What are the best hydrogen stocks for UK traders to watch?

Investing in hydrogen: what you need to know

Hydrogen is everywhere: hydrogen is the most abundant gas in the universe – approximately 75% of all baryonic matter is hydrogen. This abundance of hydrogen makes it one of the most renewable sources of energy on the planet.

There are many ways to extract hydrogen: traditionally, hydrogen is produced through the electrolysis of water. However, several energy companies have now developed more efficient techniques to create hydrogen energy with minimal waste. These include the use of solid oxide fuel cells, alkaline fuel cells, and proton exchange membrane technology.

It’s a cheap source of clean fuel: when used in a fuel cell, hydrogen energy leaves minimal waste, with water being the main by-product.

It has the backing of the UK government: the UK government has committed to becoming a carbon zero country by 2050, and one of the ways it intends to meet this target is by encouraging the use of hydrogen power. Financial and regulatory support is expected to follow in the months and years ahead.

It’s attracting investment: hydrogen company stocks have been on an upward trend as investors start to spot the potential of hydrogen energy. The UK government’s Ten Point Plan for a Green Industrial Revolution report has predicted that hydrogen power could deliver more than £4 billion in private investment over the next decade.

As environmental, social and governance (ESG) becomes more of a priority for investors and corporates, investing in hydrogen fuel is likely to rise.

How to buy or invest in hydrogen stocks

You can buy or invest in hydrogen energy stocks quickly and easily with us.

Investing in hydrogen shares

Invest in hydrogen shares by researching the market and choosing a portfolio of stocks and shares that offer direct exposure to the hydrogen energy market. Investing lets you take direct ownership of hydrogen shares – and you’ll benefit from any upward movement in the share’s price.

The purpose of investing is to create long-term wealth from capital gains and dividends, while managing risk to minimise any losses. It’s easy to buy hydrogen stocks with us, and you can reinvest any returns, allowing you to benefit from compound interest over time. Remember that investments can fall in value as well as rise, so might get back less than you initially invested.

Here’s how our share dealing rates match up to those of our competitors:

Trading hydrogen shares

Another way to invest in hydrogen is by trading hydrogen stocks. Trading hydrogen shares lets you take a speculative position on their price rising or falling, without having to own the shares directly. You’ll ‘buy’ the shares (go long) if you think their price will rise, and you’ll ‘sell’ the shares (go short) if you think it’ll fall.

With us, you’ll be trading hydrogen shares with leveraged derivatives like spread bets or CFDs. Leverage enables you to receive full market exposure for an initial deposit, known as margin. But, bear in mind that while leverage can increase your profits, it can also increase your losses – so it’s important to take steps to manage your risk.

Top 3 hydrogen stocks to watch

The majority of the UK’s hydrogen-focused stocks are listed on the Alternative Investment Market (AIM), which houses smaller-capped companies with growth potential — and only three have a market capitalisation above £100 million. While several majors are investing in hydrogen development, there are currently no larger companies based in the UK which focus solely on the element. The following are ordered by market capitalisation:

1. ITM Power
2. Ceres Power
3. AFC Energy

ITM Power

ITM Power is a producer of electrolysers — low-carbon hydrogen gas generation based on proton exchange membrane technology. As arguably the largest dedicated green hydrogen operator in the UK, ITM’s future prospects could be bright.

At 63p per share, it’s also fallen drastically since its 682p record high in January 2021, highlighting the wider effects of tighter monetary policy as well as overexuberant investor demand for novel clean energy stocks.

In recent interim results to 31 October 2023, revenue jumped from £2 million in the same period the year before to £8,9 million, and the company had £253.7 million in cash. However, the growth business still made an adjusted EBITDA loss of £21 million — though this was less than half that generated in the year-before period.

CEO Dennis Schulz enthuses that ‘the long-term trajectory for green hydrogen remains an unparalleled opportunity.’

It’s possible that hydrogen power — and in particular, green hydrogen — will become a significant source of energy as the green revolution accelerates, particularly given the political prominence of energy security. And as there is a dearth of UK-based hydrogen stocks on the market, ITM Power could be an excellent, though risky, early investment especially at the current price point.

Market capitalisation: £393.5 million

Ceres Power

Ceres Power is an innovator in solid oxide fuel manufacturing, a novel, inexpensive, low energy method of manufacturing hydrogen. It’s partnered with a number of international brands to secure funding and distribution channels while it attempts to scale up.

At 369p per share, the hydrogen stock is much like ITM drastically down since the pandemic heyday. However, its fuel cells represent an area of immense potential, especially given its partnerships with Bosch, Doosan Fuel Cell, and Linde Engineering.

Ceres’ key advantage is that its fuel cells can be used with both traditional hydrocarbon energy sources as well as hydrogen. This means its clients can slowly transition to hydrogen, representing a smaller corporate investment risk.

Initial tests of its solid oxide electrolyser module ‘give confidence that this technology can deliver green hydrogen at around 25% more efficiently than incumbent lower temperature technologies.’ Accordingly, it’s been awarded the coveted MacRobert award for the ‘spectacular’ engineering success.

In a recent trading update, the company expects revenue for FY23 to come in at £22 million, with a gross margin of 60%. And it had a cash position of circa £140 million at the end of last year.

CEO Phil Caldwell notes its ‘significant new license deal with Delta, our first to include SOEC, and further validation of our strategy to invest in our green hydrogen technology. We start 2024 with a strong cash position and a growing pipeline of opportunities to work with progressive partners to adopt our technology to decarbonise our global energy systems.’

Market capitalisation: £331.9 million

AFC Energy

AFC Energy is a leading provider of alkaline fuel cell systems, used in everything from electric vehicles to space shuttles. The company recently announced that its ammonia cracker technology successfully achieved 99.99% hydrogen from single reactor testing, with the results being independently tested by the National Physical Laboratory.

For context, this tech could deliver ‘fuel cell grade hydrogen on a modular, scalable basis,’ which could be key to the hydrogen world at large. And Speedy Hire still expects to form a JV of sorts with the company. However, like the above two companies, the stock has fallen sharply since early 2021. Revenue was just £200,000 in H1 2023, and it saw a post-tax loss of £6.3 million.

Of course, growth shares in early stage development are typically loss-making — but those who succeed can be rewarding. However, AFC Energy is correspondingly higher risk.

Market capitalisation: £119.4 million

Where next for hydrogen?

The domestic and global markets for hydrogen power are growing, for several reasons.

1. The rise of environmental, social, and corporate governance (ESG) investing

On a global scale, the popularity of ESG investing is set to draw new attention to clean energy markets such as hydrogen, as more and more corporates and investors carve out ESG allocations in their investment portfolios.

2. The UK government has set ambitious new green energy targets

In the UK, hydrogen power has been specifically highlighted as a future growth industry and a way to help meet the country’s target of net zero carbon emissions by 2050. The publication of the UK’s upcoming hydrogen strategy report will outline the opportunities and limitations of using hydrogen power as an alternative to fossil fuels.

The UK government’s Ten Point Plan for a Green Industrial Revolution has set a target of developing five gigawatts of low carbon hydrogen production capacity by 2030. By 2023, the government will work with the clean energy industry to allow up to a 20% blending of hydrogen into the gas distribution grid for all homes on the gas grid.

3. More private and public investment is expected in the hydrogen space

The Green Industrial Revolution report concluded that 'driving the growth of low carbon hydrogen could deliver…over £4 billion of private investment in the period up to 2030' as well as 'savings of 41 MtCO2e between 2023 and 2032, or 9% of 2018 UK emissions'. These plans will be supported by a £240 million ‘Net Zero Hydrogen Fund’.

This suggests that there could be a robust future for hydrogen stocks in the UK as the government’s clean energy plan takes shape.

4. Energy giants are diversifying into clean energy

Energy giants BP, Enegix and Siemens Energy have already begun exploring hydrogen development, with BP eyeing a new hydrogen production hub on England’s northeast coast which could grow to a production capacity of 1 gigawatt by 2030.

5. Emerging opportunities for hydrogen fuel

The electric vehicle (EV) boom is set to boost the popularity of hydrogen power. Hydrogen fuel cells are incredibly energy efficient, and unlike battery-powered EVs, they don’t require lengthy periods of charging.Toyota Mirai is an early example of hydrogen fuel cell technology in electric vehicles.

Best hydrogen stocks summed up

• Ceres Power, AFC Energy and ITM Power are just three UK companies that are focusing on hydrogen power manufacturing at the moment
• As the manufacturing process becomes cheaper and more energy efficient, other companies could join them
• Meanwhile, the world’s leading energy providers have been paying closer attention to hydrogen power, and the UK government has committed to increasing the country’s reliance on hydrogen power in the coming years
• This makes hydrogen an exciting segment of the clean energy market, with plenty of room for growth in the medium and long term