What are the best hydrogen stocks for UK traders to watch?

Investing in hydrogen: what you need to know

Hydrogen is everywhere: hydrogen is the most abundant gas in the universe – approximately 75% of all baryonic matter is hydrogen. This abundance of hydrogen makes it one of the most renewable sources of energy on the planet.

There are many ways to extract hydrogen: traditionally, hydrogen is produced through the electrolysis of water. However, several energy companies have now developed more efficient techniques to create hydrogen energy with minimal waste. These include the use of solid oxide fuel cells, alkaline fuel cells, and proton exchange membrane technology.

It’s a cheap source of clean fuel: when used in a fuel cell, hydrogen energy leaves minimal waste, with water being the main by-product.

It has the backing of the UK government: the UK government has committed to becoming a carbon zero country by 2050, and one of the ways it intends to meet this target is by encouraging the use of hydrogen power. Financial and regulatory support is expected to follow in the months and years ahead.

It’s attracting investment: hydrogen company stocks have been on an upward trend as investors start to spot the potential of hydrogen energy. The UK government’s Ten Point Plan for a Green Industrial Revolution report has predicted that hydrogen power could deliver more than £4 billion in private investment over the next decade.

As environmental, social and governance (ESG) becomes more of a priority for investors and corporates, investing in hydrogen fuel is likely to rise.

How to buy or invest in hydrogen stocks

You can buy or invest in hydrogen energy stocks quickly and easily with us.

Investing in hydrogen shares

Invest in hydrogen shares by researching the market and choosing a portfolio of stocks and shares that offer direct exposure to the hydrogen energy market. Investing lets you take direct ownership of hydrogen shares – and you’ll benefit from any upward movement in the share’s price.

The purpose of investing is to create long-term wealth from capital gains and dividends, while managing risk to minimise any losses. It’s easy to buy hydrogen stocks with us, and you can reinvest any returns, allowing you to benefit from compound interest over time. Remember that investments can fall in value as well as rise, so might get back less than you initially invested.

Here’s how our share dealing rates match up to those of our competitors:

Trading hydrogen shares

Another way to invest in hydrogen is by trading hydrogen stocks. Trading hydrogen shares lets you take a speculative position on their price rising or falling, without having to own the shares directly. You’ll ‘buy’ the shares (go long) if you think their price will rise, and you’ll ‘sell’ the shares (go short) if you think it’ll fall.

With us, you’ll be trading hydrogen shares with leveraged derivatives like spread bets or CFDs. Leverage enables you to receive full market exposure for an initial deposit, known as margin. But, bear in mind that while leverage can increase your profits, it can also increase your losses – so it’s important to take steps to manage your risk.

Top hydrogen stocks to watch

The majority of the UK’s hydrogen—focused stocks are listed on the Alternative Investment Market (AIM), which houses smaller-capped companies with growth potential — and only three have a market capitalisation above £100 million. While several majors are investing in hydrogen development, there are currently no larger companies on the LSE which focus solely on the element. The following are ordered by market capitalisation, with one smaller stock that could be one to watch in the coming months:

1. Ceres Power
2. ITM Power
3. AFC Energy
4. Clean Power Hydrogen

Ceres Power (Market cap: £392.32 million)

Ceres Power is an innovator in solid oxide fuel manufacturing, a novel, inexpensive, low energy method of manufacturing hydrogen. It’s partnered with a number of international brands to secure funding and distribution channels while it attempts to scale up.

At 89p per share, the hydrogen stock is drastically down since the pandemic heyday. However, its fuel cells represent an area of immense potential, especially given its partnerships with Bosch, Doosan Fuel Cell, and Linde Engineering.

Ceres’ key advantage is that its fuel cells can be used with both traditional hydrocarbon energy sources as well as hydrogen. This means its clients can slowly transition to hydrogen, representing a smaller corporate investment risk.

Initial tests of its solid oxide electrolyser module ‘give confidence that this technology can deliver green hydrogen at around 25% more efficiently than incumbent lower temperature technologies.’ The company have been awarded the coveted MacRobert award for the ‘spectacular’ engineering success as a result.

Ceres Power reported strong H1 results with revenue increasing by 144% to £28.5 million and gross profit reaching £22.9 million, up 217% year-on-year. This success is largely driven by the company’s recent partnership with Delta.

The company has also seen its income from signing new contracts increase from £46.9 million to £103 million since the start of the year. As a result of this record increase, it has increased its revenue guidance from £50 million to £60 million.

Our analysts have given the stock a buy rating, with a price target of 396.50p in the next 12—month period, up 97.26% from its current price.

ITM Power (Market cap: £270.38 million)

ITM Power is a producer of electrolyzes, low—carbon hydrogen gas generation based on proton exchange membrane technology. As arguably the largest dedicated green hydrogen operator in the UK, ITM’s future prospects could be bright.

For the year ending 30 April 2024, the company reported a strong financial performance where revenue tripled reaching £16.5 million, up from £5.2 million the year before. EBITDA losses also improved, reaching 30.4 million, down from 94.2 million year—on—year.

Despite this, ITM Power remain cautious going into the next year financial year and anticipate revenue to be between £18 million and £22 million, significantly lower than market expectations of £33 million. Higher EBITDA losses are also anticipated.

Our analysts have put the stock in a hold position, with an average price target of 65.00p over the next 12—month period, up 50.46% from its current price.

AFC Energy (£83.64 million)

AFC Energy is a leading provider of alkaline fuel cell systems, used in everything from electric vehicles to space shuttles. The company recently announced that its ammonia cracker technology successfully achieved 99.99% hydrogen from single reactor testing, with the results being independently tested by the National Physical Laboratory.

For context, this tech could deliver ‘fuel cell grade hydrogen on a modular, scalable basis,’ which could be key to the hydrogen world at large. However, like the above two companies, the stock has fallen sharply since early 2021.

The company reported strong financial results for the year ending 31 October which exceeded market expectations. Hydrogen generator sales to Speedy Hire helped drive a revenue of £4 million and cash reserves remained at £15.4 million.

CEO Gary Bullard has announced his satisfaction with these results and stated that going forward the company ‘are focused on further scaling production, optimising operational efficiency, and strengthening strategic partnerships to accelerate growth.’

Clean Power Hydrogen (market cap £22.13 million)

Clean Power Hydrogen is a UK based company which specialises in green hydrogen technology. Its Membrane-Free Electrolyser works to produce pure hydrogen and oxygen. When powered by renewable energy, this technology can produce green hydrogen which can be used for applications such as electricity storage and powering electric cars.

The company reported mixed H1 results with a loss of £2.3 million, up 43% year—on—year. £1.8 million was spent on future development which could help drive profit further down the line.

On 26 September Clean Power Hydrogen completed its first major test on its Membrane-Free Electrolyser which proved successful, suggesting that it could compete with more traditional methods of hydrogen production. Going forward, the company is looking to move away from developing this technology and focus on the production and selling of it.

It’s possible that hydrogen power will become a significant source of energy as the green revolution accelerates, particularly given the political prominence of energy security. And as there is a dearth of UK—based hydrogen stocks on the market, Clean Power Hydrogen could be an excellent, though risky, early investment with a lot of growth potential.

Where next for Hydrogen?

The domestic and global markets for hydrogen power are growing, for several reasons.

1. The rise of environmental, social, and corporate governance (ESG) investing

On a global scale, the popularity of ESG investing is set to draw new attention to clean energy markets such as hydrogen, as more and more corporates and investors carve out ESG allocations in their investment portfolios.

2. The UK government has set ambitious new green energy targets

In the UK, hydrogen power has been specifically highlighted as a future growth industry and a way to help meet the country’s target of net zero carbon emissions by 2050. The publication of the UK’s hydrogen strategy report has outlined the opportunities and limitations of using hydrogen power as an alternative to fossil fuels.

The UK government’s Ten Point Plan for a Green Industrial Revolution has set a target of developing five gigawatts of low carbon hydrogen production capacity by 2030. By 2027, the government aims to significantly increase hydrogen production and integrate it into industries such as transport and heating.

3. More private and public investment is expected in the hydrogen space

The Green Industrial Revolution report concluded that 'driving the growth of low carbon hydrogen could deliver…over £4 billion of private investment in the period up to 2030' as well as 'savings of 41 MtCO2e between 2023 and 2032, or 9% of 2018 UK emissions'. These plans will be supported by a £240 million ‘Net Zero Hydrogen Fund’.

This suggests that there could be a robust future for hydrogen stocks in the UK as the government’s clean energy plan takes shape.

4. Energy giants are diversifying into clean energy

Energy giants BP, Enegix and Siemens Energy have already begun exploring hydrogen development, with BP eyeing a new hydrogen production hub on England’s northeast coast which could grow to a production capacity of 1 gigawatt by 2030.

5. Emerging opportunities for hydrogen fuel

The electric vehicle (EV) boom is set to boost the popularity of hydrogen power. Hydrogen fuel cells are incredibly energy efficient, and unlike battery-powered EVs, they don’t require lengthy periods of charging.Toyota Mirai is an early example of hydrogen fuel cell technology in electric vehicles.

Best hydrogen stocks summed up

• At the moment, Ceres Power, AFC Energy, ITM Power are the only 3 UK companies that are focusing on hydrogen power manufacturing with a market capitalisation over £100 million
• As the manufacturing process becomes cheaper and more energy efficient, other companies could join them
• Meanwhile, the world’s leading energy providers have been paying closer attention to hydrogen power, and the UK government has committed to increasing the country’s reliance on hydrogen power in the coming years
• This makes hydrogen an exciting segment of the clean energy market, with plenty of room for growth in the medium and long term