Mid/long-term Growth Direction Grows Clearer
The authors are analysts of NH Investment & Securities. They can be reached at minjae.lee@nhqv.com and ys.jung@nhqv.com, respectively. -- Ed.
Under its recently announced 1st Basic Plan for the Implementation of the Hydrogen Economy, the government plans to expand hydrogen utilization and build large scale hydrogen production and distribution infrastructure. By 2050, hydrogen demand is projected to reach 27.9mn tons, 127x higher than current demand. The new policy bodes well for the earnings visibility of domestic hydrogen players.
Hydrogen Economy 1st Basic Plan announced
On Nov 26, the 4th Hydrogen Economy Committee was held, presided over by the Prime Minister. At the meeting, the ‘The 1st Basic Plan for the Implementation of the Hydrogen Economy’ was presented to set the direction for the growth of the domestic hydrogen industry.
Hydrogen is to be the largest energy source, accounting for one third of Korea’s overall energy needs by 2050. The major tasks under the new blueprint are: 1) producing clean hydrogen energy at home and abroad; 2) building infrastructure; 3) expanding hydrogen utilization; and 4) strengthening the supporting ecosystem.
To achieve economies of scale by upping hydrogen use, building hydrogen production/distribution infrastructure
The plans include: 1) mid/long-term hydrogen demand and production targets, with the aim of a 100% portion of clean hydrogen; 2) concentrating policy capabilities on hydrogen production (water electrolysis, overseas production of ammonia, early commercialization of carbon capture and storage (CCS), distribution infrastructure (hydrogen ports, pipeline networks); and 3) pursuing economies of scale via hydrogen utilization expansion (hydrogen and ammonia co-firing and firing introduction; rising demand within the industry).
The domestic hydrogen market, is expected to see the construction of large-scale hydrogen production facilities, the expansion of blue hydrogen production via early commercialization of CCS, and the establishment of hydrogen production facilities linked to offshore wind power, backed by the expansion of demand for existing hydrogen vehicles and fuel cells. Given that Korea needs to produce and import hydrogen overseas, domestic companies will likely cooperate with peers in foreign countries rich in renewable energy sources. With the policy announcement, the earnings visibility of hydrogen-related players should strengthen over the mid/long term. In the process of future hydrogen demand increasing more than 100x compared to the present by 2050, it is time to select out companies that can grow into core domestic and overseas players.