Hydrogen on the Rails

Railcar asset manager Porterbrook in cooperation with the University of Birmingham’s Centre for Railway Research and Education is firing up a hydrogen powered train.  Called the HydroFLEX, it will be the first passenger train in the United Kingdom to be fitted with hydrogen fuel cells.  The plan is to test the train on routes that are currently running electric trains.   

Privately-held Porterbrook manages a portfolio of over 5,000 rail vehicles that are leased to train operators in the United Kingdom.  The company has also been involved in infrastructure investment to upgrade tracks, improve train depots and stations, and extend electrification.  The Porterbrook group of companies is owned by several large institutions, including Alberta Investment Management Company, Allianz, and the Infrastructure Fund of the Royal Bank of Scotland.  Electricity producer EDF Energy also owns a small stake in the company.  Notably EDG Energy has position itself as the largest producer of low-carbon electricity in the UK.

The HydroFLEX will not be the first hydrogen powered train in the world.  That accomplishment has already gone to Germany, where the first commercial hydrogen powered train was launched in Summer 2017.  After completing a test phase, two hydrogen-powered passenger trains designed and manufactured by rail car maker Alstom SA (ALO:  PA) are now operating in northern Germany on a 62-mile rail stretch.  The two trains replaced trains with diesel powered locomotives. 

Alstom is scheduled to deliver 14 additional trains to Lower Saxony state in northwestern Germany by the end of 2021.  In May 2019, Alstom also took an order for 27 fuel cell trains from RMV, the public transport network of the Frankfurt metropolitan area in Germany. 

Even though it is the world’s first hydrogen powered train, Alstom’s Cordia iLint looks like any other passenger train. During testing the train easily delivered a speed of 80 kilometers per hour.  A single tank of hydrogen powers the train for 1,000 kilometers (600 miles).  Alstom makes a claim of zero emissions, which is technically true at the point of operation.  The amount of carbon dioxide that is emitted to make the hydrogen in the first place is ignored in Alstom’s discussion of the Cordia iLint.  Steam and condensed water are the only point-of-use emissions as the hydrogen is used to produce electrical power for the train. 

The hydrogen for the Cordia iLint trains serving Frankfurt will come from an industrial park operated by Infraserve Hochst, which will also build and operate a hydrogen fueling station.  The industrial park is home to a chlorine plant that is already producing hydrogen for trucks and buses.  Chlorine is typically produced with electrolysis where an electric current is delivered through a solution of brine.  The by-products are caustic soda and hydrogen.  This particular configuration could mean Frankfurt commuters will rival bike riders for the most environmentally friendly transportation.

The Cordia iLint train is designed to be operated on non-electrified lines.  To further this objective the trains are also equipped with lithium ion batteries that help ensure power availability, particularly during acceleration.  Development of the train was funded in part by the German government and its National Innovation Program for Hydrogen and Fuel Cell Technology. 

With this tale of British and German attempts at clean rail travel, we have found few investment opportunities for investors who want freely trading stock.  There is a way to get a foot in the door of the hydrogen train opportunity.

Porterbrook has tapped another British company Luxfer Holdings Plc (LXFR:  NYSE) to supply the hydrogen containers for the HydroFLEX in the UK.  Luxfer will supply its G-Stor H2 hydrogen cyclinders for the demonstration project.  Luxfer has also reported that its alternative fuel experts have been working the Porterbrook engineers on the project.  Even though no U.S. train operator has seen fit to move on hydrogen, U.S. investors will find few barriers to get a piece of the pie in Europe through a stake in Luxfer, which is currently trading at 12.1 times forward earnings and offers a dividend yield of 2.1%.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. Luxfer Holdings is currently included in the coverage universe of Crystal Equity Research, which has a Technical Buy recommendation on LXFR shares.