Plug Power (PLUG -2.44%) has a long history. The company was founded in 1997, going public in 1999 near the height of the dot-com boom. Roughly a quarter century after its founding, Plug Power may finally be getting its chance to shine. Adoption of renewable energy continues to climb despite economic and political uncertainty. By 2050, renewable energy could deliver up to two-thirds of the world's power demands.
As a leading hydrogen stock, Plug Power is in a promising position. But many questions remain regarding the potential of hydrogen as a fuel source, as well as Plug Power's specific technological approach. But with a market cap under $5 billion, many investors believe the risk is worth the potential reward.
Should you take a chance on Plug Power stock in the next 25 years? You may be surprised by the answer.
Two things you should know about hydrogen fuel
Hydrogen fuel has been touted for decades as a next-gen fuel source that can not only be "green," but can also help decarbonize some of the most difficult sectors like mass transportation, steel production, and aviation. From a technological standpoint, all of this is true. It is possible to use renewable energy to create hydrogen fuel -- a process that essentially creates a clean burning, energy dense, portable fuel source.
Here's the problem: Hydrogen fuel simply doesn't make any economic sense. And despite heavy advancements in the technology since Plug Power was founded in 1997, hydrogen fuel still isn't economically viable. Costs have come down, but not as fast as other renewable fuel sources like wind and solar. To be fair, sectors like aviation and steel making still haven't transitioned to low carbon fuel sources given the technological challenges involved. But fossil fuel prices still haven't risen fast enough to make hydrogen a viable option over the near term. In fact, high costs forced global consultancy McKinsey & Company to lower its long-term hydrogen demand forecast this year -- less than 12 months after releasing its initial guidance.
This is the first thing to understand about hydrogen fuel: It simply isn't economically viable for now. Some estimates believe it could reach cost parity by 2030, but other forecasts don't expect meaningful parity to be achieved until the 2040s.
This brings us to the second thing every Plug Power investor needs to understand about hydrogen: We still don't know which hydrogen fuel technology in particular will win long-term. Plug Power's products primarily use proton exchange membranes. This approach uses electricity and water at low temperatures to split water into hydrogen and oxygen. Solid oxide electrolysis cells, for comparison, use electricity and high heat to split water into hydrogen.
PEM style technologies are less efficient in many applications versus SOEC technologies. PEM technology also relies on more expensive catalysts, though it is arguably more scalable, with greater real-world applications existing today.
For now, the PEM approach seems more suitable for variable loads, like helping utilities smooth out variable production from renewables. The SOEC approach, meanwhile, can excel in applications where waste heat can be captured, as with industrial plants. There are many other pros and cons between each technology. But the point is that we still don't know which approach will win long-term. Betting on Plug Power, therefore, isn't just a bet on hydrogen, but a bet on PEM-style technologies.
Image source: Getty Images.
What will happen to Plug Power over the next 25 years?
Expect a long waiting game to occur for Plug Power. According to a new McKinsey & Company report, meaningful adoption of alternative fuels like hydrogen may take another decade or two to be fully realized. "Crucial alternative fuels are not likely to achieve broad adoption before 2040 unless mandated," the report warns. "The current emphasis on affordability means that some alternative sources, such as green hydrogen and some other sustainable fuels, may not be competitive with traditional fuels in the near term."
Where does that leave Plug Power? Between a rock and a hard place. Its end markets aren't expected to pick up anytime soon. Yet the company is losing massive amounts of money every quarter, heavily diluting shareholders to stay afloat. As a wary investor, I'm more worried about Plug Power's ability to survive another 25 years than its ability to thrive.
