Investing in ASX hydrogen shares

As the global population responds to climate change with efforts to limit carbon emissions, green energy sources such as hydrogen are coming to the fore. Hydrogen has the potential to provide zero or near-zero emissions energy.

a man dressed in a green superhero lycra outfit stands in a crouched pose with arms outstretched as if ready to spring into action with a blue sky and oil barrels lying in the background.

Image source: Getty Images

What are ASX hydrogen stocks? 

ASX hydrogen stocks are shares in companies that produce, transfer, or market hydrogen as a source of energy. Hydrogen is a flammable gas that can generate power and heat and is considered a clean fuel.

It produces only water, electricity, and heat when consumed. Hydrogen fuel cells can potentially reduce greenhouse gas emissions due to their high efficiency and zero or near-zero emissions operation. Potential uses span various transportation, commercial, industrial, and residential applications.

Producers can generate hydrogen gas using multiple processes, but it is costly to produce compared to fossil fuels. The greatest challenge for hydrogen production today is providing it at a lower cost. 

Research focuses on improving the efficiency of production technologies to make them cost-competitive with fossil fuels. Lower production costs that enable hydrogen to become more competitive will likely enhance uptake in the energy source.

Why invest in hydrogen? 

Hydrogen energy is a promising alternative fuel with the potential to help decarbonise industry, store renewable energy, and replace natural gas. Hydrogen fuel cells work like batteries, generating electricity from an electrochemical reaction. 

They can be used to power vehicles and as a fuel source for homes and businesses. Because of its potential as an emissions-free energy source, the Federal Government has estimated that Australian hydrogen production could generate more than $50 billion by 2050.1 

Investing in renewable hydrogen shares provides investors with the potential to profit from the shift to clean energy sources. Many countries are trying to pave the way for green hydrogen as a fuel source. 

In the long term, hydrogen is among the alternative energy sources expected to play an important role in fuelling commercial vehicles and replacing diesel. It may also contribute to decarbonising energy-intensive sectors such as steel, chemical manufacturing, and shipping. 

The clean hydrogen industry, however, is far from mature, meaning investors could be in for a bumpy ride. 

Recent industry developments

The Federal Government announced a $2 billion Hydrogen Headstart program2 in the 2023-24 federal budget. The program makes up half the budget's $4 billion new renewable energy spend. 

The aim is to scale up the development of Australia's hydrogen industry by providing revenue support for large-scale renewable hydrogen projects through competitive production contracts. Industry welcomed the move, recognising how seriously the government is taking the green hydrogen industry and its critical role in Australia's future. 

In July, Rio Tinto Ltd (ASX: RIO) announced plans to build a hydrogen plant in Gladstone for a $111.1 million program to lower carbon emissions from the alumina refining process.3 

The project received a government co-funding boost of $32.1 million from the Australian Renewable Energy Agency. Rio Tinto says the project is important in testing whether hydrogen can replace natural gas in Queensland alumina refineries. If successful, it could pave the way for global adoption of the technology at scale.

Top hydrogen shares on the ASX 

A small (but growing) number of ASX-listed companies are involved in hydrogen production. These include big names such as Rio Tinto and AGL Ltd (ASX: AGL) and smaller players such as Pure Hydrogen Corporation Ltd (ASX: PH2). 

Below are some of the top hydrogen stocks listed on the ASX, ranked by market capitalisation from high to low.   

Fortescue Metals Group

Limited (ASX: FMG
A major iron ore miner that has invested in hydrogen to decarbonise the company's operations 
Woodside Energy Group

Limited (ASX: WDS
A petroleum exploration and production company, Woodside is moving into the hydrogen

space with four projects across Australia, New Zealand, and the United States
Frontier Energy Ltd

Developing one of Australia's first commercial green hydrogen projects in Western Australia 

Fortescue Metals

One of Australia's big three iron ore miners, Fortescue is also engaged in the hydrogen sector via its subsidiary Fortescue Future Industries (FFI). FFI is committed to producing green hydrogen containing zero carbon from 100% renewable sources. 

FFI is developing technology solutions for hard-to-decarbonise industries while building a portfolio of renewable energy and green hydrogen projects. It is also responsible for the proposed decarbonisation of Fortescue by 2030. 

Fortescue has allocated US$550 million to the Phoenix Hydrogen Hub. It plans to build an 80-megawatt electrolyser and liquefaction plant with production capacity of up to 11,000 tonnes a year of liquid green hydrogen. The company has also earmarked US$150 million for its 50-megawatt green hydrogen project in Gladstone, Queensland. 

Woodside Energy

A global energy company, Woodside is moving towards a renewable future with several hydrogen projects in progress. The company plans to develop a domestic and export-scale hydrogen and ammonia production facility in Western Australia to support the transition of the local electricity grid to renewable sources. 

Woodside has secured land for a similar facility in Tasmania, which would use a combination of hydropower and wind power to create a 100% renewable ammonia product for export and renewable hydrogen for domestic use. 

In New Zealand, Woodside is partnering with Meridian Energy Ltd (ASX: MEZ) to develop the Southern Green Hydrogen project. The project aims to produce 500,000 tonnes per year of ammonia utilising electrolysis from renewable power, focusing on the export market.

In Oklahoma, United States, Woodside has a liquid hydrogen project planned, strategically located close to national highways and the supply chain infrastructure of major transport companies.   

Frontier Energy

Frontier Energy is developing the Bristol Springs Project in southwest Western Australia, one of Australia's first commercial green hydrogen projects. A pre-feasibility study found that stage one of the project (a 114MW solar farm) would produce around 4.4 million kilograms of green hydrogen annually. 

The company anticipates that the low estimated cost of production will place the project as one of the lowest-cost producers of green hydrogen in Australia. It has more than 500MW of expansion potential, which can serve to improve project returns. 

Frontier also recently announced plans to develop Western Australia's first publicly available green hydrogen refuelling station in Perth. Significant potential exists for reducing emissions by replacing diesel and petrol with green hydrogen in transport and bulk haulage. 

What might the future hold for hydrogen shares? 

The Australian Government has invested heavily in developing Australia's hydrogen industry, with our country looking to become a significant hydrogen exporter. 

The National Hydrogen Strategy aims to position our industry as a major global player by 2030. A key element of Australia's approach is to create hydrogen hubs. These clusters of large-scale demand will give the industry a springboard to scale. 

Hubs will make infrastructure development more cost-effective, promote efficiencies from economies of scale, and foster innovation. 

Government and industry focus is on creating the required hydrogen distribution and delivery infrastructure. As we can produce hydrogen from a variety of resources, regional and local hydrogen production has the potential to maximise the use of local resources and minimise distribution challenges. 

Early steps are being taken to use hydrogen in transport, industry, and gas distribution networks and to integrate hydrogen technologies into our electricity systems. The key is to turn the emerging technologies that underpin the hydrogen economy into bankable assets. 

Pros of investing in hydrogen stocks

Huge potential: Hydrogen has enormous potential as a clean energy source. It is expected to form a key component of Australia's green economy. Companies worldwide are investing heavily to improve the application of hydrogen technology. 

Government tailwinds: The announcement of the Federal Government's Hydrogen Headstart program will provide a significant tailwind for the Australian hydrogen industry and accelerate its development. 

And the cons

Volatility: Most hydrogen shares listed on the ASX are still in their early stages of development. This means they can be highly volatile, especially small-cap hydrogen shares. 

Still in innovation stages: Government incentives provide tailwinds to hydrogen companies, but many are still in the innovation stage. Much growth and development will be required before we reach a position where hydrogen provides a mainstream energy source. 

Are ASX hydrogen shares a good investment? 

An increasing number of countries are committing to achieving net-zero emissions. This increases the focus on hydrogen as a green alternative to traditional fuels. However, production involves high costs and a need for scale. 

An investment in hydrogen stocks is, therefore, a long-term bet. Rising interest rates have prompted investors to reduce allocations to investment themes with long-term horizons favouring cash-generating assets. This has seen the value of hydrogen shares fall in the short term. 

Ultimately, whether hydrogen shares are a good investment for you will depend on your financial situation, risk tolerance, and time horizon. ASX hydrogen shares are more likely to suit investors with long-term time horizons and reasonable risk tolerance. 

For the investor who wants exposure to the hydrogen energy sector as a whole rather than an individual hydrogen stock, an exchange-traded fund (ETF) such as Global X Hydrogen ETF (ASX: HGEN) may be suitable. 

Frequently Asked Questions

For those who believe in the potential of green energy and its role in shaping the future, investing in hydrogen shares can seem like a no-brainer. With its promise as a clean and sustainable energy source, hydrogen is viewed as a critical player in the global shift towards renewable energy. The sector offers the potential for significant growth as governments and industries worldwide are investing in hydrogen technologies and infrastructure. 

However, it's essential to approach hydrogen stock investments with an understanding of their unique risk profile. The hydrogen market, while promising, is still in its nascent stages and subject to volatility, particularly among smaller, less established companies. Further, the long-term success of the hydrogen industry depends on various factors, including technological advancements, cost reductions, and widespread adoption, which are not guaranteed. Therefore, investing in hydrogen stocks may be more suited to those with a long-term investment horizon and a higher tolerance for risk. 

Determining the 'best' hydrogen stock to buy in Australia is subjective and depends on various factors, including individual investment goals, risk tolerance, and market insights. As the hydrogen sector is emerging and evolving, it offers a range of investment opportunities, from established energy companies venturing into hydrogen to innovative startups focusing solely on hydrogen technology. 

When considering an investment in hydrogen stocks, conducting thorough research and staying informed about the latest industry developments, government policies, and technological advancements is crucial. These can significantly impact the sector's growth and the performance of hydrogen stocks.

Investing in a single stock always involves higher risk, particularly in a sector as dynamic as hydrogen energy. Therefore, some investors might prefer diversifying their exposure to the hydrogen industry through exchange-traded funds (ETFs) focusing on renewable energy or specific hydrogen-related indices. This can provide a broader exposure to the sector while mitigating the risk associated with individual stocks. 

Australia is actively investing in hydrogen and is poised to be a significant player in the global hydrogen market. In recognising hydrogen's potential as a clean and sustainable energy source, both the Australian government and the private sector are making considerable efforts to develop and promote the hydrogen industry. 

Programs like the $2 billion Hydrogen Headstart initiative, aimed at scaling up the development of Australia's hydrogen industry, highlight the Federal Government's investment in hydrogen. Further, numerous Australian companies are actively involved in various hydrogen projects, ranging from large-scale production and storage solutions to innovative applications in transportation and energy. 

Article Sources

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Katherine O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.