The Green Hydrogen in India congress took place in New Delhi on April 18 and 19, 2023. The occasion prompted an invitation for me to travel from Mumbai via Surat to New Delhi and then through Ahmedabad back to Mumbai. Scheduled along the way was a host of individual meetings with key representatives from major Indian corporations, often at their headquarters. These companies have all identified hydrogen as a new field of high growth and already have large amounts of renewable energy available – primarily solar energy – for hydrogen production. Their aim is to export hydrogen by ship in the form of green ammonia.
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A number of large Indian corporations have not only already installed up to 5 gigawatts of solar generation but are each increasing their photovoltaic capacity by 1 gigawatt every year. This could result in green ammonia production of around 1 million metric tons annually – colossal amounts and highly ambitious plans. Although India is currently an importer of ammonia as fertilizer, it wants to turn this situation around within a few years. And its goal is not just to become self-sufficient but also to tap into a huge export market for green ammonia and green methanol. The plan is to take a 70:30 approach, i.e., 70 percent of the volume produced for in-country use and 30 percent for export.
President Modi takes on hydrogen
On the eve of the hydrogen congress, President Narendra Modi gave a speech about climate change on the India News television channel. He set out how India intends to tackle the climate crisis through numerous programs and measures. Every individual in India was reportedly called upon to manage the environment and resources wisely.
In January of this year India set in motion a comprehensive hydrogen program. The initiative gives particular weight to solar energy and wind power as the basis for the production of hydrogen. Green ammonia, along with green methanol, is clearly seen as the way to make hydrogen internationally transportable over the long term, an option which will allow India to develop it as an export commodity. However, since India itself has a large appetite for sustainably produced energy with the aim of reducing, and if possible supplanting, the importation of fossil fuels, the percentage of hydrogen exported will be smaller than the amount remaining in the country.
Of course, alongside climate change, there is also the issue of energy security and how technology may potentially be used to tackle these problems. The focus of the congress in New Delhi was purely on hydrogen.
National Green Hydrogen Mission
Launched only in January, India’s hydrogen program – the National Green Hydrogen Mission – is all-encompassing. Every aspect, from production to the many deployment opportunities, is addressed. Additionally, there will be numerous subsidy schemes. Here’s one example: The blending of hydrogen in gas grids is subsidized by the state, in other words the state assumes the transport costs in the pipelines. As the gas grid is currently not used to capacity, this is the perfect opportunity for hydrogen. To date, the proportion of hydrogen that can be injected is up to 18 percent.
Green Hydrogen in India
India has fully recognized the potential of green hydrogen. The country is working on highly ambitious plans in which companies are expected to be the primary drivers of implementation. The world’s largest energy conglomerate, India’s state-run NTPC, also plays a significant role in this decarbonization process which is being hastened thanks to a large number of individual projects being carried out across the nation.
India wants and needs to move away from oil and gas imports and also to find alternatives for coal so as to ensure energy security as well as tackle the issue of decarbonization. As it stands, the country spends over USD 90 billion buying in fossil-based energy carriers such as oil and gas. In all, 40 percent of its primary energy is imported. On the other hand, India boasts virtually endless potential to produce renewable energy very cheaply, mostly via solar power and increasingly via wind power – and predominantly offshore in the future. India sees itself as a hydrogen front-runner as renewable energy via solar power can be produced locally at highly affordable prices when compared globally.
There is a real eagerness to lay the foundations for large-scale hydrogen production. Rapid approvals procedures will be put in place for projects relating to renewables generation. People are talking about weeks or a few months rather than years like in Germany. Many areas are ideally suited since they are categorized as “wasteland,” meaning land which is not fit, for instance, for growing food or raising cattle.
The government and the responsible ministries are working on accelerating and supporting the ramp-up of the hydrogen economy by simplifying regulatory processes in addition to introducing assistance mechanisms. In this respect, President Modi is putting considerable pressure on local authorities to quickly make this a reality and to constructively support the hydrogen economy. Modi presumes, in a positive sense, that he is taking the right course of action as guided by his entrepreneurial mode of thinking. I’m told that this is something he is renowned for in his country.
Green ammonia: a foreign currency earner
Given that India still imports over 3 million metric tons of ammonia – derived from natural gas – for use as fertilizer, over the coming years it is possible that the many renewable energy resources coupled with future hydrogen production will make the country not just self-sufficient but also an exporter of ammonia. We are talking about 3 to 5 million metric tons of green ammonia per year as early as 2030 as a means of making green hydrogen transportable. A plethora of projects aiming to build ammonia plants are already at the planning and implementation stages. Many initiatives are located close to ports, rendering them ideal from a logistical perspective.
Pioneering conglomerates
The demand for green hydrogen is huge – above all in the chemicals industry, steelmaking and other industrial applications. A proportion of 10 percent is envisaged for the mobility sector, a figure which includes the use of hydrogen in commercial vehicles, on ships and on railroads. Yet the need for hydrogen is also foreseen for automobiles in the medium to long term according to the manager responsible for this area at the Reliance Group, whose major shareholder Ambani plans to invest more than USD 50 billion in hydrogen.
Ultimately, the issue of the day is still decarbonization. And India’s billionaires were well ahead when it came to hydrogen matters. That’s what leading executives at Reliance, Adani and other companies told H2-international when elaborating on their hydrogen plans. For example, Tata launched a hydrogen think tank together with Rand Corp. way back in 2004. Furthermore, the subsidiary Tata Motors set up a joint venture with Cummins Engine which has recently been extended to involve hydrogen technology.
India to keep electrolyzer production at home
However, there is a squeeze on the availability of electrolyzers needed to produce hydrogen. This situation is not just about the energy required by the electrolyzer but the availability of the necessary quantities of components and/or their capacities. Chinese manufacturers still dominate the scene when it comes to alkaline electrolyzers – the most widely adopted form of electrolysis. India’s intention is to set up its own industry, in other words attract foreign manufacturers and make use of their expertise through the construction of production facilities within the country, all of which will be subsidized by means of state-funded programs.
Market leaders in renewables such as Greenko have therefore established partnerships and joint ventures with companies like John Cockerill (electrolyzers) to ensure that they, too, can have sufficient electrolyzer capacity to meet ambitious corporate goals which include the use of hydrogen for ammonia production. Uniper already has an off-take agreement relating to future production quantities.
For companies in Europe, particularly in Germany, this development is creating extremely interesting opportunities not just to buy hydrogen but also to set up production (fuel cells, electrolysis, hydrogen tanks and component parts) through the transfer of technology by means of partnerships and joint ventures in India in a “local-for-local” approach.
On right path to the hydrogen era
India has fully comprehended the potential for producing its own hydrogen and is setting about making this a reality. Of course, this won’t happen overnight since it requires an enormous amount of capital investment and the projects need to meet the criteria for their financing. The high number of personal conversations with top-ranking officials from government and industry as well as delegates from key provinces leads me to the conclusion and the appreciation that India is perfectly positioned in this respect and will become a leading international player.
Increasing energy demand will continue to be met initially by fossil fuels but will be replaced by renewables and hydrogen little by little. India is on the right path to achieving that goal. Its aim is to be energy self-reliant by 2047 and reach net-zero carbon emissions by 2070. Several weeks ago, India became the most populous country on Earth with a total population of 1.4 billion – overtaking China. This means an intense and rapidly growing hunger for energy – but thankfully this energy will be renewably produced in the medium to long term.
I was able to attend this congress as a member of the delegation from the German advisory initiative Lili Navitas (which stands for “green energy”). The organization’s purpose is to connect up German and Indian companies focused on hydrogen and associated production technologies (e.g., electrolysis) and to facilitate connections in order to foster joint projects in both India and Germany. The initiator was Kiran Bhojani who previously worked in a high-level position at E.ON in Germany and has Indian heritage. He considers it his mission to guide India on its journey to becoming a hydrogen society and to support this by providing contacts and encouraging links between companies.
Plug Power sees itself as a generalist: from H2 production to liquefaction technologies, own electrolyzer production, construction of H2 refueling trailers and stations, and the manufacture of FC stacks for motor vehicles and forklifts. That is the one side of the coin. On the other side, there are various gigafactories that are being built with considerable investment, and require time until sales and profits are generated. In the transition period, high losses will be reported, which can partly be explained with the establishment and expansion of the company. A look at the liquidity alone shows that Plug may have to issue further shares this year in order to finance the company’s ambitious targets, as in addition to capital investment in factories, the large number of strategic acquisitions also cost money.
A sharply rising share of the liquidity – nearly 900 million USD – is not freely available but classified as “restricted” and thus frozen as collateral. On the other hand, Plug certainly has other ways of obtaining new liquidity. I am thinking of sale-leaseback agreements, but also of government support programs and loans under the Inflation Reduction Act. The issuance of a green bond as a convertible bond is also well conceivable.
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Figures for the first quarter
Plug Power has presented quarterly figures that contradict the often very full-bodied statements of the executive board. A 210 million USD turnover in Quarter 1 sounds good in comparison to the same period last year. At the same time, however, the loss increased to over 200 million USD, which corresponded to a minus of 0.35 USD per share (GAAP). The wording of the publications gives me the feeling that they want to teach investors in small doses that the short term goals have to be cut back on.
Nevertheless, Plug will continue on its way in hydrogen and develop great potential here, as they are working on a variety of production facilities for stacks, electrolyzers and even hydrogen. My criticism is that Plug is working on too many construction sites at the same time, so capital is being stretched thin and therefore makes additional capital increases or procurement measures likely.
A number of forecasts have already had to be conceded, just as many an order has been canceled and some orders were not able to be collected in the end. Even the recently received orders for three electrolysis plants in Europe (among others, for a steelworks in Bremen with Apex Energy) does not change the overall picture. In the case of various strategic acquisitions, a certain period of integration is required before a positive contribution margin can be achieved.
In addition, Plug’s relationship with companies like Walmart and Amazon, for whom it retrofits forklifts, is still too one-sided. But this is a temporary negative for me, as Plug is also supplying the liquid hydrogen here and will probably continue sale until the time it can produce the hydrogen itself and earn real money from it. I think – not claim – that it’s the two big customers Amazon and Walmart that could have hedged their very high book profits with the exercise of over 100 million stock warrants through the short sale of shares, since Plug’s short interest lies at over 100 million shares. This combination of customer relationship simultaneously mixed with incentives through warrants for Plug shares raises some questions, including about the tax handling, as Plug continually records charges based on the fair value movement of the warrants on the quarterly financial reports.
Summary
Still not a buy. Alternatives are offered by companies or company shares like Bloom Energy, as their outlooks are clearer and more predictably implemented. Until Plug delivers figures that correspond to expectations could be a while still. Many other forecasts that have been given up on substantiate my critical stance. My forecast that the stock market value of Plug could match that of Bloom is coming increasingly into visibility: Plug was valued at over 15 billion USD and now around 5 billion USD, while Bloom from over 4 billion USD has also slid deeper to a 2.7 billion USD valuation, but in view of the expected figures, has the chance, based on the revenue multiple and the forecasted turnover of 1.5 billion USD in 2023, to become higher valuated than Plug. Meanwhile, Plug expects a 2023 turnover of 1.2 to 1.4 billion USD. It’s a bet.
Disclaimer Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
Good figures for first quarter 2023: Turnover rose over 37 percent compared with the prior-year quarter to 275 million USD. Regarding the year as a whole, the first half of the year will constitute 30 percent of sales. The whole year is to generate, as forecasted, 1.4 to 1.5 billion USD in turnover. The non-GAAP profit margin was increased by 5.4 percent to reach 21.2 percent in the first quarter. The aim is 25 percent for the fiscal year. The profit is related to cost-cutting measures.
Bloom has almost entirely used its liquidity to massively expand its inventory of parts and equipment, in order to put them into use in existing projects – especially in South Korea: 315 million USD in the first quarter. Bloom ended this quarter with a cash reserve amounting to 483 million USD. Some analysts will view this critically. If you read the text for the press conference on the financial results, the rapid sale of the parts should result in a significant increase in liquidity after invoice receipt in the second half of the year.
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In March, major customer and major shareholder SK Ecoplant transferred its second tranche in the amount of 311 million USD (13.5 million preferred shares for 23.05 USD each), making it the largest single shareholder. Bloom has additionally successfully tapped the capital market through a green bond in the form of a convertible bond with a three-percent coupon and 18.85 USD conversion price per share. Initially, they should have totaled 500 million USD, but this was quickly bumped up to 550 million. Also the additional option in the amount of 82.5 million USD will certainly find institutional investors. This is a clear sign of confidence in the company.
According to the investor conference on May 23, 2023, Bloom plans to have a freely available liquidity of 900 million USD at the end of the year. Some analysts, however, view the convertible bond negatively, as a dilution of the share capital could come about as a result of these. Bloom has options here, though, so it does not necessarily have to come to a dilution if this convertible is turned into shares during its course. The share price must also be much higher for that to occur. Exactly these low prices are buy prices, as through the build-up of electrolyzer production to 2 GW this year, business growth in 2024 and the following years would experience a further boost.
Successful pilot projects create new fields of activity
The combination of the use of CHP waste heat and over 85 percent efficiency is finding expression in the first orders in Italy and Belgium for 10 MW each. Delivery in the second half of the year is planned. In parallel, the production of high-temperature electrolyzers is to really get going in 2024. In addition, the time for start-up of the systems or even their shutdown lies at only ten minutes.
The 4-MW electrolyzer from Bloom can generate 2.4 metric tons of hydrogen per day. Bloom has cooperations regarding this with project developers and companies active in ammonia, oil and gas production. In Taiwan, a 10 MW order was able to be processed within a short time in the first quarter, which did not come in until fourth quarter 2022. This speaks for Bloom.
With the US Department of Energy (DoE), in Idaho National Lab, a plant with a 100-kW electrolyzer was able to be successfully simulated. The running time was 4,500 hours, with the result of 25 percent higher efficiency in the production of low-cost hydrogen compared to other electrolyzer technologies.
SK Ecoplant creating real synergies
SK Ecoplant, as part of South Korea’s largest energy corporation SK Group and largest single shareholder, is bringing Bloom Energy along to its own projects in Asia – like also recently with a 4.5 billion-USD project in the province Newfoundland and Labrador, Canada. Hydrogen is to be produced with 1 GW of wind power there and shipped around the world as an export commodity in the form of green ammonia. Siemens Energy is supplying the PEM electrolysis, while Bloom’s high temperature electrolyzers will be put to use for hydrogen production as well as waste heat, which will be fed into ammonia production or used for heating.
How high Bloom’s share in the project will end up cannot be said at present, but the participation itself via SK Ecoplant should already be valued as very positive. Starting 2025, green hydrogen is to be produced there, and then green ammonia from 2026 onwards. The combination of 600 MW of SOFC electrolysis (Bloom) and PEM electrolysis (Siemens Energy) are to produce 60,000 tonnes of green hydrogen per year in the first stage. From this will result 360,000 tonnes of green ammonia. Such a project is sure to find imitation around the world.
Demanding forecast
In year 2026, Bloom will reach a 5 to 6 billion USD turnover. The area of electricity production, with 25 to 30 percent, is to generate growth of 2.5 to 3 billion USD. New markets like electrolysis and carbon capture are to correspondingly reach 1 to 2 billion USD, where 500 million USD will come from maritime. Bloom has expenditures, though, related to the exchange of old Energy Servers to that of the newest model, which for now is incurring costs. In the end, however, this will lead to more energy security and higher margins.
JP Morgan has new price target: 20 USD
Bloom’s prospects in share prices JP Morgan analyst Strouse sees at 20 USD for now, following the sharp decline in price in recent weeks, as Bloom is very well positioned in the long term. From 15 to 20 USD sounds like a lot at first, as this is over 30 percent above current price quotations. I see the share in the next 12 to 24 months rather at over 30 USD, and can imagine even prices of over 50 USD if the forecasted figures are achieved and the company sustainably enters the profit zone – possibly starting 2024.
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
A look at the share prices of hydrogen and fuel cell companies, which have come under severe pressure, suggests that something is not right with the new megatrend hydrogen. What forces are at work here? Short sellers may have an influence, but ultimately it is the markets, the stock exchange and investors that determine the values. Also clear is: The real H2 ramp-up will gain speed in years, not months, and develop sustainably.
At this time, there are concrete projects worldwide to read of that today already correspond to a volume of 320 billion USD and will possibly reach 1 trillion USD per year. The snag is that so far only five to ten percent of these announced projects are in the approval or funding phase or, even, implementation.
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Long-term upward trend is foreseeable
At the moment, companies are primarily concerned with positioning, establishing and scaling production, investing massively in research and development, and optimizing. Illustrative are the results and forecasts presented at important congresses such as at the recent World Hydrogen Summit in Rotterdam, at the newspaper-hosted summit Handelsblatt Wasserstoff-Gipfel in Salzgitter, or at Hannover Messe, which as an indicator for H2 and FC technologies, gives a perfect description of the situation.
Then, there are all the country-specific congresses, like the American Hydrogen Summit, which is representative of similar events around the globe. In parallel, numerous specialized events from the DVGW (German association for gas and water standards), Zukunft Gas and Mission Hydrogen for specific individual topics are taking place, which bodes optimism. Things are becoming optimized, researched, developed, and massive, truly gigantic new world markets are emerging to deal in energy security and likewise the issues of climate, the environment, and energy availability for all markets and uses concerned.
There is also criticism, however, with respect to the EU and Germany in particular, as many things are proceeding too hesitantly and the reasonableness of some regulations ought to be examined. Dr. Sopna Sury, executive at RWE Generation, stated at the Handelsblatt hydrogen summit: We’re simply acting and not waiting on politics. This attitude is illustrated at RWE Hydrogen with many individual projects such as an ammonia terminal in Brunsbüttel, but also in various applications of German electrolysis technology, like that of Sunfire, in Lingen.
All this shows: Countries and companies that approach the hydrogen market with many colors and in order to build businesses belong to the success of the ramp-up. Regarding investment in the H2 and FC stocks analyzed here, all of this sets the perfect runway for the companies concerned. Because their valuation and prospects are expressed in the prices of their shares and the performance of these at the stock market.
Current quotes will be quotes of opportunity
While all the companies and their shares discussed here have different valuation criteria, based off of the different business models, technologies and markets, what they all have in common is that they will play a role in and benefit from the new megatrend hydrogen. We are only at the beginning, though, and with every beginning also comes uncertainty. Here especially, as regeneratively produced hydrogen is a new world market.
You read correctly: Money is needed if you want to make use of the very strongly depressed prices for new or further buys. The basic conviction is that this megatrend talked of has only just begun, if trend research is taken as a basis. A megatrend needs 20 years until the breakout, the inflection point. Go back to the period from 2001 to 2003, when hydrogen and fuel cells started to increasingly come into the public eye. A Ballard Power share was priced at over 130 USD.
Take a seat on the H2 train: We have – metaphorically speaking – just left the station and the H2 train is now picking up speed. The pace is increasing, but the cruising speed has still not been reached. Remember the period from 2018 to 2020, when the share prices rose by several hundred percent but then went downhill for two years? Now, though, my opinion, the new trend will transition to a sustainable upward trend that will tend to lead, with fluctuations that are normal, to substantially higher prices for the shares here discussed. Do you already have your ticket for the H2 train?
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
Written by Author Sven Jösting, June 9th, 2023 graph-7-23.jpg, Source: www.wallstreet-online.de
Regardless of the many good news and developments around hydrogen, there must of course also be a critical consideration of the aspects that may, for example, hinder or delay rapid build-up of production capacity. In addition to adverse influences due in part to misunderstood or counterproductive regulatory measures (EU/Germany) are aspects such as the shortage of skilled workers, supply chain problems and financing. (more…)
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