It’s a bit of a head-scratcher, but given the pressing need for the world to decarbonise as it rapidly approaches its Paris Agreement climate change targets to reduce global hydrocarbon emission by 45% by 2030 and net zero by 2050, why hydrogen hasn’t yet taken a greater role on the global stage.
Hydrogen is garnering a lot of interest from government in North America, Europe and Asia as a panacea to natural gas and coal. It is the most abundant element in the universe, but in terrestrial terms is predominantly found bound to other chemicals such as in water (H20) which includes two hydrogen molecules to one molecule of oxygen, or methane (CH4) which contains one atom of carbon and four of hydrogen.
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The concept of hydrogen as a fuel source sees producers split off and store the hydrogen molecules from the other molecules it is bound to, and then capture and store it. There are various ways of doing this, including gasification, pyrolysis, and electrolysis; all on a graded scale regarding their environmental impact from ‘Gray Hydrogen’, the most polluting, up the scale to ‘Green Hydrogen’. The largest share of hydrogen today is made from natural gas, meaning methane, which is a potent greenhouse gas and classified as Gray.
Industrially hydrogen is used to make ammonia and methanol and is used in refining steel and crude oil. But its impact as a fuel is where the current excitement lies as a way of decarbonising heating, by burning hydrogen to create steam to drive turbines in a classic conventional power station; a bulk transportation fuel providing locomotive energy to HGVs, buses and cargo ships through hydrogen fuel cells or hydrogen turbines; as a storage unit to capture excess energy from renewable sources for use later, and in industrial processes to replace natural gas.
Hydrogen has not yet scaled up to its potential
However, hydrogen hasn’t yet taken centre stage in the energy debate, and although there are abundant opportunities for hydrogen in a future integrated energy system, as it stands hydrogen hasn’t scaled up to this potential. Part of the problem is that, according to the US’ Energy Information Administration, the stats department of the US Government’s Department of Energy, is that with existing technology it takes more energy to produce hydrogen (by separating it from other elements in molecules) than hydrogen provides when it is converted to useful energy. It is notable however that the fossil fuel lobby has considerable clout in Washington D.C.
As a whole, hydrogen – especially green hydrogen – is costly to produce, lacks a cogent infrastructure in many industrialised countries, and many of the technologies, like hydrogen fuel cells, are still in prototype stage, and haven’t yet been scaled up to the point that they can compete with gasoline, diesel or even lithium-ion fuel cells in transportation.
At the upper end of the scale, ‘Blue Hydrogen’ is manufactured from natural gas, and the concept is that the carbon dioxide (CO2) element of the process can be captured and stored underground. This is the focus of the fossil fuel industry that claims it can capture up to 90% of the CO2. However, independent scientists actually rate this capture level closer to 12% across the whole process and some argue, given the whole process, burning hydrogen for heating is actually worse in emissions terms than natural gas, coal and diesel. The ‘Green’ component, using wind, solar of hydroelectric power to electrolyse hydrogen from water also has its issues as to make a significant contribution, the green hydrogen sector would need to draw on a large proportion of the existing renewable energy infrastructure to synthesise hydrogen. That said, as more renewable energy is added to the mix, this impact is reduced.
Nevertheless, hydrogen has the potential to become a significant contributor to the energy mix by 2050, and we have covered the market in detail, writing about hydrogen heavyweight ITM Power LON:ITM, nifty, FTSE250-listed fuel cell developer Ceres Power LON:CWR and exciting Special Purpose Acquisition Company (SPAC) Pineapple Power LON:PNPL, currently in the throes of negotiating a reverse take-over of Ilios Hydrogen Canada Limited.
Proton Motor Power Systems
One company that justifies further attention is Proton Motor Power Systems LON:PPS the AIM-listed, German hydrogen fuel cell technology developer based in Munich. Proton has been working on hydrogen fuel cells for quarter-of-a-century and listed on AIM since 2006. Proton has placed itself at the core of the hydrogen fuel cell industry, developing applications for its technology in rail transport, automotive, maritime and power generation.
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Although Proton is a relatively small company, with around 120 employees, it is at the foothills of what it believes is a vast market. According to The Fuel Cell Industry Review (recently acquired by the ERM International Group, the global sustainability advisory firm) in 2020 the global fuel cell market was around USD3.6bn, but is projected to grow to USD32bn by 2030. Proton believes that the wind is blowing in its favour, as global governments scuttle around for fuel independence in the light of the Russia-Ukraine conflict, and at the same time consider legislation to reduce the impact of maritime greenhouse gas emissions. Incidentally this focus on maritime decarbonisation has seen another one of The Armchair Trader’s watchlist AIM companies, Quadrise Fuels International Plc [LON:QED], the London-headquartered synthetic emulsion fuels developer’s share price experience something of a sustained rally in the last quarter of 2023.
Clear growth strategy
Proton Motor Power Systems hasn’t been in profit, in its last financial update in September 2023, the company reported a GBP5.54m loss over the half-year to end June 2023, and a GBP18.9m loss for the year to end December 2022. However, the company’s management thinks that this might turn a corner very soon and believes that they have charted a pathway to profit where the company is creating value with a clear growth strategy.
The magic profit point comes with scale, currently producing about 5,000 fuel cells annually with Proton’s current set-up, the company has been investing in building out its robotics to increase its production to 30,000 units a year, after moving into a new 13,500m2 factory and developing a new production line, reducing cost per unit at a time when demand for cells is starting to increase.
When Proton hits 30,000 units per year, the German manufacturer hopes to surge past this level by licencing production out to partners. At the moment the fuel cell manufacturer is focusing on the European market, due to scale, opportunity and accessibility but is also making inroads into ‘early adopter’ markets which include Japan, South Korea and the US state of California.
By far, Japan is the global leader in hydrogen and fuel cell technology, and a vocal advocate of a hydrogen-based society where Japanese automakers Toyota and Honda stand out for their commitment to a successful commercial rollout of hydrogen fuel-cell vehicles. Proton feels that its growth and revenues will accelerate over the next few years as motor companies roll out their own versions of hydrogen fuel-cell vehicles.
It already has its units in refuse collection trucks manufactured by Electra Commercial Vehicles and E-Trucks Europe and is working with Skoda on developing hydrogen fuel cells for buses. Proton has a number of key partnerships, including fossil fuel giant Shell LON:SHEL which it has purchased from its stationary hydrogen power pack range. The manufacturer is currently in negotiations with Toyota, in partnering on its automotive range.
Management is proud of its technology having developed a PEFC Polymer Electrolyte Fuel Cell operational at 80 degrees Celsius and below, that has high electric efficiency and high hydrogen purity.
Proton Motor Power Systems share price
The share price for Proton has been disappointing for investors lately. Opening the week (5th February) at 4.055p has over a year fallen by 69%, which is a big fall. The company’s shares have ranged between 4p and 13.71p over a 52-week period. At historic lows now might be the time to take a small position in this stock. As recently as January 2021 Proton was flying high at 52.5p some 1200% ahead of where it is now. Even if it gets to a quarter of this high point, that’s over 200% return.
Proton Motor Power Systems is small company, so it doesn’t have the kind of financial resources of some of its competitors, and it is not the only game in town. However, its investment in new plant and factory space and its ability to increase its output sixfold bodes well for the future.
The hydrogen sector is still not stable and there is a panoply of other alternatives in the renewable energy space. However, with the US clicking into line to bring down the production cost per unit to around USD1/kg (from its current price of USD5/kg for Green Hydrogen at the moment) if cost can be reduced, the sector has enormous potential in decarbonising heavy industry, replacing natural gas and paving the way for a truly net-zero future and a multi-trillion-dollar investment opportunity.
