Not All Hot Air: How Hydrogen Could be Here to Stay


UK hydrogen technology companies collectively raised a record £299m via 36 equity fundraising deals during the year, bucking the overall decline in investment in 2022. The total amount raised is up from £147m via 28 deals in 2021. While the sector is nascent, investment activity into hydrogen technology companies involves a range of non-traditional and international venture capital investors, signalling the area’s perceived strategic importance.

Hydrogen technology companies are those innovating in any part of the developing sector: production, storage, distribution and supply chain, and end applications of the energy source. The different parts of the emerging sector are drawing in a diversity of investors. Oil and gas investors and infrastructure providers are focusing their investment on hydrogen production and distribution companies. Car manufacturers are focusing on hydrogen-electric vehicle technologies. And more traditional venture capital investors are exploring cutting-edge uses of hydrogen such as in nuclear fusion reactors. The dramatic increase in equity finance flowing to these businesses likely reflects a combination of technology readiness across the sector and increased investor interest in energy—driven by the current crisis in Europe and the global transition to cleaner energy sources. 

While still at an early stage, the UK’s hydrogen technology sector is already of strategic importance to a diverse group of backers. Half of the hydrogen equity deals in 2022 involved seed-stage companies and 36% involved venture-stage companies. The fact that investment is dominated by early-stage companies speaks to the newness of the sector, as does the median deal value of around £1m in 2021 and 2022. However, the median deal value has roughly tripled in the last three years, having hovered between £300k-£400k between 2016 and 2019. 

Hydrogen is attractive because it produces no emissions when burned and is an abundant element that can be sourced or produced from many sources, including renewables. Although, it is not without its drawbacks; many hydrogen production methods require significant energy and create CO2. Transportation is also challenging due to the gas’s low density, which requires high-pressure or low-temperature storage. Despite the challenges, it seems likely that hydrogen will be part of the world’s future fuel mix. While some investors may be wary—and still bearing the scars of previous cleantech cycles—the activity from strategic investors is a promising sign.

Renewable energy technology company Storegga raised a £51.3m round in May—the largest during the year. The deal saw its existing investors, Australia’s Macquarie Capital, M&G Investments, Singapore’s GIC, and Japan’s Mitsui, joined by Italy’s Snam—a natural gas infrastructure provider. Hydrogen production is only part of the London-based Storegga’s operations; it also has expertise in carbon sequestration and direct air capture of CO2. Ahead of the May fundraising, Storegga announced Scotland’s first green hydrogen project in partnership with Scottish Power. In November, Storegga announced plans to work with Malaysia’s Petronas to explore carbon sequestration projects in the country.
For investors with oil and gas exposure like Macquarie and Mitsui, companies like Storegga offer a double benefit. Firstly, carbon sequestration is a mechanism for mitigating the emissions from hydrocarbon extraction and makes use of existing infrastructure such as wells and reservoirs. Secondly, it offers investors a method to diversify away from hydrocarbons into a fuel source that may become the dominant gaseous fuel of the future. Some investors in the space are gaining exposure indirectly, such as UK petrochemical refiner INEOS. The large private company provided £25m in founding capital to HydrogenOne Capital, an LSE-listed fund launched in July 2021 focused on hydrogen investments. Since launch, it has taken equity stakes in four high-growth UK hydrogen companies.

One of these is hydrogen fuel cell developer Bramble. HydrogenOne contributed £10m to a £40m investment in February 2022. The deal also included follow-on investment from existing backers BGF, Parkwalk, and IP Group among others. West Sussex-based Bramble was spun out of UCL and Imperial College in 2016 and creates fuel cells for light commercial vehicles and generators. Its designs use the existing printed circuit board supply chain, enabling the company to offer scaleable solutions at a low cost.

Those with oil and gas exposure are not the only investors taking strategic steps in hydrogen. UK-based global forecourt operator EG Group invested £25m in September into Glasgow-based HV Systems, which is developing a 40-tonne hydrogen heavy goods vehicle. EG Group operates thousands of forecourt sites across the UK, Europe, the US, and Australia. Being actively involved in shaping the next generation of heavy goods vehicles makes strategic sense for the company.

French aerospace and defence group Safran is also looking to UK hydrogen technology companies for strategic investment. In March 2022, Safran Corporate Ventures contributed £3.50m to a £14.4m fundraising by Cranfield Aerospace Solutions. The Bedfordshire-based company is developing hydrogen-fuelled aircraft, starting with the conversion of existing aircraft to hydrogen. Spun out of Cranfield University in 1997, the company specialises in aircraft modifications and prototyping of new designs. Cranfield Aerospace Solutions’ March deal also saw participation from HydrogenOne Capital, Motus Ventures, and Tawazun SDF—the investment arm of the United Arab Emirates Armed Forces.

As record investment levels show, the UK’s hydrogen technology companies are increasingly attractive to a diverse range of strategic and speculative investors. While the company population is dominated by seed and venture-stage firms, there are many tailwinds for the sector which should speed the adoption of hydrogen technologies and encourage further investment. High-growth hydrogen could be here to stay.

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