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

Hydrogen power is a cheaper, cleaner alternative to fossil fuels - and clean energy is set to change the future. There's a range of hydrogen stocks to trade or invest in, but what are the top hydrogen stocks to watch?

Source: Bloomberg

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

How to invest in hydrogen shares

  1. Create an account or log in and go to our platform
  2. Search for the shares you want to buy/ search for the shares you want to sell
  3. Select ‘buy’ in the deal ticket
  4. Choose the number of shares you want to buy
  5. Open and monitor your investment position

How to sell your hydrogen share investment

  1. Create an account or log in and go to our platform
  2. Search for the shares you want to buy/ search for the shares you want to sell
  3. Select ‘sell’ in the deal ticket
  4. Choose the number of shares you want to sell
  5. Close your investment position

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:

IG Hargreaves Lansdown AJ Bell
Best commission rate on US shares Free £5.95 £9.95
Standard commission rate on US shares £10 £11.95 £9.95
FX conversion fee 0.5% 1.0% 1.0%
Best commission rate on UK shares £3 £5.95 £4.95
Standard commission rate on UK shares £8 £11.95 £9.95
How to qualify for the best rate Open 3 or more positions on your share dealing account in the previous month 20 or more trades in prior month n/a

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.

Buying (going long on)
hydrogen shares

  1. Create an account or log in and go to our trading platform
  2. Search for your opportunity
  3. Select ‘buy’ in the deal ticket
  4. Choose your position size and take steps to manage your risk
  5. Open and monitor your long position

Selling (going short on) hydrogen shares

  1. Create an account or log in and go to our trading platform
  2. Search for your opportunity
  3. Select ‘sell’ in the deal ticket
  4. Choose your position size and take steps to manage your risk
  5. Open and monitor your short position

Top 3 hydrogen stocks

The best hydrogen stocks in the UK are those stocks which offer direct access to the hydrogen market. There are three dedicated hydrogen technology stocks on the Alternative Investment Market (AIM), which houses smaller-capped companies with growth potential. The stocks are:

1) AFC Energy (LON: AFC)

AFC Energy is a leading provider of alkaline fuel cell systems, used in everything from electric vehicles to space shuttles. AFC is currently planning to expand its Surrey manufacturing plant to meet growing demand for its product.

In July 2020, shortly after the pandemic began, it saw an oversubscribed fundraiser of £31.6 million to support its growth, sending its share price spiking to 83.5p by January 2021.

However, it’s since fallen to 26.5p, as investors reassess its long-term prospects. In recent interim results, it generated revenue of just £276,000. While this represented an 85% increase over the same period last year, this is a company with a £195 million market cap. And with monetary policy tightening, growth is becoming harder to achieve.

Moreover, its losses jumped by 135% in H1 to a whopping £7.8 million. And this debt will only become more expensive to service.

But AFC is growing its customer base, winning its first commercial order, worth £4 million, for its S Series liquid cooled fuel cell system from market titan and strategic partner ABB. And it’s leasing systems to a variety of clients elsewhere.

While it has £49 million of cash, its high cash burn rate means there is a risk it could issue more shares, as is has done in the past, on the way to profitability.

2) Ceres Power (LON: CWR)

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 596p per share, the hydrogen stock is down by almost two thirds since its record in February 2021. However, its fuel cells represent an area of immense potential, especially given its partnerships with Bosch and Doosan Fuel Cell. It’s also teamed up with Shell to deliver a megawatt-scale solid oxide electrolyser demonstrator to power R&D facilities in India.

Unlike AFC, Ceres has no debt. But it does have significantly more capital, with £221 million in cash at the end of June. And burning only £32 million over the past 12 months, its cash pile would last more than six years at current rates, meaning a capital raise is unlikely.

However, the investment case isn’t simple. It generated only £10 million of revenue in H1 2022, declining from £17.4 million in the same half last year. While it blames the fall on ongoing negotiations with its clients that would eventually deliver significant revenue, this is not yet guaranteed.

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.

CEO Phil Caldwell thinks ‘short-term revenues are dependent on the timing of significant licensing deals. Our focus remains on building long-term value through scaling the manufacturing capacity for our technology and growing the recurring, annual royalty streams we will receive as partners succeed.’

3) ITM Power (LON: ITM)

ITM Power is a producer of electrolysers — low-carbon hydrogen gas generation based on proton exchange membrane technology. As one of the few companies in the green hydrogen space, ITM’s future prospects could be bright.

The company is currently building its second Gigafactory in Sheffield and is planning a third abroad. But at 212p per share, it’s also fallen significantly since its 682p record high in January 2021, highlighting the wider effects of tighter monetary policy.

However, it’s not just the events outside of ITM’s control: in 2021, it made sales of just £4.3 million, making a loss of £28 million. And in H1 2022, it made £4.2 million in revenue, highlighting the potential exponential growth. But for context, this is a company that still has a £1.26 billion market cap.

It’s likely 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.

Source: Bloomberg

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

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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