It’s not difficult to paint a rosy picture for hydrogen stocks Plug-in power supply (NASDAQ: PLUG). According to a recent report from global consultancy McKinsey & Co, global demand for clean hydrogen is expected to grow significantly by 2050, but infrastructure scaling and technological advances will be needed to meet projected demand. As the company providing this infrastructure and technology, Plug Power has the lead in meeting this growth in demand, which could last for decades.
With a market cap of just $1.8 billion, there is certainly plenty of upside potential for Plug Power stock. Deloitte, another global consultancy, predicts that the global hydrogen market could reach $1.4 trillion by 2050. But what about the next three years? The actual growth potential of Plug Power stock may surprise you.
The demand for hydrogen is still in its infancy
While wind and solar energy receive most of the attention, hydrogen energy has a great opportunity to help the world transition away from fossil fuels. That’s because hydrogen fuel is particularly good at decarbonizing what economists call “hard-to-decarbonize” sectors. Asphalt, cement, steel, shipping, aviation — these are just a few areas where replacing fossil fuels with renewable energy remains very difficult.
Hydrogen fuel is a viable alternative for two reasons. First, it has a much higher energy density than batteries. This makes it a suitable option for freight transport and aviation, where transporting bulky, heavy batteries is not practical. In addition, sectors such as steel production, cement production and petrochemicals require very high temperatures to function, sometimes exceeding 1000 degrees. Hydrogen can create this level of high heat, while electricity – whether produced by clean or dirty forms of energy – struggles.
If we want to decarbonise hard-to-decarbonise sectors of the economy, hydrogen has a strong argument. But the question is still in its infancy. There’s a reason why research from Deloitte and McKinsey & Co focuses on timelines out to 2050: it will take that long for the hydrogen economy to take off.
Hydrogen fuel is still generally not cost-competitive with fossil fuels. And hydrogen can be produced in cleaner or dirtier ways, meaning a transition to hydrogen fuel won’t necessarily decarbonize the sector in question. Furthermore, hydrogen requires a lot of infrastructure: from production and transport to distribution. It also requires a fleet of end users willing to accept it as a fuel source.
Hydrogen fuel has a lot of promise. But there are obvious obstacles that make this a multi-decade story. Don’t expect this equation to change in the next three years.
Will Plug Power be able to ride the tidal wave of clean energy?
There’s no doubt that Plug Power got off to an early start. The company was founded in 1997 and went public in 1999, at the height of the dot-com bubble. Suffice it to say, it’s been a long journey. Long-term investors are not so satisfied. If you had invested in the company during the IPO, you would only be left with 1.25% of your original capital.
The problem Plug Power faces in the coming years is no different than the challenges the company has faced since its founding. Hydrogen energy, despite all the promises, is still ahead of its time, and a turning point is nowhere in sight. Goldman Sachs estimates Plug Power’s stock duration – or the weighted average duration of its cash flows – at about 26 years.
That’s a long wait. And expect heavy dilution in the meantime. Over the past few decades, Plug Power’s stock has struggled due to a lack of profitability, but also due to the massive stock dilution required to keep the company afloat.
There aren’t many big catalysts to look forward to over the next three years. Raising capital will remain a challenge and expect management to continue touting the potential of the hydrogen economy as a whole. But even if the hydrogen economy takes off unexpectedly, there is no guarantee that Plug Power’s technology in particular will win.
Where will Plug Power be in three years? Probably in the same place as now: struggling for financing, hoping that a hydrogen inflection point will come much sooner than expected.
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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Where will the plug-in power be in three years? was originally published by The Motley Fool
