As demand for green hydrogen gathers pace, stocks across sectors such as Plug Power (NASDAQ: PLUG) and New Energy of the Fortress (NASDAQ: NFE) are expected to be among the biggest beneficiaries.
Demand for fossil fuels must eventually decline
High fossil fuel prices may be a good thing for the planet. As fuel prices remain relatively high, demand should soon begin to decline, especially if the emergence of greener options coincides. In addition, climate change is already slowly slowing the demand for fossil fuels. In addition, high-carbon companies are under pressure from regulators to reduce their carbon footprint, causing them to look for greener spots, literally. These companies are from a wide range of sectors, from oil companies and steel producers to airlines and automobiles.
The US also has a law in place, the Inflation Reduction Act, which provides monetary incentives for the production of renewable energy and related technologies in America. The law includes a tax credit of up to $3 per kilogram (kg) of green hydrogen for companies that produce it. Following the new rule, Plug Power is wasting no time closing a deal with Amazon to supply it with about 10 million kg of green hydrogen per year starting in 2025.
Green hydrogen could boost Plug Power’s profitability
Currently, green hydrogen costs about $5/kg. Given that Plug Power sells the gas to its customers such as Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT) at $6/kg, the product will more than double Plug Power’s profitability, according to The Wall Street Journalwhen accounting for a tax credit of $3/kg.
For context, green hydrogen is hydrogen generated by splitting water through electrolysis. This process produces only hydrogen and oxygen, leading some to speculate that it is the “fuel of the future.” In this regard, Plug Power is the leader in the race to use hydrogen to drive the majority of its business – turnkey hydrogen fuel cell manufacturing electric vehicles.
The company expects to produce about 15,000 kilograms of liquid hydrogen per day from its first green hydrogen facility in Georgia, enough to power 10,000 forklifts or 300 trucks for a day. If the company succeeds, it could finally see profits for the first time since its inception in 1997.
Plug Power’s potential for green hydrogen has kept the stock in the minds of investors despite its fair share of ups and downs over the years. Interestingly, funds managed by The Vanguard Group and BlackRock (NYSE: BLK), along with a $1.6 billion investment from South Korean conglomerate SK Group in early 2021, kept PLUG shares afloat. This institutional support could help fuel Plug Power’s stock going forward.
Is PLUG stock a buy according to analysts?
Wall Street has a moderate buy rating on Plug Power based on 12 buys and five holds. PLUG stock’s average target price of $27.35 indicates a potential upside of 62.5% over the next 12 months.
The new energy of the fortress can also win
One of energy reserves what stands to gain from Plug Power’s success is New Fortress Energy. New Fortress provides energy infrastructure and development services specializing in energy, infrastructure, transportation and liquefied natural gas (LNG). The company expects its green and blue hydrogen projects to make impressive progress in the coming years.
The company teamed up with Plug Power last year to develop a 120 MW green hydrogen plant in Texas that can be scaled up to 500 MW. The plant will use Plug’s proton exchange membrane electrolysis technology to generate more than 50 tons of green hydrogen per day.
“They have a one-lap lead in a very, very competitive race,” said Wesley Edens, CEO of New Fortress Energy, indirectly explaining the reason behind choosing Plug Power’s equipment to achieve its green hydrogen ambition.
Needless to say, if Plug Power successfully generates the desired amounts of green hydrogen, New Fortress is also likely to win.
Is NFE stock a buy according to analysts?
Wall Street is bullish on the stock, with a strong consensus rating of buy based on three buys and one hold. NFE stock’s average target price of $67.25 reflects 80.8% upside potential.
The Takeaway
Consulting firm Wood Mackenzie expects the global hydrogen market to triple by 2050, with almost all of the growth coming from green hydrogen. This is a very encouraging prospect for companies looking to scale up green hydrogen production. With a production system in place, Plug Power now looks like a torchbearer. Also, New Fortress Energy partnering with Plug Power will bask in its glow.
The views and opinions expressed in are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.