Goldman Sachs picks 3 stocks to play India’s growing green hydrogen focus

Published Wed, Feb 23 20226:37 PM EST

Goldman Sachs has named three stocks it thinks will benefit from India's new green hydrogen policy. Hydrogen can be produced via a process called electrolysis , which splits water into hydrogen and oxygen. If renewable energy is used to power the electrolysis, some call it green hydrogen. Currently, the vast majority of hydrogen is still made using fossil fuels , but analysts think this may be about to change, given the growing international focus on climate change . Green hydrogen has been touted as the future of the clean energy transition, with more than 30 countries having released national hydrogen strategies and roadmaps over the past two years alone, according to Goldman. But adoption has been slow because of the high costs of production, with electricity costs alone making up 70% of the total costs, the bank said. India's new green hydrogen policy will boost the country's green hydrogen production by significantly reducing costs through 25 years of free power transmission for any new renewable energy plants set up before July 2025 to supply power for green hydrogen production. This means that a green hydrogen producer will be able to set up a solar power plant in any state to supply renewable energy to a green hydrogen plant in another state without the need to pay any interstate transmission charges. Green hydrogen will play a "critical role" in helping India achieve its net-zero target of 2070 through a reduction in carbon emissions and hydrocarbon imports, Goldman's analysts, led by Vinit Joshi, said on Feb. 18. The gas will also be a "critical pathway" in the global race to net-zero carbon emissions and will likely contribute to the reduction of about 15% of greenhouse gas emissions from industrial sectors in which these are "hard to abate," Joshi added. Stock picks One of Goldman's top picks in this space is Indian conglomerate Reliance Industries , which the bank described as "India's largest greenabler." In particular, the bank sees hydrogen as a major growth driver for the company over the next decade, with the company adopting a manufacturing model centered on the net-zero supply chain, Joshi said. The bank sees "significant expansion" in the global market for solar, battery and hydrogen manufacturing and expects Reliance to generate earnings of $12.2 million by FY2040. It has a price target of 3,080 Indian rupees ($41.30) on the stock, which closed at around 2,388 Indian rupees on Feb. 22, representing a potential upside of 29%. The bank also likes Larsen & Toubro (L & T) and Nasdaq-listed ReNew Energy Global for their green hydrogen manufacturing. The bank said the two companies will jointly develop, own, execute, and operate green hydrogen projects in India. ReNew —India's largest renewables developer — has also partnered energy storage firm Fluence Energy focused on energy storage services, which the bank said will be important in driving baseload power generation from renewables. The company is expected to grow its market share and operational efficiencies, which will enable the company to achieve a compounded earnings growth of 36% into 2024, Joshi said. Meanwhile, L & T will also partner Norwegian electrolyzer technology and manufacturing firm HydrogenPro to manufacture electrolyzers in India and other markets. "We view both these [memorandums of understanding] as key to L & T's entry in the hydrogen sector. We are positive on L & T's outlook, as it moves out of a decade-long capex cycle, paving the way for high cashflow generation. As Covid-related disruptions abate, we expect L & T to see robust earnings' growth as we move past the pandemic," Joshi said. Goldman has a price target of 2,320 Indian rupees on L & T, implying a potential upside of 25.9% to its closing price of around 1,843 Indian rupees on Feb. 22. The bank has also ascribed a price target of $17 on ReNew, which closed at $7.47 on Feb. 22 — an implied upside of 127.6%.

Green hydrogen can be an environmentally friendly solution of renewable energy storage.

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Goldman Sachs has named three stocks it thinks will benefit from India's new green hydrogen policy.