Why Green Hydrogen is the Next Big Opportunity

Last decade, the desire for electric vehicles has grown, so much so that rather than being a novelty they are now becoming mainstream. As a consequence, Australia’s rare earth miners have benefited with lithium being the big winner. This decade, rather than focusing on battery technology there has been a big push towards renewable energy sources and green hydrogen is shaping up to be the next big opportunity that investors should be focusing on.

Demand for hydrogen exports expected to explode

The Australian Renewable Energy Agency (ARENA) reported that both the government and industry has undertaken a substantial amount of work in this area to quantify the opportunities in renewable hydrogen in Australia. As a result, they have set a goal for producers of hydrogen to be able to do so for under $2 a kilogram. Two weeks ago, Australian company Hysata announced that its new technology developed by scientists at the University of Wollongong could meet the government’s target and that they can reach gigawatt scale hydrogen production capacity by 2025.

According to ARENA, demand for hydrogen exports from Australia could be over 3 million tonnes each year by 2040, which could be worth up to $10 billion. We have already seen Fortescue Metals partner with the Queensland government to build the world’s largest green hydrogen manufacturing facility. But they are not alone, as Wesfarmers wholly owned subsidiary Coregas is involved in a large project in the La Trobe valley that would see them export liquified hydrogen. AGL has also entered into this space and Origin Energy is looking to enter.

Right now, I suspect we are just seeing the tip of the iceberg and that there will be more large companies enter this space. With many smaller players also entering the hydrogen space in Australia, I suspect we may also see mergers or acquisitions of these smaller companies over the coming years. We have already seen one merger between Real Energy and Strata X Energy to create the Pure Hydrogen Corporation with the stock rising over 20 per cent in the last month.

Investors would be wise to study up on green hydrogen and be on the lookout for the great investment opportunities that will definitely become available in this space.

What were the best and worst performing sectors last week?

The best performing sectors included Materials up 3.65 per cent followed by Information Technology up 1.19 per cent and Consumer Staples up 1.13 per cent. The worst performing sectors included Energy down 1.27 per cent followed by Consumer Discretionary down 0.57 per cent and Communication Services down 0.42 per cent.

The best performers in the S&P/ASX top 100 stocks included Allkem up 12.62 per cent followed by Mineral Resources up 12.12 per cent and Fortescue Metals up 9.29 per cent. The worst performing stocks included James Hardy down 7.05 per cent followed by Harvey Norman down 6.99 per cent and Reece down 5.29 per cent.

What's next for the Australian stock market?

The All Ordinaries Index remained bullish, as it continued rise last week up 1.25 per cent although it was a little flat later during the week. Up until last Friday, the current move up has lasted 16 days and over 7 per cent, which has seen the Australian stock market back in green territory for the year to date, with the All Ordinaries up 0.09 per cent since 1 January.

While this is great news, the bullish momentum slowed a little last week, so I wouldn’t be surprised if we experience a few down days this week. In more good news, the Australian stock market is now well above the high of 7,646 points and less than 1.5 per cent away from achieving its highest close ever.

While it is typical for investors to speculate on smaller cap stocks, this year that strategy hasn’t really worked as the ASX top 20 has risen over 3 per cent and the ASX 50 is up over 2 per cent, while the Small Ordinaries Index is down over 5 per cent. I do believe this trend will continue, therefore, I would advise investors to stick to the top 50 stocks in the Australian market if they want to achieve some good profits.

For now, good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.