hype bubble needs plenty of time to reflate

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Hydrogen is 14 times lighter than air. But market forces have brought any stocks related to the gas back to earth with a thud.

A hydrogen hype cycle in early 2020 lifted the market capitalisation of companies such Ceres Power close to that of FTSE 100 utility Centrica. Ceres, worth £2.7bn in early 2021, today is just £419mn.

Ceres has created technology that can produce hydrogen from steam. Its first 1 megawatt electrolyser will shortly be shipped to a Shell research and development centre in India, it said on Tuesday.

This is not the turning point for Ceres. The solid oxide electrolyser is just a prototype. Its fuel cell technology — which turns hydrogen and oxygen into electricity — is more advanced. But it does not intend to manufacture either product.

Ceres licenses its technology and hopes to reap royalties from manufacturing partners. It thus has a less capital-intensive business than say local peer ITM Power which does make its equipment.

Germany’s Bosch and South Korea’s Doosan are early fuel cell partners for Ceres. Both have factories due to open next year. However, a hoped-for joint venture in China is yet to materialise, despite agreeing basic terms last year.

Its growth investment rose 67 per cent last year to £58.4mn, including £12.4mn in capital expenditure as it developed its electrolyser prototype. This should soon peak. Meanwhile revenues, £22.1mn in 2022, are forecast to nearly triple by the end of 2025 as Ceres hopes to start receiving royalties. It should turn a profit in 2027, according to Visible Alpha estimates.

Cash should not be a concern for Ceres, though. It raised £181mn in early 2021. At the end of June, cash stood at £161mn. Though it should get through about £50mn this year, that pace will fall in coming years.

Cleanly produced hydrogen will be needed in large quantities to meet 2050 net zero targets. Even so, UK companies that help produce it will remain niche investments for a couple more years yet.