Renewable energy is the future of our economy and early investors have the opportunity to opt in now. It’s a risky endeavour, but I think the UK’s own AFC Energy (LSE: AFC) has what it takes.

Renewable energy challenges

Renewable energy is well-known but has been a relatively under-utilised technology. There are several challenges that need to be overcome if we are to reach a sustainable net-zero target.

The two biggest are intermittency and energy loss over distance. Wind and solar energy sources are abundant and clean but intermittent. We can’t rely on them to generate all the electricity we need around the clock. Electricity also loses energy the further it has to travel, which is why we can’t power homes in London with solar panels in the Sahara.

What I think we need is a fuel source which is energy-dense, transportable, and produced by renewable means. I believe that that fuel is hydrogen and that AFC has a part to play it its adoption.

ACF Energy

AFC Energy is a Surry-based company that manufactures the fuel cells needed to make hydrogen fuel function.

What AFC has to its advantage is a patent on a new ‘alkaline fuel cell’, which is able to use lower purity hydrogen fuel. Producing hydrogen fuel is currently expensive and difficult, especially at the levels of purity required to run a fuel cell. AFC also manufactures modular hydrogen generators able to power buildings as well as vehicles.

Share price

2021 has been an interesting year for the company. It increased revenues over previous years, expanded its orders, and developed new products. The share price sits today at 49.30p, which isn’t unreasonable considering the size of the company and is up about 166% from this time last year.

But, overall, the share value has declined 40% since the start of 2021, which initially confused me. AFC is debt-free at this time and revenues are projected to grow a further 100% next year. On top of that the share price shot up 350% in November of 2020!

I eventually learned that, at the end of October 2020, AFC announced it had delivered its alkaline technology to its research partners, leading me to believe that investors grew overexcited at the news. 2021 was just a correction year.

Doubts

I do have some concerns about AFC. Revenues may be up but earnings are falling. The company is expanding its operations and reinvesting in itself, but it isn’t projected to turn a profit for another few years. It is a high-risk investment based on whether hydrogen is adopted en-masse.

Or not.

We have seen some movement in this direction. JCB recently placed a £1bn order for hydrogen from Australia, and AFC has just signed a £4m order with ABB, a Swiss electrical company, for a high-power electric vehicle charging application.

The use cases for hydrogen fuel increase every day, from industrial machinery and high energy manufacturing to something as simple as electrifying the developing world. Any one of these markets has the potential to grow exponentially over the coming years. AFC’s alkaline fuel cells have the potential to bring down costs for anyone using them. It has a serious advantage over the competition, which makes it worth adding to my portfolio.

The post Renewable energy: can the AFC Energy share price rise again in 2022? 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.

1. Accsys PLC

Accsys (LSE: AXS) is a building supplies manufacturer that produces and sells sustainable wood for construction. With its headquarters in London, Accsys sources wood from several locations across northern Europe, then exports it to countries around the world. The benefits of using wood as a building materiel are twofold. One is that wood is a renewable resource that can be carefully managed. The second is that wood acts as a carbon sink, a way to collect CO2 from the atmosphere and store it indefinitely. Storing carbon will become an important part of the green transition and could be a great source of revenue for the company in the future.

Accsys also treats its wood with unique chemicals to make it more durable and extend its effective lifespan.

Accsys does have some challenges to overcome. It has weathered the pandemic but took on debt to do so. However, revenues are up, and if Accsys is able to reduce its debt to pre-pandemic levels then I think it has a chance to become a great, renewable, growth stock.

2. AFC Energy

AFC Energy (LSE: AFC) is a Surry-based designer and manufacturer of hydrogen fuel cells and other hydrogen products. It currently has a patent on several modular fuel cell designs that are transportable and able to run on lower quality hydrogen (meaning with more impurities).

Hydrogen fuel cells work by mixing hydrogen with oxygen, releasing electricity and heat. Producing hydrogen is currently difficult and expensive, but it is possible to do so in a renewable fashion. This is called green hydrogen. If fuel cells are able to use lower quality hydrogen, then producing it will become cheaper, encouraging adoption by everyone else.

AFC has a great market capitalization of £342m and is currently trading at a very cheap 50.82p. It also doesn’t pay a dividend, which is something I like in new companies.

AFC has struggled through the pandemic and only has enough cash to sustain business for another year. It is expected to increase revenue by 100% each year, but is not projected to become profitable for another three years.

I strongly believe that hydrogen power has massive growth potential and will really help our economies to become more renewable. But for now, I will just be watching how AFC manages over the next few years.

Conclusion

The green transition is happening right now, and presents a very exciting opportunity. Both of the companies I’ve looked into today are relatively small, and have clear issues which need to be resolved. But I think they both have big potential upsides. I will not be adding either to my portfolio just yet, but will continue to keep a close eye on them both.

The post 2 ‘must watch’ FTSE 350 renewable stocks appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

James Reynolds does not have a 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.