Hydrogen investments can fuel big profits, but also burn you badly

Green hydrogen – the clean energy of the future – is almost here, but does it mean easy money for Australians seeking to invest?

A new $2bn federal government investment in the emerging hydrogen sector has sparked fresh interest and led to more people pinning their hopes on making big bucks from clean energy.

Green hydrogen – produced from water using renewable energy – has been loudly and globally spruiked by Australia’s second-richest person Andrew Forrest, but everyday investors are being urged to be cautious.

It’s an industry in its infancy, and while there is potential for huge profits, there is also a big risk of losing your money if buying into speculative assets, investment experts say.

Dr Forrest’s Fortescue Future Industries, a subsidiary of his mining giant Fortescue Metals Group, is helping to drive the new industry, and some analysts see Fortescue and large traditional energy companies – which also have hydrogen projects – as better investments than betting on stock market minnows.

Many small hydrogen companies’ shares have dropped up to 50 per cent in the past 12-18 months, highlighting their volatility, and they did not react strongly to the federal budget’s announcement of a $2bn Hydrogen Headstart program.

Andrew and Nicola Forrest at the site of a Fortescue Future Industries green energy facility – Picture: Cameron Laird

Shaw and Partners senior client adviser Jed Richards said hydrogen was “a hot topic that people are talking about, but we see so many industries that are hot one minute and cold the next”.

“I still classify it as a speculative investment because there’s a long road before it comes in.”

Mr Richards said when clients asked about exposure to hydrogen, he often directed them to Fortescue because it was “making money anyway” from its massive iron ore business.

“Andrew Forrest can afford to take that long-term strategy,” he said.

People seeking hydrogen exposure but afraid to pick one or two stocks can invest via exchange traded funds. While this reduces volatility, it does not guarantee a good return, with the ETFS Global X Hydrogen ETF – which holds 30 companies – almost halving in value since launching on the Australian Securities Exchange in 2021.

Green hydrogen looks set for a bright future. Analysis has found it could boost Australia’s economy by $50bn and create tens of thousands of jobs.

Hydrogen Park SA in the Tonsley Innovation Precinct. Picture: NCA NewsWire / Brenton Edwards

To be commercially viable, hydrogen needs to cost $2 a kilogram, according to the federal government, but hydrogen from renewable energy is currently $6 per kilogram.

Recent research by investment group Macquarie said several energy companies had acknowledged “that the economics are a while away” for hydrogen.

Baker Young managed portfolio analyst Toby Grimm said people could gain hydrogen exposure through large energy stocks such as Woodside Energy.

“There’s very liquid and large energy stocks that are involved,” he said.

“From an investor perspective there’s exposure you can gain from established profitable companies that significantly lower your risks. The upside from those companies is going to be a lot less than the small speculative plays.”

Mr Grimm said people should understand their goals and “if you’re trying to hit home runs, do the homework”.

“Understand the risks that you are exposing yourself to – the volatility in small company share prices is literally off the chart,” he said.

“It’s an infant-type industry where we are still trying to discover manufacturing processes. Risk is enormously high, but the potential for a firm that succeeds and is a first mover is a high return.”

Hydrogen projects may not look sexy, but we will see many more of them soon. Picture: NCA NewsWire/Brenton Edwards

10 STOCKS WITH HYDROGEN LINKS

Fortescue Metals Group: The $62bn resources giant has deep pockets and global ambitions, progressing green hydrogen projects in Tasmania, Norway, Argentina, Brazil and Democratic Republic of the Congo. (ASX code FMG)

Woodside Energy: Australia’s largest petroleum producer, valued at $64bn, has a new energies division with hydrogen projects in WA, Tasmania, New Zealand and the US. (WDS)

Origin Energy: The $14bn electricity and gas company is exploring the potential for hydrogen hubs in NSW and Tasmania. (ORG)

Worley: An $8.6bn engineering giant, Worley says the global energy transition will underpin its growth. It is working on three low-carbon hydrogen projects. (WOR)

AGL Energy: The $6bn electricity and gas generator and retailer is examining potential green hydrogen production facilities in SA and NSW. (AGL)

Hazer Group: This $114 million company is striking deals with overseas energy giants to build hydrogen production plants. (HZR)

Pure Hydrogen: The $71 million company plans to start building its Emerald Hydrogen production facility near Brisbane this year, to be operational in 2024. (PH2)

Sparc Technologies: A joint venture with the University of Adelaide to develop water-splitting technology to produce green hydrogen is a key focus of this $32m company. (SPN)

Metgasco: The $15m company’s Southern Green Hydrogen project has moved into a development stage, but a final investment decision is not expected until 2025. (MEL)

ETFS Hydrogen ETF: If you want to spread your money around, this exchange traded fund tracks 30 hydrogen-related companies from around the world. (HGEN)

Originally published as Hydrogen investments can fuel big profits, but also burn you badly