Hydrogen: Long-term Investment or Hot Air?

When we launched the VanEck Hydrogen Economy UCITS ETF just under 18 months ago, in March 2021, our timing was far from perfect. With the benefit of hindsight, we did so at the height of enthusiasm about technology businesses, and clean tech especially: this bullishness has evaporated in 2022’s market rout.

The result? Our hydrogen ETF has fallen significantly in price, along with the wider tech market.

And yet, there has been great progress towards finding ways to put hydrogen at the heart of tomorrow’s zero-carbon economy, as a partial replacement for fossil fuels. That makes the long-term investment case for hydrogen stocks greater than it was when we launched the ETF, while the stocks themselves are considerably cheaper.

‘Green’ hydrogen has a valuable contributor to decarbonisation as it is produced by electrolysis, which does not emit CO2 if powered by renewable energy. Further, it can fill some gaps in the future energy spectrum due to its high energy density and other specific qualities. That means it’s a viable fuel for heavy forms of transport like trucks and planes; steel production; some forms of heating.

To give an example of the faith that governments are placing in hydrogen, the EU has targeted installing 40GW of electrolysers by 2030. And while green hydrogen is less than 0.1% of the global energy mix today, this could grow to a quarter by 2050, according to some estimates.¹

Already, some big companies are investing significantly and putting the world’s most abundant gas at the centre of their plans for the energy transition. Notably, their initiatives are beginning to move from intention to action – in 2022 there have been concrete measures to develop hydrogen products and businesses.

Take Airbus, which announced in 2020 that it wanted to launch a zero-emission commercial aircraft by 2035. In 2022, it has started testing the hydrogen technologies required on an A380 aircraft demonstrator. Yet it looks as though they may be pre-empted by a small Dutch company, Hydrogen Aircraft Powertrain and Storage System, that plans to fly a 40-80 seat passenger plane from Amsterdam to London by 2028 – just six years from now.

Turning to the steel industry, H2 Green Steel plans to harness hydrogen to reduce CO2 emissions from steel production, one of the hardest industries to decarbonise, by 95%. It has just received a permit to build its first plant in Boden, northern Sweden.

Finally, Shell, one of the biggest oil and gas companies, has just announced that it will build the Netherlands’ first green hydrogen factory in Rotterdam.

Beyond the climate change crisis, Russia’s terrible invasion of Ukraine is another emergency pushing green hydrogen to the centre of our lives. That’s because the war has alerted every country about the risks of energy security. With Russia weaponizing energy, green hydrogen is a form of energy that can be produced within a country’s borders.

For those investors who think that now is a good time to invest in hydrogen, the VanEck Hydrogen Economy UCITS ETF is the purest play way to do so among ETFs. In such a young industry, no companies generating all its revenues from hydrogen yet. However, our ETF targets those that receive at least half their sales from areas related to the green gas.