3 Current Developments That Could Make Hydrogen Big By The End Of 2017

|
Includes: FCEL, GKNCF, HYGS, LNAGF, PCRFF, PLUG, TM, TOSBF, TOT
by: Ralf Anders

Summary

Several interesting developments bring me to the conclusion that hydrogen and fuel cells are entering a decisive stage in 2017.

Japan will make a push in preparation of the 2020 Olympics in Tokyo and European industry is organizing strong alliances, while China and the U.S. are investing heavily in R&D.

This can be a huge market opportunity. Investors should shortlist companies with high exposure to the industry and a strong market position.

The "hydrogen economy" is a very controversial topic. Some say it will be the next big thing, others say it's just a pipe dream that will never materialize. I'm with the first group, and here is why.

Reason 1: The Japanese Push

Olympic Games in Asia have always been a vehicle to show the economic potential and technological prowess of the hosts. In 1964, Japan inaugurated its iconic high-speed trains and afterward developed into a leading industrial country. South Korea joined the club after Seoul 1988 and Beijing 2008 were spectacular demonstrations of China's might.

Tokyo 2020 will again be more than just a great sports event. Japan has great plans to use the Games as some kind of "innovation exposition." Of course, there will be robots of different kinds. Equally important are the projects around hydrogen and fuel cells. "The upcoming Olympics will leave a hydrogen society as its legacy," declared Tokyo Governor Yoichi Masuzoe. They want to establish a dense network of hydrogen stations and put tens of thousands of fuel cell vehicles (FCEV) on the street.

Utilities are hoping to get a decentralized virtual power plant that could mitigate the effects of power outages, particularly after disasters. In homes, fuel cells could efficiently generate heat and energy without causing harmful emissions. Car makers like Toyota (NYSE:TM), equipment suppliers like Panasonic (OTCPK:PCRFF), and industrial groups like Toshiba (OTCPK:TOSBF) are all pushing forward to make hydrogen a success.

Industry, government and society appear to be working hand in hand for the common goal of a cleaner energy supply chain. While preparations for Tokyo 2020 are intensifying, I expect bold initiatives to materialize already next year. In March 2017, the industry meets at the Hydrogen & Fuel Cell Expo held at Tokyo Big Sight. This is where the latest technologies and applications are presented and new major projects get launched.

Reason 2: The European Response

Seemingly, Japan has put itself at the forefront of the industry. But will Europe remain behind them? I don't think so, as there is too much at stake. Particularly in the Northern half of the continent, there is an extremely high density of powerful groups and high-tech companies that are organizing to develop the hydrogen economy.

Gases giants like Linde (OTCPK:LNAGF) have developed advanced technologies for hydrogen production and handling. Integrated oil and gas companies like Total (NYSE:TOT) have made major strains into the market for many years, hoping to stay in business with hydrogen stations even if electric cars increasingly make traditional fuels obsolete. Energy groups like Uniper SE are evaluating power-to-gas technologies in large scale pilot projects. High-tech specialists like NEL asa of Norway are offering efficient solutions, and a range of large and small engineering companies are developing production technologies to drive down unit costs and increase the components' reliability, often supported by high-profile public research organizations.

GKN Plc (OTC:GKNCF) of Great Britain in partnership with McPhy Energy has proposed an innovative solution to hydrogen storage that has breakthrough potential. Instead of standard high-pressurized tanks, it uses solid state metal hydride and claims significant advantages like zero-loss, maximum safety, and a higher capacity by factor 4. Elon Musk has maintained his position that FCEVs with hydrogen storage are "mind-bogglingly stupid." It's more likely that he will reconsider if GKN gets this approach to the market at a reasonable price point.

Additionally, there is close cooperation with American technology suppliers. Alstom (OTCPK:AOMFF) is working with Hydrogenics (NASDAQ:HYGS) on commercializing hydrogen powered commuter trains, while E.On (OTCPK:ENAKF) is partnering with FuelCell Energy (NASDAQ:FCEL) for decentralized power solutions and Plug Power (NASDAQ:PLUG) is supplying to the material handling industry. European key players have founded powerful associations, initiatives and joint ventures like H2 Mobility in Germany in order to promote the entire hydrogen supply chain and to coordinate necessary infrastructure investments. The continental industry appears to be ready and eager to take on Japan.

An important factor to consider is that Europe has a relatively weak position in the battery industry, although it has been catching up recently to some extent. Success in hydrogen and fuel cells will probably generate much more opportunities for local business and employment. Whether Japan, Europe or a third geography will prevail at the end is far from decided yet, but I'm sure that this competitive challenge will speed up innovation and market penetration in the coming years. Meanwhile, research and development efforts might increase significantly in America and China, too.

Reason 3: The Chinese "Rush In"

China has taken the lead in wind power installations, photovoltaic module production and even super-computing. Today, it's impossible to ignore the China factor in any advanced industry. Of course, the "Energy Innovation Action Plan (2016-30)" also includes a chapter about hydrogen and fuel cell technologies. The item "Research on methods to achieve low-cost and large-scale integrated hydrogen production, storage, transport and utilization" particularly catches my eye. China's wind turbines could be operated a lot more economically, if there's an efficient way to store surplus energy. This is why power-to-gas is a big topic in China, too.

Even more important appears to be coal gasification. China has major problems with emissions from coal-fired power plants. This is why Shenhua Group's (OTCPK:CUAEF) affiliated R&D center, the National Institute of Clean and Low-Carbon Energy, and others are investigating different technologies related to hydrogen generation and storage. One focus area is "Clean Coal Conversion and Utilization," which includes three clean coal utilization processes: coal refining, gasification and clean combustion. Using both wind and coal as sources for large scale hydrogen generation could be key for the development of this emerging industry.

Conclusion

Hydrogen and fuel cells have been disappointing everyone for years, and some would say they will do so for many years to come. However, I'm becoming increasingly convinced that this industry is ready for takeoff. The Japanese push, the European response and the rushing in of China, America and everyone else should lead to a huge impact regarding the development of the hydrogen ecosystem. Expect to see more and bolder investments as early as next year. Innovative groups in the energy sector as well as companies with leading technologies and the ability to drive down costs should be among the winners.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.