The market’s valiant, yet ultimately failed, attempt at a rally has ended; following a slew of negativity from the Fed Symposium in Jackson Hole last weekend, the market (as measured by the S&P 500), has seen a 6% decrease since last Friday and a nearly 10% decrease since its August high of ~4,320.
Frankly, investors are sick of the whiplash. I’m sick of the whiplash.
However, there is always a bull market somewhere.
Even when the market tanks. Even when Chairman Powell scares the daylights out of investors. Even when the odds seem stacked against us.
I believe it’s time to tiptoe back into the market.
While I certainly don’t mean that you could buy any stock you want right now, I do mean that by sitting on the sidelines and waiting for things to calm down, you are missing out on some of the biggest emerging opportunities.
And today, I want to share with you my next burgeoning megatrend…
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Trading Along the Energy Spectrum
“Old energy” investments have treated us pretty well this year, at least on a relative basis. But I expect “new energy” investments to treat us even better over the upcoming years.
In other words, I am bullish on the entire energy transition – from crude oil to solar power… even energy storage technologies like vanadium flow batteries and “green hydrogen.”
The world is going to require a lot more of all of it over the coming years.
Eventually, of course, the new technologies that are spearheading the clean-tech boom will dominate global power generation… but not immediately. The road to a fully renewable, “net-zero” world will be a long and somewhat chaotic one.
The opportunity is so vast, powerful, and long-lived that we investors must risk kissing a few frogs to find our princes. One of the frogs I suggest kissing is “green hydrogen” – a fascinating renewable energy technology with enormous potential…
A New Wave of Clean Tech
Hydrogen, as a fuel, is carbon-free. But the typical processes that produce hydrogen are not. That’s why the renewable energy industry uses a palette of colors to designate the source of hydrogen fuels. I won’t go over the “greys” and “blues” of it; the only color you need concern yourself with is green.
“Green hydrogen” is the new kid in town. Think of it as the love child of water and renewable energy. Green hydrogen results when a renewable energy facility powers an electrolyzer that splits water into hydrogen and oxygen.
Conceptually, therefore, green hydrogen is the ultimate carbon-free fuel. It combines a limitless supply of water with renewable energy to create a zero-emission fuel.
Additionally, green hydrogen can integrate easily with fossil fuels and with the entire fossil fuel ecosystem. Green hydrogen, for example, can blend with existing fuels to create synthetic fuels like e-Methane, e-Methanol, e-Diesel, e-Gasoline, or e-Jet fuel.
This story is so alluring that green hydrogen seems an inevitable future leader of the multi-decade clean tech boom.
It has not yet achieved that status for two main reasons…
- Green hydrogen is more expensive to produce than the grey variety.
- Green hydrogen technologies have not yet achieved the scale that could drive its price down to competitive levels.
But eventually, maybe sooner rather than later, green hydrogen could become a key solution for what one energy market observer calls a “molecule crisis” – i.e., not enough hydrocarbon molecules to continue powering the world at a reasonable cost.
This particular opportunity is so early in its development that none of the sector’s leading companies are booking profits… yet.
But Bank of America Corp. (BAC) compared the current phase of the hydrogen market to the smartphone market just before the first iPhone launched, or the 1999-era internet, just as companies like Amazon were emerging. The bank estimates that hydrogen will generate 24% of our energy needs by 2050, creating as much as $11 trillion in investment opportunities over the next three decades.
Therefore, even though some investors might consider green hydrogen to be a “tomorrow fuel,” I believe it has become a “today opportunity,” thanks to at least three main near-term catalysts…
- Urgent Energy Security
Because many European countries now realize their dangerous overreliance on Russian gas imports, they are scrambling to find replacements. Traditional renewables like solar and wind will certainly play a role. But by themselves, they will not be able to replace the “missing” Russian gas.
Europe will require an “everything solution” immediately. In this context, green hydrogen offers two especially valuable benefits…
- First, it can boost the total energy output from wind and solar installations.
- Second, because green hydrogen is the only combustible renewable energy source, it is the only one that can blend seamlessly with fossil fuels.
One fascinating example is a plan by the Los Angeles Department of Water and Power to convert a coal-fired power plant to green hydrogen… in stages.
Initially, the Department will convert the plant to a blend of 70% natural gas and 30% green hydrogen. From there, the plant will transition to 100% green hydrogen by 2045.
- Onshoring or “Near-Shoring” Supply Chains
Now that Western companies and countries understand the risk and expense of maintaining fragile, far-flung supply chains, they are moving quickly to onshore – or “near-shore” – those chains.
Energy is a critical part of most supply chains, as many German factories are now discovering. Some of them are reducing or suspending production for lack of an energy supply.
Green hydrogen could help to solve that problem because it lends itself to localized production. In theory, any location with a water supply and access to a renewable power source could produce green hydrogen.
- An Imminent Investment Tsunami
Both the private sector and national governments are pouring billions of dollars into green hydrogen production. Importantly, this massive investment is just beginning to sweep across the renewable energy industry.
Bottom line: I believe hydrogen, especially “green hydrogen,” will become an increasingly vital clean technology, due mostly to its unique ability to decarbonize heavy industry and revolutionize clean mobility.
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