has long advocated fuel cells, but so have South Korean companies. In July 2020, Hyundai shipped its first 10 fuel cell-powered electric trucks to Switzerland in partnership with Swiss-based H2 Energy. Emission-free commercial vehicles there do not have to pay road tax, thus making them competitive with conventional diesel trucks. Hyundai expects to deliver 1,600 trucks of this type by 2025.

In the United States, fuel cell investments are being driven by California. Many other US states are well on their way to following this example. Fifteen states recently signed an agreement that all heavy vehicles will be emission-free by 2050 and that their share of fleets will be 30 per cent by 2030. Together, these states make up 35 percent of the US truck market.

Energy storage

A higher percentage of electricity from variable sources like solar and wind power results in a surplus of electricity when weather conditions are favourable. By producing hydrogen from water by means of electrolysis when electricity is cheap, energy use can be postponed until it is needed. One advantage of hydrogen as an energy storage alternative − compared to batteries − is that it can handle supply and demand imbalances over a longer period: between seasons, not just between days.

Solutions for the process industry

There are a number of industrial applications where hydrogen is the only existing alternative to fossil fuels. Important sectors that contribute significant carbon dioxide emissions and where electrification is not an option − but hydrogen has the potential to function much better − include steel, artificial fertilisers and various chemical plants.

Safety risks

In June 2019 a hydrogen filling station outside Oslo, Norway, exploded and burned. No one was injured, but the shares of the company that supplied the filling station plummeted 30 per cent in two days. Hydrogen is highly flammable, explosive and volatile, requiring strict handling standards. But it has been a heavily used industrial gas for at least 50 years among industrial gas companies and certain process industries, which possess extensive expertise – something that is likely to be increasingly valuable in the future.

Falling production costs

Hydrogen will probably remain expensive compared to fossil fuels, but studies by Bloomberg New Energy Finance (BNEF) estimate that the EU's hydrogen plans will sharply reduce the cost of green hydrogen production by 2030. Morgan Stanley, an investment bank, believes that green hydrogen may become commercially competitive in as little as 2-3 years. Meanwhile the world's largest industrial gas producer, Linde, estimates that a cost reduction of 50-60 per cent for green hydrogen is quite possible over the next decade.

Green hydrogen may become 50-60 per cent cheaper during the next 10 years.

Green hydrogen requires more renewable electricity

Provided that political leaders continue to favour hydrogen, BNEF sees potential for hydrogen to contribute about one fourth of global energy consumption by 2050. This will probably require huge investments and more electricity than today’s global production. Assuming continued electrification of society in general, BNEF estimates that the total capacity requirement for renewable energy in 2050 will be more than 20 times today's global capacity. Such an expansion will require enormous physical resources in the form of land for erecting solar panels and wind turbines, but also water from which hydrogen can be extracted.

Hydrogen stocks – great potential, but beware of hype

Climate crisis awareness and testing of various applications are pointing towards a breakthrough for green hydrogen. There has been great enthusiasm about hydrogen before, but strong interest by both governments and companies suggests that this time it is for real. We are thus not surprised by the euphoria surrounding hydrogen technology and fuel cell companies, but there is an obvious risk that reality will not keep up with the pace that financial markets are expecting.

The hydrogen market may well be poised for very rapid growth, but other stocks besides the most obvious winners may benefit the most from today's levels. There are alternatives to buying the hottest and most hopeful companies. The potential of these other companies may not be as dizzying, but they already have proven business models and predictable earnings at reasonable valuations.


Many factors are creating a very promising environment for green hydrogen. After decades of hopes, it is now poised for a breakthrough. The growth potential is dizzying, but the challenges are significant. We see great risks in being caught up in the euphoria now surrounding many hope-inspiring niche companies focusing on hydrogen-related activities. There are alternatives that are less speculative but that may also benefit from current trends.


Esbjörn Lundevall

Equity Analyst
Investment Strategy

Read more

You can read more in “Theme: Hydrogen” on pp. 20-24 in the latest Investment Outlook.

Investment Outlook (PDF) 
Summary (PDF)

© Skandinaviska Enskilda Banken AB (publ)
Customer service