Renewable energy is the future of our economy and early investors have the opportunity to opt in now. It’s a risky endeavour, but I think the UK’s own AFC Energy (LSE: AFC) has what it takes.
Renewable energy challenges
Renewable energy is well-known but has been a relatively under-utilised technology. There are several challenges that need to be overcome if we are to reach a sustainable net-zero target.
The two biggest are intermittency and energy loss over distance. Wind and solar energy sources are abundant and clean but intermittent. We can’t rely on them to generate all the electricity we need around the clock. Electricity also loses energy the further it has to travel, which is why we can’t power homes in London with solar panels in the Sahara.
What I think we need is a fuel source which is energy-dense, transportable, and produced by renewable means. I believe that that fuel is hydrogen and that AFC has a part to play it its adoption.
ACF Energy
AFC Energy is a Surry-based company that manufactures the fuel cells needed to make hydrogen fuel function.
What AFC has to its advantage is a patent on a new ‘alkaline fuel cell’, which is able to use lower purity hydrogen fuel. Producing hydrogen fuel is currently expensive and difficult, especially at the levels of purity required to run a fuel cell. AFC also manufactures modular hydrogen generators able to power buildings as well as vehicles.
Share price
2021 has been an interesting year for the company. It increased revenues over previous years, expanded its orders, and developed new products. The share price sits today at 49.30p, which isn’t unreasonable considering the size of the company and is up about 166% from this time last year.
But, overall, the share value has declined 40% since the start of 2021, which initially confused me. AFC is debt-free at this time and revenues are projected to grow a further 100% next year. On top of that the share price shot up 350% in November of 2020!
I eventually learned that, at the end of October 2020, AFC announced it had delivered its alkaline technology to its research partners, leading me to believe that investors grew overexcited at the news. 2021 was just a correction year.
Doubts
I do have some concerns about AFC. Revenues may be up but earnings are falling. The company is expanding its operations and reinvesting in itself, but it isn’t projected to turn a profit for another few years. It is a high-risk investment based on whether hydrogen is adopted en-masse.
Or not.
We have seen some movement in this direction. JCB recently placed a £1bn order for hydrogen from Australia, and AFC has just signed a £4m order with ABB, a Swiss electrical company, for a high-power electric vehicle charging application.
The use cases for hydrogen fuel increase every day, from industrial machinery and high energy manufacturing to something as simple as electrifying the developing world. Any one of these markets has the potential to grow exponentially over the coming years. AFC’s alkaline fuel cells have the potential to bring down costs for anyone using them. It has a serious advantage over the competition, which makes it worth adding to my portfolio.
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James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
