Hydrogen is becoming big business in energy.


Hydrogen stocks have been on fire over the past six months as investors speculate that a growth boom is around the corner. But hydrogen is still a tiny percentage of energy consumed in the U.S., and there still arent many clear use cases for the technology. 

There have been booms and busts in hydrogen stocks before, but most of those were around speculation about hydrogen for automotive use or long-haul trucking, which havent et proven to be fruitful. But there are some markets where hydrogen makes a lot of sense and where economics are improving year after year. Bloom Energy (NYSE:BE) is leading in those sections of the market, and thats why its my top hydrogen energy stock for 2021. 


Image source: Getty Images.

Hydrogen as energy storage

If we think about hydrogen as a medium for storing energy for buildings and the electrical grid, not just as a transportation fuel, it opens up the possibilities for the industry beyond transportation. Hydrogen can be used an energy storage medium at power plants, commercial buildings, and on ships, and even as backup power for neighborhoods. 

Whats worth understanding is that hydrogen and fuel cells are able to answer some of the challenges that batteries arent well equipped for. Batteries are great for minute- or hour-duration energy storage, which is why theyre great in homes. But if a grid operator is looking for long-duration energy storage for weeks or even months batteries arent the best choice. With tanks and existing piping infrastructure, hydrogen can be stored and transported on a large scale, providing a large backup energy source. 

Bloom Energy plays a key role in the infrastructure needed to produce and use hydrogen fuels. Its developing an industrial electrolyzer, which turns electricity and water into hydrogen, that will begin to hit the market this year, while its fuel cells are commercially available today

The challenge for hydrogen today is that its not usually cost-effective. But that too is changing. 

Cost will be key

In 2015 Bloom Energys fuel cell servers cost $5,886 per kilowatt, while in the third quarter of 2020 those costs were down to $2,420 per kilowatt. Management estimates that costs per kilowatt-hour were below 12 cents, or about the average cost for residential electricity.

Management expects the cost of servers to come down 10% to 15% per year for the foreseeable future. As costs come down, the market grows, just as it did for wind and solar power plants. If we think back a decade ago, solar power plants cost $0.20 per kilowatt-hour of electricity, about ten-times what plants are bidding for projects today. Bloom Energys costs are on a similar downward trajectory, and management thinks that will open up a total addressable market worth over $2 trillion per year. 

Electrolyzers open up a new growth market

As Bloom Energys fuel cell servers become more cost-effective, the next challenge is addressing the creation of hydrogen as an energy source. Right now, natural gas is the companys primary fuel input, but that can easily transition to hydrogen if its readily available. 

Thats where Blooms electrolyzer could be a transformative development. And with renewable energy costs dropping, management is planning to use renewable energy as an input, creating renewable hydrogen. What needs to be proven over the next few years is that electrolyzers can produce cost-effective hydrogen on an industrial scale, which hasnt been done yet. 

Worth the price? 

Like most hydrogen stocks, its hard to gauge what Bloom Energy should be worth today. The company is still losing money, but there are some positive signs for the company that I think will drive the stock higher long-term. 

You can see below that Blooms margins are improving, and that should continue as costs come down. 


BE Revenue (TTM) data by YCharts

Bloom Energy is also growing into a $2 trillion energy market. So its revenue of less than $1 billion today may just be scratching the surface of this renewable energy stocks potential. 

I think Bloom Energy has the potential to disrupt energy as we know it, and unlike most hydrogen companies its in all the right markets. The companys core is in power markets and costs are coming down, electrolyzers are hitting the market, and Blooms growth has just begun. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Travis Hoium owns shares of Bloom Energy. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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