Ambitious plans for net-zero hydrogen to become a big part of the energy transition have made investors eager to seek out ways to gain exposure to the sector. They will soon be able to, as the world’s first investment fund dedicated to hydrogen is rapidly approaching launch.

UK-based HydrogenOne Capital was founded last year by JJ Traynor, a Shell executive, and Richard Hulf, formerly of ExxonMobil and UK active fund management firm Artemis. Their ambition is to provide investors with opportunities in clean hydrogen and storage for the energy transition. With offices in central London and a team of 16 people, HydrogenOne Capital is already up and running and will be launching in the “very near term”, says Traynor.

The co-founders, who are also the firm’s investment managers, thought hard about the best way to invest in the hydrogen economy and how to make it a good investor experience. They are aiming to create a route for mainstream investors to access an actively managed product that invests in both listed shares and unlisted companies, the latter of which have to-date needed to secure capital from private capital or banks.

Profitable growth

Traynor says the co-founders were initially a bit sceptical about the hydrogen economy, as it has experienced several false starts over the last few decades. But after scrutinising the financials they realised a lot of powerful factors are now behind it—namely the Paris Agreement, lower-cost green electricity, net-zero emissions targets and the urban air quality agenda. 

“Many countries realise that actually getting to net-zero is a very multifaceted and complex set of problems, and hydrogen is going to be important part to the mix in the hard-to-decarbonise parts of the fossil fuels industry. Hydrogen will be a profitable growth industry, so there are some very powerful financial reasons to invest in it.”

Hydrogen sits very nicely alongside the battery electric vehicles (BEV) market, according to Traynor. “Battery electric is a good option for light vehicles and vehicles that drive over short distances, but it does not have the capacity to do heavy loads economically and over longer distances. Hydrogen fuel cells will become a viable option for trucks, trains and maybe ships in the future.”

Meanwhile, air quality is a “here and now story”, particularly in the health-conscious Covid-19 world, he adds. Around 4.2mn deaths per year globally are from air pollution while 91pc of people live in places that do not meet the World Health Organization’s air quality guidelines.

Organisation complete  

Traynor calls HydrogenOne an “ESG-orientated beast”, as it will rule out investing in the production of fossil fuels and help eliminate carbon emissions while improving air quality. It will also avoid investing in the shares of companies such as Shell or BP—which, while having good hydrogen strategies, obviously also have heavy exposure to fossil fuels.

HydrogenOne has created an advisory board to provide sector, management and commercial expertise that includes Roger Putnam, ex-chairman of UK-based hydrogen electrolyser company ITM Power, and Per Wassen, former chairman and CEO of Swedish fuel cell firm PowerCell. 

4.2mn/yr – Global deaths due to air pollution

This week, the company appointed professional services firm Arup as strategic adviser on investments that promote clean hydrogen and energy storage globally. Arup will also provide technical and commercial due diligence, monitoring and support on selected target projects and companies in hydrogen and energy storage.

The fund firm is targeting a "full range" of investors and potential investors into its funds. While it is UK-based, it will invest and seek investors on a worldwide basis.

Multicoloured approach

Both blue and green hydrogen are in scope for the fund, but "this binary colour coding of hydrogen is not the future", says JJ Traynor. “We think over time there will be a ‘quality bank’ blending environment. When you purchase hydrogen, it will come with  certification for its greenhouse gas footprint and there will be different pricing points on those different grades of hydrogen.”

Such a setup would be analogous to grades of crude oil, with markers such as the Brent informing the buyer or quality and certain characteristics.

“We think that hydrogen over time will evolve like any other energy source,” he adds. “But there will be a financial penalty if it comes from a polluting source, which will push the price out. So over time we would see the emergence of trading hubs and big storage facilities of these different forms of hydrogen."

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Author: Stephanie Baxter