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BofA - Thematic Investing: Hydrogen Primer

Thursday, October 1, 2020/ Editor -  


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United Arab Emirates,  October 01, 2020:
Key takeaways 
•         Hydrogen economy: $2.5tn of revenues and $11tn infrastructure potential by 2050
•         Environmental focus, improved economics and technological progress all means hydrogen utilization point in sight
•         Beneficiaries: Renewable Energy, Industrials, chemicals, Infrastructure and H2-tech
It's everywhere you go, AND an $11tn market potential
Hydrogen, the first, lightest and most abundant element in the universe, could supply our energy needs, fuel our cars, heat our homes, and help to fight climate change. All while generating $2.5tn of direct revenues and $11tn of indirect infrastructure potential by 2050, while jumping 6x in volumes. We believe we are reaching the point of harnessing the element that comprises 90% of the universe, effectively and economically. 
3 stars about to align: economics, tech, environment
Hydrogen technology has been around for decades, but has yet to reach its tipping point in mainstream use. We believe this is about to change for 3 reasons: 1) the falling cost of renewable energy and electrolysers used to produce green hydrogen - down 50% in the past 5 years, and estimated to fall 60% - 90% further before the end of the decade; 2) tech improvements, better efficiencies and flexibility in fuel cell and electrolysers; 3) a global focus on decarbonisation and sustainability, expanding potential end-markets. 
The H Factor! Planet of the greens needs a clean molecule
Renewable electricity cannot provide the entire solution for decarbonisation: 80% of energy today comes from fossil fuels rather than renewable sources. Green hydrogen could be key in the fight against global warming, providing up to 24% of our energy needs by 2050, helping to cut emissions by up to 30%. For the increasing number of countries signing legally binding pledges for net zero carbon emissions by 2050, the only viable clean molecule is hydrogen, which will play a major role in achieving these goals. 
Why now? Like smartphones pre-07, internet 
Scaling up any new technology entails challenges, but now is the time to look at it, before it goes mainstream. Hydrogen is not yet a clean industry - 99% is today made using fossil fuels, accounting for more emissions than the entire airline industry, while hydrogen efficiency for electricity can be as low as 16%. Costs need to fall up to 85% for green hydrogen to compete with fossil fuel-derived hydrogen, which should happen by 2030. Furthermore, governments, e.g. EU, China, and Australia, are starting to provide strong policy support, through increased carbon prices and funding to develop the fuel. 
Beneficiaries: industrials, renewables, infrastructure, H2 tech 
Hydrogen will have the greatest effect on sectors where decarbonisation with electricity from renewable energy is not possible. Providers of H2 tech, are set to be beneficiaries, alongside renewable utilities, as the renewable capacity needed for green hydrogen production could grow 10x by 2050. The industrial gas & chemicals sectors, should gain share of this energy supply and self-decarbonisation. Other sectors where electrification cannot be the answer, e.g. steel, heating, and transport, could transition. In contrast, fossil energy faces a demand decline as end-markets transition, e.g. 20% additional decline in oil demand if road transport fully transitions by 2050. 

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