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$16 trillion by 2050: The investment replacing fossil fuels

·5-min read
A hydrogen plant and Australian $100 bills.
The hydrogen industry is staging a comeback. Here is how to invest (Source: Getty)

Hydrogen is fast becoming a sought-after investment as the world moves away from fossil fuels, something Australia’s economy is still heavily dependent on.

And while some of the richest people in the country have built their wealth on mining and are resistant to the shift to clean energy, that’s not the case with everyone.

The prospects of what hydrogen can do is enough for Andrew “Twiggy” Forrest, former CEO of iron ore giant Fortescue Metals, to lobby hard for the Government to back green hydrogen.

Twiggy has said the hydrogen industry will be worth $16 trillion by 2050, and it’s not hard to see why.

Governments around the world are committing to net zero by 2050, and hydrogen will be key to making that happen.

So, let’s take a look at what hydrogen is, how it works, and how you can invest.

What is hydrogen?

Hydrogen is the lightest element and is a colourless and odourless gas.

It is also highly combustible, and has been given a bad reputation since the Hindenburg disaster of 1937 where an airship combusted in just over 30 seconds, killing 36 people.

But, with modern technology can be used to create completely clean energy that can be used to power homes and cars - replacing things like petrol.

And, it’s not like we have to look far to get it - hydrogen is actually the most abundant chemical in the universe.

It has three times the energy potential of petrol on a weight-for-weight basis and produces only water vapour when it is combusted - so absolutely no greenhouse gases.

How is hydrogen made?

Essentially, hydrogen is used to create clean energy - but there are a number of ways in which it can be extracted and not all of which are clean themselves.

Kanish Chugh, head of distribution of ETF Securities explained to Yahoo Finance that the hydrogen industry is made up of five specialised components including:

  1. Fuel cells: like the engine that is used to turn hydrogen into electricity and energy. They can be used in car engines, in central heating, or in other areas like data centres.

  2. Electrolysers: machines that zap water with electricity and split it into its component gases hydrogen and oxygen. They are crucial for producing green hydrogen.

  3. Refueling stations: kind of like petrol stations but for hydrogen. They are where ships, or other vehicles refuel their hydrogen tanks.

  4. Ammonia: the main ingredient in fertisliers, used in agriculture. It is created by reacting hydrogen with nitrogen from the air.

  5. Green hydrogen: made from water using renewable electricity. It differs from other “colours” of hydrogen – such as grey, brown and blue – in that no fossil fuels are consumed in its creation.

Why is ‘Green Hydrogen' different?

As Chugh explained, there are different colours of hydrogen depending on how it was made: brown hydrogen comes from coal, grey hydrogen comes from non-renewable energy and green hydrogen is made from renewable energy.

“Hydrogen is all around us but to use it we need to extract it. So, the easiest way to do that is by getting it from water,” Chugh said.

“Grey is the most common and it’s made by reacting methane with steam. Then you have this idea of blue hydrogen, where fossil fuel companies try to capture the carbon created by making grey hydrogen.”

Whilst this can all seem confusing - the main thing to remember is green hydrogen is what industries and Governments are looking towards for a carbon neutral future.

Even Twiggy himself has said the fossil fuel industry needs to shape up - and the use of anything other than green carbon is a “highway to climate disaster”.

Hydrogen, specifically of the green variety, has started making a major comeback because it has zero carbon emissions, and has significantly better energy potential than what we are currently dependent on.

And, as more countries commit to being carbon neutral by 2050, the industry is looking like the next big thing.

How can I invest in hydrogen?

Because of Australia’s continued reliance on fossil fuels there isn't any Australian company that is creating or using green hydrogen.

However, this week ETF Securities launched the Hydrogen ETF (ASX: HGEN) which includes 30 companies from around the world that are either completely green or on their way to it.

“It is a mega trend. It is a clean technology solution, but it's still in its very infancy when you think about the clean part of hydrogen,” Chugh said.

But, it is starting to catch on and the industry will only develop more from here Chugh said.

For example, the reason the pick up has been slow to green hydrogen is the cost. It costs about $6.50 per kilo for green hydrogen and about $1.50 per kilo for fossil fuel hydrogen.

But, in 2010 green hydrogen cost about $15 per kilo - so it is in a stage of transition where there is more innovation driving the costs lower.

But, if going global is more your speed then there is the The Global X Hydrogen ETF (HYDR), listed on the New York Stock Exchange (NYSE).

This ETF is slightly different and seeks to invest in companies that stand to benefit from the advancement of the global hydrogen industry.

This includes companies involved in hydrogen production; the integration of hydrogen into energy systems; and the development/manufacturing of hydrogen fuel cells, electrolyses, and other technologies related to the utilisation of hydrogen as an energy source.

Correction: An earlier version of this story said 2025 instead of 2050. Now wouldn't that have been an investment!

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