Yesterday, GE announced it has won $12 million in funding for two pilot projects from the U.S. Department of Energy (DOE), in which the company will "develop and test key components required for high hydrogen combustion," using a "100% hydrogen fuel stream" to generate electricity.
GE stock is rising on the news. (Admittedly, most stocks are up today, with the S&P 500 gaining 1.7% as of 11:55 a.m. ET, but GE stock is up twice that with a 3.8% gain. Additionally, shares of hydrogen fuel cell specialist and hydrogen gas producer Bloom Energy (BE -1.52%) and Plug Power (PLUG -2.24%) are up 5.5% and 6.5%, respectively.
In the absence of any other positive news on the names, the stock price moves at Bloom and Plug appear to be tied to GE's announcement. But how big is this news, really?
Clearly, $12 million worth of contracts is not enough to move the needle at General Electric, which brought in more than $74 billion in revenue last year. For that matter, a $12 million news item wouldn't even be a huge deal for Bloom, which did nearly $1 billion in business last year, or for Plug either, which had revenue of $571 million.
More likely, these stock price moves reflect investor optimism that GE's DOE contracts are the start of something bigger.
Consider: According to GE's press release, its immediate goal with these projects is to prove that burning hydrogen can create "a substantial increase in power plant efficiency" over gas turbines that burn just natural gas, and its ultimate goal is "to accelerate the path toward a 100% hydrogen combustion future."
That might not sound like something that would appeal to companies like Bloom and Plug, whose core business is running hydrogen through fuel cells to generate electricity, rather than burning the stuff. But even if GE's projects aren't precisely right up the fuel cell companies' alley, they do hold the potential to create a secondary use (i.e., a new source for demand) for the hydrogen gas that these two companies have both said they want to produce. And really, if they can produce enough hydrogen to power both hydrogen fuel cells and hydrogen-burning turbines, then that's just more revenue for the companies in any case -- more business for Bloom, for Plug, and for GE.
In short, there's logic behind today's price moves in renewable energy stocks. My only worry is that, given the small size of the pilot projects being discussed this week, it's likely that this latest twist on the future hydrogen economy is probably still many, many years in the future. I'm not at all convinced it's near enough in the future to justify such large stock price moves today.