Investors dream of finding that one home-run opportunity that can turn their little nest egg into a massive fortune. We've all heard the stories of those who bought a few shares of a little-known tech start-up that went on to grow into a household name, turning their early investors into multi-millionaires. We'd love for that to be our story someday.
You might just have your chance, according to a report by venerable Wall Street bank Goldman Sachs. Its analysts see a potentially game-changing opportunity beginning to emerge in green hydrogen, which could be a nearly $12 trillion addressable market by 2050. Given that enormous potential, investors won't want to miss out on what could be a massive wealth-building opportunity.
What is green hydrogen?
Green hydrogen uses renewable energy to electrolyze water and separate the hydrogen atom from the two oxygen atoms. Hydrogen has many uses, including replacing fossil fuels to produce power. That would make it a perfect substitute since it would provide emission-free energy without the intermittency associated with renewables.
Unfortunately, it currently comes at a high cost because it's energy-intensive. However, that's changing as the cost of developing renewable energy projects declines, making green hydrogen a more affordable option.
Because of hydrogen's versatility and the decline in costs, Goldman Sachs believes it has massive growth potential. For example, it estimates that green hydrogen could become the largest electricity consumer in Europe, which is currently leading the way in its development. It could double the continent's demand for power, which would be good news for renewable energy development and conventional energy infrastructure like gas pipelines and thermal power plans since they could get converted for green hydrogen. Add in the opportunities in the U.S. and Asia, and the bank sees a nearly $12 trillion addressable market for green hydrogen by 2050. That led its analysts to call green hydrogen a "once-in-a-lifetime opportunity."
Baby steps toward a potentially big payday
One of the early leaders in green hydrogen in the U.S. is renewable energy giant NextEra Energy (NYSE:NEE). The company's CFO, Rebecca Kujawa, noted on its second-quarter conference call that "to achieve an emissions-free future, we believe other technologies will be necessary, and we are particularly excited about the long-term potential of hydrogen." She noted that the company is taking a "toe in the water approach" by planning a hydrogen pilot project at one of its utilities in Florida. It would invest $65 million into the project that could start-up by 2023. NextEra would use solar energy to produce green hydrogen to replace a portion of the natural gas consumed by one of the turbines at an existing power plant.
While the company is starting small, it sees massive potential for green hydrogen over the next three decades. In NextEra's estimate, green hydrogen could eliminate the need for fossil fuels in generating electricity while also expanding the market opportunity for renewable energy. Those catalysts lead it to estimate that the renewable energy market could grow tenfold in 30 years. Meanwhile, green hydrogen could also play an important role in electrifying the transportation and industrial sectors. Adding it all up, NextEra estimates that the market potential for renewables and green hydrogen is 19 to 24 times the current renewable energy market.
Another company that sees a bright future in green hydrogen is Plug Power (NASDAQ:PLUG). The company recently inked a deal with leading renewable energy producer Brookfield Renewable (NYSE:BEP)(NYSE:BEPC) to supply its first green hydrogen facility with 100% renewable energy. The two companies are discussing a broader relationship that could yield additional green hydrogen development opportunities in the coming years. It's the first step in the hydrogen fuel cell company's strategy to produce more than 50% of its hydrogen supplies with renewable energy by 2024.
In addition to accelerating the development of new renewable energy projects, green hydrogen could also cause a major shift in the usage of conventional energy assets like natural gas pipelines and gas-fired power plants. That's because it could become a replacement fuel for natural gas in those existing electricity generating facilities. According to Goldman Sachs, that would give them a "second life" as the industry could produce hydrogen offsite and ship it via former gas pipelines to existing power plants. Goldman Sachs believes that potential future green hydrogen plays could also include current gas infrastructure owners such as Consolidated Edison, NextEra Energy Partners, and Williams Companies, among others.
An exciting emerging opportunity to watch closely
Green hydrogen has gone from a long-shot to a real possibility of helping achieve ambitious net-zero pledges thanks to rapidly falling renewable energy costs. Investors will want to keep a close eye on its development, since it represents a massive market opportunity. While there will likely be many winners if it's successful, NextEra Energy, Plug Power, and Brookfield Renewable stand out as intriguing candidates, given that their first-mover status in trying to turn green hydrogen from concept to reality.