Hydrogen (Globe & Mail)Also, a tax expert was recently on BNN talking about ways the goverrnment will raise revenue. An increase in capital gains tax was not mentioned. That said, they will look closer at taxing options, foreign companies and of course, increasing the GST is never off the table. GLTA
BofA Securities analyst Haim Israel outlined the US$11-trillion, long-term investment potential of hydrogen power in late September.
Credit Suisse’s Stefano Bezzato followed suit in early December with Hydrogen: A new frontier, a 108-page primer on the promising long term future of hydrogen-based electric power generation.
More recently, Credit Suisse’s global strategist Andrew Garthwaite touted industrial gases companies – the sector is dominated by Air Liquide SA, Linde PLC and Air Products and Chemicals Inc. – as a strong overweight in his 2021 Research Outlook: Themes, Sectors and Styles published Dec. 16. Mr. Garthwaite believes there will be €460-billion in investment in hydrogen power in Europe alone by 2030.
The potential for hydrogen power is no doubt enormous. For investors, however, I strongly suspect that a finance bubble will appear in related stocks before imploding, and only after that point will the revolution really begin.
Green hydrogen, produced entirely with renewable power sources, currently accounts for less than one per cent of total production, and it is also not cost competitive with current technology. The vast majority of hydrogen is produced using fossil fuels, although some producers have offset the resulting environmental damage with carbon capture processes.
Credit Suisse sees Green Hydrogen becoming cost competitive in the next ten years. Additionally, there are numerous government incentives, notably in Europe, that will drive investment in the sector even if the path to cheaper costs is slower than expected.
It’s likely the path of hydrogen-related stocks will follow a similar path to cannabis companies and, more topically, lithium miners.
The expected transition to electric vehicles, powered by batteries containing lithium, drove an understandable investment boom in the sector that peaked in late 2018. Livent Corp., a dedicated lithium miner, debuted at US$17 in October 2018, and climbed to over $19 in the next two months.
When it became clear that the dominance of electric vehicles in the market was delayed, this led to a medium term oversupply of lithium. Livent’s stock price began falling, reaching a low of $4.19 in March 2020 but has since recovered to $17.
This is a common cycle. A well-justified excitement over new technological change, or legislative change in the case of cannabis, drives related stock prices higher. The optimism leads to numerous initial public offerings of stock for new companies dedicated to supplying goods and services necessary for the expected transition. Investment flows in faster than the change actually happens, leading to stocks trading at extreme valuation levels relative to revenues, then they all fall hard.
The hydrogen hype cycle is just beginning. I would expect related investments to rise precipitously in the next few years but then drop as it becomes apparent that green hydrogen as a competitive option to fossil fuels will take longer than expected. Only after that will the actual transition to hydrogen as a legitimate energy source spur a sustainable recovery for related stocks.