Alphavalue Initiates Coverage for Nel

Target PriceSustainabilityFundamental StrengthCredit RiskIndependent Board
NOK13.97/100/10DDDYes

Based in Oslo, Norway, Nel is a pure player in the green hydrogen space. It manufactures both electrolysers and hydrogen refuelling stations. Within electrolysers, it has exposure to both Alkaline and PEM technology. It has more experience within Alkaline than PEM and offers diversification across technologies Its Alkaline electrolyser facility is in Norway, whereas its PEM electrolysers are made in Connecticut, USA. The former is a fully automated facility with a capacity of 500MW and Nel has taken the decision to expand it to 1GW. In addition, Nel has a fuelling station manufacturing facility in Denmark with service & maintenance sites predominantly in the USA, and South Korea, and Europe. 

Emerging Green Hydrogen Industry

The (clean) hydrogen industry is finally coming out of its cocoon after gestating for a couple of decades.  According to IEA’s Global Hydrogen Review 2022, hydrogen demand stood at 94 Mt. Of this demand, less than 1% came from low-emission hydrogen with most of it coming from fossil fuel with CCUS (carbon capture, utilisation, and storage) and only 35kt through electrolysis. The same report also estimates that based on already announced policies and actions, this demand should reach 115Mt by 2030. Thus, the demand for electrolysers, irrespective of technology, has nowhere to go but up. 

Pandemic: A Catalyst for Green Hydrogen

The green hydrogen market started gaining momentum during the pandemic, but two triggers have been added to it. First, the rise in prices of natural gas and carbon credits. The increase in the former alone has helped green hydrogen close in on parity with the grey (gas-derived). With the ongoing energy crisis in Europe because of the war in Ukraine, we don’t expect these prices to cool down soon. In addition, it is estimated that high carbon credit prices can add $0.5-1.0 per kg to the cost of grey hydrogen. Combined, this pressure on grey hydrogen prices should keep green hydrogen in good stead for the medium term. The second trigger is the green hydrogen target under the REPower EU plan and the tax subsidies announced in the US for green hydrogen projects. According to the latter, such projects can claim up to $3/kg contingent on the amount of carbon dioxide emitted per kg of hydrogen produced. This is a ten-year policy and projects must begin construction before 2029 to claim the tax credits. The overall policy is more nuanced, but it is an important step in expanding the green hydrogen market, particularly within the US. 

Given the sudden surge in the popularity of green hydrogen, investors find it hard to assess these types of businesses and detailed research. Last year, Alphavalue initiated its first equity research for pure player in green hydrogen, ITM POWER and now with Nel, we are taking our independent equity research a step forward. 

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