ITM Power (LSE:ITM) shares have had a rough 2022. Just today, its shares fell a whopping 26% after its full-year results were released.

Also, the news of CEO Dr. Graham Cooley stepping down after 13 years in charge and a new €140bn EU windfall tax on renewable energy firms’ profits contributed to the decline.

Looking at the ITM Power share price action, this fall is not sudden. The stock has plummeted 54.5% in a month and 71% in a year. Considering the amazing year energy stocks have had, this does not look good.

Here I will look at the results, what to expect moving forward and if I will make an investment in ITM Power shares after this historic collapse.

Is net zero just a dream?

The UK’s 2050 net-zero ambitions are lofty, considering how powerful fuel companies are today. The oil lobby is still extremely influential and holds the resources and infrastructure needed to make the transition possible.

But with the larger global economy in an uncertain position, the green energy transition is proving too expensive, causing a huge spike in bills for most people.

Any positives for ITM Power shares?  

Firstly, hydrogen fuel is the only net-zero energy source we know. Its by-products are reusable. It doesn’t remove oxygen from the atmosphere or add more water vapour, creating a balance.

ITM Power manufactures electrolyser systems and develops plants that generate this clean hydrogen fuel. It also operates seven hydrogen refuelling stations and a 1GW-capacity factory in the UK.

In 2022, the company saw its contract backlogs increase by 79% to 755 MW. As a result, revenue jumped over 30% to £5.6m, coupled with a significant increase in assets and inventory.

But the company recorded a gross loss of £23.5m in FY 2022. The board expects this figure to increase to £45m-£50m next year given the company’s high R&D budget.

Also, to complete current contracts, ITM Power would have to significantly increase production capacity. The company raised £250m to expand energy output to 5GW by December 2024. But the board stated in the release that achieving this target after the current energy crisis will be very tough.

Due to mounting expenses, the company’s plans to set up a new factory were scrapped. Now, ITM Power is working on improving output from its Bessemer Park factory to 1.5GW. But this could be too little given the growing demand.

Should I buy ITM Power shares right now?

As a potential investor, I see a lot of green energy stocks still carrying significant risks given the demand to accelerate development. ITM Power has this issue too. Yes, a lot of government grants and private contracts are being signed by the firm. But scaling up in the current economic and political climate will cost billions.

With the demand for cheap energy at an all-time high, I think green energy explorations will take a back seat over the coming months.

ITM Power shares are currently crashing and I never try to catch a falling knife. Once signs of a turnaround are clear, I would re-evaluate my position. But right now, I wouldn’t touch it with a 10-foot pole.

The post Down 26% in a day! ITM Power shares are falling fast. Here’s what I’d do appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I think this will result in an accelerated transition to renewable energy production across Europe. This could potentially create room for hydrogen fuel companies to flourish, particularly as a replacement for natural gas.

The benefits of hydrogen

Hydrogen is an abundant and reactive element with a lot of benefits to its adoption. We can produce it without releasing carbon dioxide. (Green hydrogen comes from running water through an electrolysis machine). Like oil or gas, we can burn hydrogen for heat or run it through a fuel cell to create electricity.

Hydrogen also acts as a store of energy. It must be pressurised and cooled but it can then be transported. Electricity loses energy the further it has to travel which is why we can’t power Europe with solar panels in the Sahara.

Use cases

One important use case is that hydrogen fuel could run industrial machinery. Electric cars function well enough on batteries, but heavier machines like buses, trucks, and diggers weigh too much. Just last year, JCB signed a multibillion-pound deal to supply green hydrogen to the UK, showing it recognises the possibilities hydrogen fuel offers.

Most importantly for the current moment, however, hydrogen could also be pumped into homes as a way to heat boilers and light gas stoves. Staffordshire university began mixing hydrogen into its gas supply back in 2020 and have seen no negative effects so far. The Energy Networks Association believes hydrogen could make up to 20% of all gas in the national grid by next year if policy makers are willing to make the switch.

Hydrogen shares

The UK has two home-grown companies that could exploit a sudden uptick in demand for hydrogen gas.

ITM Power manufactures the electrolysis machines needed to produce green hydrogen. The company announced several new expansions and partnerships over the previous year, but so far remains unprofitable. This doesn’t concern me too much at this stage. ITM has managed to consistently raise money without going into debt, showing a strong degree of investor confidence.

Another UK company I’d consider adding to my portfolio is AFC Energy. This Surry-based company manufactures the fuel cells needed to use hydrogen as a fuel. AFC has an advantage over its competitors because of a patent it owns on alkaline fuel cells. This new design can generate energy from lower purity hydrogen and is an innovation that could significantly reduce fuel costs for companies.

Unfortunately, AFC suffers from the same issue as ITM Power — unprofitability. However, I still believe it has great growth potential. I think once the demand for hydrogen increases, the market will be eager to find cost-cutting innovations like the ones AFC provide.

Final thoughts

There are a lot of risks in investing in companies like ITM and AFC. Hydrogen is not yet recognised as a highly valuable commodity. But current events in Europe have shown the important role renewables have to play. Not just for the green transition, but security.

Provided the companies can stay afloat over the coming years, hydrogen shares have the chance to explode in value. So I will be adding both ITM Power and AFC to my portfolio.

The post Hydrogen shares could boom as Europe pivots from Russian natural gas appeared first on The Twelfth Magpie.

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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Renewable energy is the future. There’s no two ways around it. While electric cars may be making all the headlines, there is another technology that I think is far more viable. Prime Minister Boris Johnson has announced his hopes that the UK would become the ‘Qatar of hydrogen’.

But what is hydrogen? How is it different and what are its benefits?

Hydrogen fuel

Hydrogen is the simplest atom in existence and it is very, very abundant. However, it is also highly reactive, meaning it usually combines with other elements to form compounds. This is how we get water (hydrogen and oxygen). That reactivity gives it great energy potential, if it can be separated from whatever it’s bound to.

Hydrogen has an advantage over the lithium-ion batteries used to power electric cars. It is far more energy dense, so it can power heavy machinery or industrial manufacturing.

People can also transport it easily without the hydrogen losing energy in the process, unlike electricity sent over long-distance cables.

Renewable energy conversion

Right now, ITM Power (LSE: ITM) is my top pick in this field. The company builds the modular hydrogen electrolysis machines which separate hydrogen from water. The machines are attached to existing renewable infrastructure, producing green hydrogen.

Green hydrogen is any hydrogen produced by a method which does not release carbon dioxide, standing in stark contrast to blue or grey hydrogen, which are both made by reforming methane gas and release CO2 as a by-product.

ITM has a lot of debt right now but has recently raised £250m to fund construction of two new factories and is poised to meet growing demand.

My main worry with ITM is that it has struggled to turn a profit for several years and still isn’t forecast to do so for at least another three. However, I believe that this is because demand for hydrogen has historically been low — fact which is currently changing.

Higher efficiency

Another hydrogen-based company on my radar is AFC Energy (LSE: AFC). This company manufactures the fuel cells needed to turn hydrogen fuel into electricity. What makes AFC special is their patented alkaline fuel cells which are able to run on lower purity hydrogen with the same efficiency.

On the financial side, unfortunately, AFC suffers from many of the same setbacks as ITM power. High debt, low revenue, and it has yet to turn a profit.

But AFC is growing. It increased revenues in 2021 and expects further growth through 2022. On top of that any company that uses its alkaline fuel cells will be able to use cheaper, lower grade hydrogen, giving AFC a competitive advantage.

Conclusion

Hydrogen power still remains untested at a commercial scale and I consider it a riskier investment compared to more established fuel companies.

But the market has a clear desire for hydrogen.

JCB just signed a multibillion-pound deal with Fortescue Future Industries (a subsidiary of Fortescue Metals Group) to import green hydrogen all the way from Australia. 

What I’m betting on is that other firms around the world need access to a low carbon fuel. I fully expect ITM and AFC to have some growing pains, but to ultimately come out on top. This is why I’m adding them both to my portfolio.

The post Renewable energy stocks: here are my top 2 UK hydrogen fuel companies appeared first on The Twelfth Magpie.

More reading

• These 2 FTSE 250 companies are big Stocks and Shares ISA favourites in June. Time to buy?
• Down 30% in 2 weeks! Is ex-penny stock ITM Power now too cheap?
• Why are ITM Power shares 69% off?

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.