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Eco-friendly hydrogen gas is good for the planet – and investors too

At this month’s Cop26 global climate change summit in Glasgow, delegates should be able to ride on a hydrogen-powered train.

The Hydroflex, retro-fitted by rolling stock company Porterbrook, embodies the aspiration that hydrogen fuel cells can be harnessed to power trains, trucks and ships, forms of transport for which batteries are not a suitable driving force.

Storage of energy produced by renewables such as solar and wind is another area in which hydrogen could be exploited.

On a roll: The Hydroflex, retro-fitted by rolling stock company Porterbrook, embodies the aspiration that hydrogen fuel cells can be harnessed to power trains, trucks and ships

But the major uses of the gas could be in industrial processes for which electricity cannot supply sufficient heat and in our homes, as a substitute for gas in boilers.

The International Energy Authority – which this week warned that the current fuel crisis has been exacerbated by a lack renewable energy spending – estimates that $1.2 trillion of investment in hydrogen will be required by 2030 if global net zero targets are to be met by 2050. 

By this date, hydrogen technologies should be able to eliminate as much as one-tenth of carbon dioxide emissions.

These are high hopes for a gas which has disappointed its supporters before, leading to the witticism that ‘hydrogen is the fuel of the future – and it always will be’.

The euphoria that surrounded hydrogen-related stocks late last year dissipated amid the realisation that returns were not assured.

But as Cop26 turns the spotlight on the urgency of reducing emissions, is this the moment to back the hydrogen revolution, particularly if you worry about the planet and can risk some cash in support of this cause? After all, even BP and Shell acknowledge that hydrogen will be a part of the solution.

Or is the energy crisis a reminder that our reliance on the output of BP, Shell and fossil fuels will last longer than we thought, suggesting that expectations for hydrogen may be too ambitious?

The barriers to success include the need to clean up the manufacturing of the gas, of which there is no natural source.

Alex Monk, co-manager of the Schroder Global Energy Transition fund, which has stakes in all types of green energy companies, comments: ‘The potential for hydrogen in decarbonisation is super-exciting. 

‘But hydrogen has to be green. At present 99 per cent of the gas is ‘black’ or ‘grey’, in other words, it is made with fossil fuels, which isn’t sustainable.’ 

The other methods are the combination of fossil fuels and carbon capture, which creates ‘blue’ hydrogen – and the much more expensive mix of renewables and the electrolyser process that gives us ‘green’ hydrogen.

However, Monk argues that the cost of green hydrogen should fall, if government policy and corporate demand come together.

The energy crisis, whose causes include soaring coal and gas prices, may even expedite the process as companies’ bills mount.

David Harrison, manager of the Rathbone Greenbank Global Sustainability Fund, also emphasises that we are in the early stages of hydrogen development.

He says: ‘Hydrogen will play a role in de-carbonisation, but will sit alongside other fuel sources such as wind and solar.’

Harrison contends that, although it is less virtuous, blue hydrogen could still deliver beneficial change, as carbon capture technology evolves. 

Green hydrogen may be the preferable option, but its viability also depends on further research.

Yet there are considerable grounds for optimism, as Harrison points out: ‘It’s argued that green technology will not be cost-competitive. 

But wind power was not competitive a decade ago, and today its cost is below that of fossil fuels in many countries.’

Concern for the environment, a readiness to take a risk on the achievement of the net zero targets and a wish to diversify mean that I am putting money into renewable energies through funds and trusts like Downing Renewables.

I am opting for this route since assessing individual clean energy companies requires an in-depth understanding of the complex technologies which I do not claim to possess. 

If you are in the mood for an adventure, you can participate through ETFs (exchange-traded funds) such as L&G Hydrogen Economy or Vaneck Vectors Hydrogen Economy.

The share price of the Hydrogen One Capital trust is at an 11 per cent premium to the net value of its assets, underlining the conviction in some quarters that hydrogen will make the world better.

Besides being braced for thrills and spills, be prepared to hear endless poor jokes about the fate of the hydrogen-inflated Hindenburg airship which burst into flames in 1937. Maybe don’t mention that hydrogen could also be powering some planes.

Share of the week: Unilever 

The past year has not been kind to Unilever.

Shares have fallen by over a fifth during that time, despite the FTSE 100 itself advancing by around the same amount.

Investors may be ignoring the consumer goods giant, which is seen by many as a defensive stock, in favour of companies they see as more likely to stage rapid recoveries in the post-pandemic economy.

However, the latest slump means the shares are valued below the attempted takeover bid for the Dove and Cornetto owner by Kraft-Heinz in 2017, which was priced at around £40 per share.

As a result, Unilever’s third-quarter results next Thursday will be eyed for any signs that the company could be picking up the pace, although it is battling a slowdown in sales in its emerging markets as well as rising costs due to inflation.

All of this is pumping the brakes on the plans of boss Alan Jope, who has previously aimed for the company to grow its sales by 3 per cent to 5 per cent each year in the medium term.

The slow progress is also fuelling speculation that Unilever could soon see the arrival of an activist investor to try to shake up the company, possibly through a demerger of its food business.

In terms of the quarterly numbers, analysts will be looking to see if Unilever’s sales growth can beat the 5 per cent figure delivered in the second quarter of the year, as well as how the end-of-lockdown measures in many of its markets has helped increase sales of items such as make-up and ice-cream.

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