The Zhitong Finance App learned that Orient Securities released a research report saying that since the “14th Five-Year Plan”, the central government and local authorities have made frequent statements on hydrogen energy to promote the intensive introduction of development measures. Relevant policy systems and industrial standards have been established and perfected, and the hydrogen energy industry is expected to begin an accelerated period of all-round development. In the energy sector, the increase in the proportion of hydrogen mixed with natural gas and ammonia in coal and electricity, as well as the application potential of hydrogen in large-scale long-term energy storage scenarios, are expected to open up a wider application space. The core limiting factor for large-scale application of green hydrogen is cost. Following the two major cost reduction paths of reducing renewable energy power generation costs and reducing investment in electrolyzer equipment, it is recommended to focus on wind power generation costs, electricity price policies, and electrolyzers for core hydrogen production equipment.

Related targets: Cowell (688551.SH), Huaguang Huaneng (600475.SH), petrochemical machinery (000852.SZ).

Orient Securities's views are as follows:

As a strategic decarbonized energy carrier, hydrogen has been incorporated into national development plans.

As net zero carbon emissions become a global goal, low-carbon, flexible, efficient, and diverse production methods, hydrogen energy is gradually becoming a key means to reshape the global energy architecture and address climate change. Hydrogen energy is of strategic importance in China's energy revolution and low-carbon transformation. Since the “14th Five-Year Plan”, the central government and local authorities have made frequent statements around hydrogen energy to promote the intensive introduction of development measures. Relevant policy systems and industrial standards have been established and perfected, and the hydrogen energy industry is expected to begin an accelerated period of all-round development.

As an important industrial gas, hydrogen has been widely used in traditional industrial fields.

Currently, almost all of the world's annual hydrogen production is used in the non-energy sector. The hydrogen demand for refining/ammonia/synthetic methanol in 2022 is 4100/3300/16 million tons, respectively, and demand in the three major sectors is expected to remain relatively stable in the future. Guided by the goal of deep decarbonization, hydrogen consumption in the steel industry is expected to increase further from 5 million tons with the development of hydrogen metallurgy technology. The role of hydrogen as an energy carrier will become increasingly prominent in the future. In the transportation sector, hydrogen fuel cells provide an ideal solution for heavy long-haul commercial vehicles on fixed routes, hydrogen-based fuel, or the most viable low-carbon energy solution for the aviation and shipping sector. In the energy sector, the increase in the proportion of hydrogen mixed in natural gas and ammonia in coal and electricity, as well as the application potential of hydrogen in large-scale long-term energy storage scenarios, are expected to open up a wider application space.

Green hydrogen is budding and ready to go, and the two major cost reduction paths hold opportunities.

Hydrogen production from fossil fuels is currently the mainstream hydrogen production method in the world, and there is an urgent need for transformation with high carbon emission intensity. Industrial byproduct hydrogen is an extremely cost-effective supplementary hydrogen source in the short to medium term, but long-term scale expansion is limited. Hydrogen production from electrolyzed water using renewable electricity is a long-term development goal. Currently, hydrogen production technology is becoming mature. Alkaline electrolyzers have been localized, but green hydrogen accounts for only 0.1% of the production and consumption structure, and development constraints are still costly. In the future, as the cost of green electricity and electrolyzers decreases, the economy of green hydrogen projects is expected to gradually become apparent. Judging from the installed capacity of electrolyzers and hydrogen production project plans, green hydrogen has ushered in a stage of rapid development of large-scale applications. China has cheap renewable electricity and manufacturing capacity to produce alkali tanks at low cost, and the hydrogen industry chain has endless potential to flourish, which is expected to nurture the world's leading high-quality enterprises and high-growth investment opportunities.

Traditional industries such as refining, chemicals, and metallurgy form a stable hydrogen demand side. Global/China's current annual demand for hydrogen is around 90 million tons/30 million tons, respectively. Hydrogen also plays a dual role as an energy carrier and industrial raw material. In the future, as the energy transition gradually progresses, its role as an energy carrier will become more and more prominent. The expansion of future application scenarios will lead to an increase in demand. Power demand in the transportation sector and electricity demand in the energy sector will constitute an important increase in future hydrogen demand. According to IEA forecasts, global hydrogen demand is expected to reach 150 million tons in 2030. Heavy traffic may become a breakthrough on the hydrogen side in the short term. It is recommended to focus on hydrogen fuel cell commercial vehicles and the use of hydrogen-based fuels such as green alcohol and green ammonia in ship power.

The hydrogen production end is still dominated by gray hydrogen, but green hydrogen is more in line with the long-term low-carbon path, and will usher in important development opportunities under policy impetus.

The increase in penetration rate comes, on the one hand, from the replacement of gray hydrogen by high-emission industrial enterprises, and on the other hand, from the amount of green hydrogen released in new application scenarios. It is recommended to focus on the progress of integrated wind and solar hydrogen production projects where chemicals are the main use scenarios. The core limiting factor for large-scale application of green hydrogen is cost. Following the two major cost reduction paths of reducing renewable energy power generation costs and reducing investment in electrolyzer equipment, it is recommended to focus on wind power generation costs, electricity price policies, and electrolyzers for core hydrogen production equipment. Related targets include Cowell, Huaguang Huaneng, and petrochemical machinery.

Risk warning: the risk that the hydrogen energy industry support policy falls short of expectations; the decline in electricity prices falls short of expectations; the development of the hydrogen use scenario falls short of expectations