The hydrogen economy has been a dream of many energy entrepreneurs for decades, but the reality of the energy business has made it nearly impossible to make a reality. That's changing in 2022 because of a rapid reduction in hydrogen fuel cell costs and new subsidies for green hydrogen production from the recently passed Inflation Reduction Act.
Companies like Plug Power (PLUG -0.73%) and Ballard Power Systems (BLDP -1.10%) may get a lot of attention for their hydrogen efforts, but the best hydrogen stock to buy today is Bloom Energy (BE -0.51%). Here's why.
The Inflation Reduction Act's boost to hydrogen
There were $370 billion of incentives for clean energy in the Inflation Reduction Act, and hydrogen was directly impacted. On top of any incentives for building manufacturing facilities or installing hydrogen assets, there's a direct incentive for cleaning up the 10 million tons of hydrogen produced in the U.S. each year.
Production methods that use less than 4 kg of CO2 will be eligible for a tax credit based on kilograms of CO2 produced during manufacturing. The subsidy starts at $0.12 per kg but goes up to $3 per kilogram, which exceeds the market cost of about $2 per kilogram. This efort is aimed squarely at green hydrogen. 99% of the hydrogen produced is called grey hydrogen, or hydrogen produced from natural gas, which wouldn't qualify.
Green hydrogen is produced by electrolysis with electricity from renewable energy. S&P Commodity Insights estimates the production cost of green hydrogen is currently about $5 per kilogram, so the $3 per kg makes it net $2 per kg. This subsidy could make green hydrogen competitive in the market today, and the companies leading the way should be able to grow as a result.
Why Bloom Energy is the top hydrogen stock
The Inflation Reduction Act will be a tailwind for everyone in hydrogen, but if a company's economics only make sense because of subsidies, then the business isn't very sustainable. Bloom Energy generates more revenue than Plug Power or Ballard Power. It also has much better gross margins.
BE Revenue (TTM) data by YCharts.
Bloom Energy's main business also lends itself to hydrogen production more easily. The company installs industrial-scale fuel cells that produce large amounts of energy, while Plug Power and Ballard are making fuel cells for forklifts and small vehicles.
None of these companies are producing industrial-scale electrolyzers yet, but they're testing green hydrogen production. I think Bloom's product, financials, and current scale make it a clear winner given these subsidies.
Pushing green hydrogen over the edge
The financials of green hydrogen don't make sense today, just like solar energy didn't make financial sense a decade ago. But with the right subsidies, the industry could be pushed over the edge to viability. That's what happened with solar energy, which is now the cheapest source of new electricity in most of the U.S., and it could happen with hydrogen too. Bloom Energy is the only stock I would buy for exposure to the industry.
