ITM Power PLC and other green hydrogen producers given backing by Barclays, who sees need for huge increase in electrolyser capacity
A €15bn per year total addressable market is seen for electrolyser manufacturers by 2030
The bank’s energy analysts noted that hydrogen is “a climate megatrend at the forefront of the decarbonisation strategy for many industries and government”.
Green hydrogen, where the energy-carrying molecules are created using renewable energy sources, is attracting unprecedented investment and policy support, creating demand for the electrolyser equipment that is needed to create hydrogen.
“As the industry scales up, costs have the potential to halve by 2025, enabling green hydrogen to become cost-competitive with ‘grey’ hydrogen, the dominant but highly polluting alternative.
“While electrolysis technology is not new, as an industry it is nascent, and projects currently depend on government support to move forward.”
While there are various potential market scenarios, the analysts say they “all point to a multi-year growth industry that we see as undervalued today”.
A €15bn per year total addressable market is seen for electrolyser manufacturers by 2030, though this will be dependent upon hydrogen demand growth, government policy and the pace of cost reduction throughout the green hydrogen value chain.
However, market expectations around hydrogen’s role in the energy transition are already high, the analysts noted.
With it seen as unlikely that there will be a sudden reversal in the core assumptions that underpin forecasts for several decades of growing demand for green hydrogen, the greatest risks to this outlook would be a combination of frequent delays to high-profile projects, a preference for blue hydrogen in key markets, opposition to the level of government subsidies and support, or a high-profile incident that could raise safety concerns.
Many winners are possible
“There can be many winners in a period of rapid market expansion,” Barclays said, suggesting that the key metric within each company’s newsflow is contract awards as this translates into a growing backlog.
Backlogs increased 90-190% YoY during the last reporting cycle, and the bank forecasts this will accelerate in 2021 as more and larger green hydrogen projects are sanctioned for development, with the trajectory of backlog growth heavily influencing expectations for medium-term revenues and “should provide an indication of whether specific companies are poised to become market leaders”.
Barclays has initiated coverage of European electrolyser manufacturers, ITM Power (), McPhy Energy (EPA:MCPHY) and Nel ASA (FRA:D7G, OTCMKTS:NLLSF), which together are estimated to have the financial resources to manufacture at scale and deliver units for use in the first wave of 100MW+ green hydrogen projects.
The analysts’ investment thesis is based on “what we believe each business can become in 10 years rather than on where the stocks are today, with government and corporate ambitions providing the outlines of the potential size of the market by 2030 and beyond”.
Both Yorkshire-based ITM and Oslo-based Nel are started on ‘overweight’ recommendations, with share price targets of 800p and NOK 40.5 respectively.
France’s McPhy was given an ‘equal weight’ rating and a €49 price target.
Other specialist UK hydrogen companies include (), which has been recently investigating how its SteelCell fuel cell technology can be used as an electrolyser to produce green hydrogen.
After R&D produced positive results, Ceres has raised £180mln to continue this development, backed by its major industrial partners.
() makes alkaline fuel cell systems and elecrolysers, where its AlkaMem anion exchange membrane can be applied to alkaline water electrolysis, an energy-efficient and reliable means of creating hydrogen.
() is poised to go live on its first project using its DMG technology that can turn unrecyclable household plastics into an intermediate product called syngas – a mix of hydrogen, methane and carbon monoxide – which can either be burned to produce electricity or where the hydrogen can be separated out to power fuel cells in vehicles.