Investing in the Hydrogen Economy: Green, Blue, and Grey

Hydrogen has been described as the "Swiss Army knife" of the energy transition. It can serve as a fuel for vehicles (particularly heavy transport and shipping), a feedstock for industrial processes (steel, ammonia, chemicals), a means of storing excess renewable energy over weeks or months, and a source of low-carbon heat for industrial applications where electrification is impractical. Whether the hydrogen economy delivers on this potential depends on cost reduction, infrastructure build-out, and policy support — all of which are advancing, but unevenly.

The Colour Code Explained

The hydrogen industry uses a colour taxonomy that reflects how the gas is produced, since hydrogen itself is colourless and its climate credentials depend entirely on the production method.

Grey hydrogen is the baseline — hydrogen produced by steam methane reforming (SMR) of natural gas, without capturing the carbon dioxide that is released. Grey hydrogen currently accounts for approximately 95% of global hydrogen production and is used primarily as a chemical feedstock (for fertiliser via the Haber-Bosch process, and for refining). It is cheap — approximately $1–2 per kilogram — but is not a climate solution.

Blue hydrogen adds carbon capture and storage (CCS) to the SMR process. The CO2 is captured and stored underground rather than released into the atmosphere. Blue hydrogen can achieve 85–90% carbon intensity reduction compared with grey, depending on the effectiveness of capture. It costs approximately $2–3 per kilogram. The UK has approved several blue hydrogen projects in industrial clusters (Humber, Teesside, Merseyside) under the Hydrogen Production Business Model.

Green hydrogen is produced by electrolysis — splitting water molecules using electricity. If the electricity comes from renewable sources (wind or solar), the hydrogen is genuinely near-zero carbon. Green hydrogen costs approximately $4–7 per kilogram in 2026, though the cost deflation curve has been steep: from $6–8 in 2020 to current levels. Projections from the IEA and IRENA suggest green hydrogen costs of $1.5–3 per kilogram in regions with excellent renewable resources (North Africa, Chile, Saudi Arabia, Australia) by 2030–2035 — potentially cost-competitive with natural gas.

Pink (or red) hydrogen uses nuclear electricity for electrolysis — low-carbon but benefits from the consistent baseload power output of nuclear, unlike variable wind or solar.

The UK Government's Hydrogen Strategy

The UK government published its Hydrogen Strategy in August 2021, initially targeting 5 GW of low-carbon hydrogen production capacity by 2030; this ambition was doubled to up to 10 GW (with at least half from electrolytic "green" hydrogen) in April 2022. Key policy instruments include:

The Hydrogen Production Business Model (HPBM): a revenue support mechanism modelled on the Contracts for Difference used for renewable electricity. Producers receive a guaranteed strike price for their hydrogen, with payments made when the market price falls below that level. This de-risks investment for project developers.

Net Zero Hydrogen Fund: £240 million of capital grant support for early-stage hydrogen production projects.

The £9.4 billion commitment: confirmed at the June 2025 Spending Review for carbon capture, usage and storage (CCUS) projects (including the Acorn and Viking clusters), which underpin much of the blue hydrogen pipeline and signal long-term support for the wider low-carbon infrastructure agenda.

Industrial decarbonisation — eliminating the carbon emissions from steel, chemicals, cement, and glass manufacturing — is identified by the Climate Change Committee as one of the most challenging aspects of UK net-zero, and hydrogen plays a central role in most credible pathways.

The Electrolyser Market

Green hydrogen production requires electrolysers — devices that use electricity to split water. The dominant electrolyser technologies are:

Alkaline electrolysis (AEL): mature, lower cost, but less flexible (cannot ramp up and down as quickly as PEM).

Proton Exchange Membrane (PEM): more responsive to variable electricity input, higher efficiency, but historically more expensive. Increasingly the preferred technology for large-scale green hydrogen projects.

Solid Oxide Electrolysis (SOEC): early-stage, highest efficiency but needs very high operating temperatures.

Electrolyser manufacturers are a natural investable route within the hydrogen theme:

Nel Hydrogen (NEL — Oslo Stock Exchange): one of the largest listed electrolyser manufacturers, with AEL and PEM products. Nel has struggled commercially — demand for electrolysers has grown more slowly than anticipated, and profitability has remained elusive.

ITM Power (ITM — London AIM): UK-listed, PEM electrolyser specialist with manufacturing capacity in Sheffield. ITM has been loss-making as it builds scale. Share price declined substantially in 2022–2024 as project timelines slipped.

Plug Power (PLUG — NASDAQ): US-listed, focused on PEM electrolysers and hydrogen fuel cells. High-profile growth company that became one of the most prominent hydrogen equities; faced significant financial pressure in 2023–2024 as losses mounted and cash burn was heavy.

The common thread among listed pure-play hydrogen companies is that commercial scale has taken longer to arrive than optimistic projections suggested. Investors who bought at peak valuations in 2021 experienced severe losses. This is characteristic of cleantech investment cycles: the technology direction is often correct but the timing and company-specific execution are highly uncertain.

Hydrogen ETFs

For diversified exposure without single-company risk:

L&G Hydrogen Economy UCITS ETF (HTWO — London-listed): provides exposure to a basket of companies across the hydrogen value chain including electrolysers, fuel cells, industrial gases, and engineering companies. Top holdings typically include Air Liquide, Linde, ITM Power, Nel, and Plug Power.

VanEck Hydrogen Economy UCITS ETF (HVHL — London-listed): similar mandate with slightly different index methodology. Includes industrial gas companies that have committed to hydrogen infrastructure investment.

First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN — US-listed): broader clean energy exposure with significant hydrogen component.

The industrial gas giants — Air Liquide (AI — Euronext Paris) and Linde (LIN — NYSE) — are often overlooked in favour of more exciting pure-plays, but they are the companies actually producing, transporting, and selling hydrogen at scale today. They are significant investors in hydrogen infrastructure and likely to be among the primary commercial beneficiaries if the hydrogen economy scales as projected.

Industrial and Transport Applications

Steel decarbonisation represents one of the largest potential hydrogen end markets. The HYBRIT project in Sweden (a joint venture between SSAB, LKAB, and Vattenfall) has demonstrated direct reduction of iron ore with hydrogen — producing "green steel" — at pilot scale. Full commercialisation at meaningful scale is expected in the late 2020s.

Shipping: ammonia (produced from hydrogen) is one of the most promising zero-carbon shipping fuels, with several major shipping companies (Maersk, Hapag-Lloyd) committing to ammonia-fuelled vessels.

Aviation: hydrogen fuel cells and liquid hydrogen combustion are being developed for short-haul aviation, though the energy density challenges are considerable.

Long-haul trucking: hydrogen fuel cell trucks from Hyundai, Toyota, and Nikola are in commercial operation in several markets.

Investment Outlook and Risks

The hydrogen investment case rests on cost reduction achieving price competitiveness with fossil fuels and on policy support sustaining the market through the transition period. Both are realistic over a 10–20 year horizon, but the timing and magnitude of progress are genuinely uncertain.

Key risks:

• Demand realisation risk. Government targets and corporate commitments may not translate into actual project orders if economics remain challenging.
• Technology risk. Cost reduction timelines for green hydrogen may be slower than modelled; electrolyser lifetime, efficiency, and degradation remain areas of active development.
• Policy reversal. Hydrogen subsidies depend on continued political will. Changes in government could reduce support.
• Competition from electrification. In many applications (cars, heat pumps, short-distance transport), direct electrification is cheaper and simpler than hydrogen. The applications where hydrogen genuinely wins (heavy industry, shipping, long-duration storage) are important but more limited in volume.
• Pure-play company viability. Many listed hydrogen pure-plays have been burning cash and may require significant dilutive capital raises.

The value of investments can fall as well as rise, potentially sharply. Theme-investing in early-stage sectors carries high company-specific risk. Past performance is not a reliable indicator of future results. This guide is educational only.

How Global Investments Can Help

Hydrogen is a genuinely important energy transition theme but one that rewards careful fund and company selection. Our team can help you evaluate the ETF versus individual equity trade-off, size the allocation appropriately within a broader clean energy or alternatives sleeve, and monitor the regulatory and commercial developments that drive this sector's fortunes. Contact us for a conversation about clean energy investing.