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BofA Securities analyst Haim Israel is making some tall claims about the future for hydrogen fuel, comparing the scale of the investment opportunity to smartphones before 2007 and the internet during the early 1990s.

A lot has to go right, but Mr. Israel believes hydrogen will account for 24 per cent of the world’s power usage by 2050 and the industry will generate US$2.5-trillion annually.

In a research note last week, the analyst said he sees three primary drivers behind the growth of hydrogen power: the falling costs of generating green hydrogen fuel, new technologies, and ex-U.S. government incentives promoting de-carbonization.

The current problem with hydrogen fuel is the power needed to produce it. Currently, 99 per cent of hydrogen is made using electricity generated from fossil fuels. (Interestingly, Mr. Israel notes that French industrial gas provider Air Liquide S.A. uses fossil fuels to make hydrogen, but its Cryocap technology recaptures the carbon byproduct of the process to sell as carbon dioxide to industries like beverages that need a steady supply of it).

Hydrogen power will only be fully green if renewable power is used to make it. At this stage, using renewable energy sources to produce hydrogen fuel makes it extremely expensive. Mr. Israel, however, believes a combination of technological advancement and government incentives will soon close the gap.

Hydrogen fuel also fits neatly into renewable power grids as a type of battery. For instance, excess solar power generated during the daytime hours can be used to make hydrogen for night usage.

The conversion of almost a quarter of the world’s power supply to hydrogen, however, will certainly not happen overnight.

Chemical companies like Air Liquide, Linde PLC and Air Products and Chemicals Inc. will benefit through rising hydrogen sales if and when the trend takes hold. Equipment makers like ITM Power PLC and Thyssenkrupp AG, who manufacture the machinery necessary to produce hydrogen fuel, would also see profits, and their stock prices, climb.

-- Scott Barlow, Globe and Mail market strategist

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