New government report on climate change looks to have great significance for companies such as ITM Power, AFC Energy and Ceres Power
By: Oliver Haill - Proactiveinvestors
If Britain is serious about cutting greenhouse gas emissions by material levels across energy generation, transportation, industry and heating, there’s only one substance worth talking about: hydrogen.
The focus on hydrogen was one of the central themes to emerge from this month’s report from the Committee on Climate Change (CCC) and has great significance for a select band of ambitious London-listed companies, including ITM Power PLC (LON:ITM), AFC Energy PLC (LON:AFC) and Ceres Power Holdings PLC (LON:CWR).
Entitled ‘Net Zero - the UK's Contribution to Stopping Global Warming’, the CCC report calculates that the UK can end its contribution to global warming within 30 years by setting new targets to reduce national greenhouse gas emissions to zero by 2050.
While the government has already set carbon budgets and begun to develop policies on the path to reducing greenhouse gas emissions by 80% from their 1990 level, the CCC is now recommending the UK extend the reduction in greenhouse gases to 96%.
The government is considering the report and, with a history of respecting the advice from the independent body, is expected to adopt most or all of its recommendations.
Central role of hydrogen
Hitting the new target will require a “significant low-carbon hydrogen economy”, the report said, as the gas is the one alternative energy solutions that cuts across all systems.
Hydrogen was highlighted by the CCC as having a central role in achieving a zero emissions target, with the gas specifically mentioned as one of the priority areas to enable the significant changes required, with 141 mentions of hydrogen in the 270-page report.
As hydrogen-fuelled cars produce water vapour instead of greenhouse gases from their exhaust, the CCC said all new cars and vans should be electric or run on fuels such as hydrogen by 2035 at the latest, while hydrogen is also suggested as a potential alternative to natural gas that could be piped by adapting the current transmission network for use in periods of peak electricity and heating demand.
“By 2050, a new low-carbon industry is needed with UK hydrogen production capacity of comparable size to the UK's current fleet of gas-fired power stations,” the commission said, also recommending the gas could be produced efficiently from the two “essential” carbon capture and storage clusters that it said need to be up and running by 2026.
Digging deeper into the numbers, the technical report backing up the headline report predicted that between 6 gigawatts and 17 GW of electrolyser capacity will be required in the UK by 2050, depending on energy demand and utilisation rates. This prediction implies the country will need to build up to 567 megawatts of electrolysis per year for 30 years.
Implications for companies
Such a ramping up of hydrogen facilities across industry, energy and transport is expected to translate into a pick-up for a range of UK-listed companies, which is why investors such as Schroders has been stacking up investments in this sub-sector of the cleantech area.
One of Schroders investments is in AIM-listed ITM Power, which makes electrolyser technology that is already being taken up in consumer and industrial applications. One of these is a collaboration where Royal Dutch Shell PLC (LON:RDSB) is rolling out hydrogen refuelling stations using ITM tech for passenger and commercial vehicles over the next five years.
Reflecting on the CCC report, ITM chief executive Graham Cooley said: “For the first time, the UK has accepted they will need shedloads of the equipment that we make. It’s the first time that the numbers have been officially run on how much power is needed for a full renewable network and energy storage.”
However, 2050 is a long, long way away.
“Yes, it is a long time,” Cooley acknowledged, “unless you think about how much equipment the country needs before then. With more than 550MW needed per year and each megawatt costing about €1mln,” says Cooley. “The numbers are very, very large – there will need to be around €0.5bn spent on average every year for 30 years to get to zero emissions.”
This is echoed in the CCC report, which said the government “should legislate as soon as possible” and that its target is “only credible if policy to reduce emissions ramps up significantly”.
“Hydrogen is the only solution”
With the electricity grid almost at full stretch now and the commission estimating that all new cars and vans should be electric within 16 years, “there is no way the grid can cope with that amount of extra demand”, says Adam Bond, chief executive of AFC Energy, developer of an electric vehicle charger based on its hydrogen fuel-cell technology.
“Hydrogen is the only solution to meet the demand,” Bond said, “and that is why the climate change report mentioned it on almost every page.”
AFC last month signed a deal with Rolec Services, one of Europe’s largest manufacturers of EV charging points, to create a system that integrates AFC’s technology and can be sold across Rolec's existing and AFC’s emerging network of EV charging distributors and customers.
Another name worth noting on AIM’s long-bubbling hydrogen scene is Ceres Power Holdings PLC (LON:CWR), which has developed a technology it has branded SteelCell. This technology, which can use natural gas, hydrogen or biofuel, overcomes two problems traditionally associated with other solid oxide fuel cells, namely cost and lack of robustness.
In a March update, Ceres said it was on track to double revenues this year as it accelerated commercial growth in the six months to 31 December, inking deals with Robert Bosch and Chinese engineering giant Weichai.