Where will the power plug be in 3 years?

It’s not hard to paint a rosy picture for hydrogen stocks, for example Power socket (PLUG 10.68%). According to a recent report by global consulting firm McKinsey & Co, “global demand for clean hydrogen is expected to grow significantly through 2050, but infrastructure expansion and technological advances are needed to meet projected demand.” As a company that provides that infrastructure and technology, Plug Power is in the driver’s seat to meet this growth in demand that could be sustained for decades.

With a market cap of just $1.8 billion, there’s certainly plenty of upside potential for Plug Power stock. Deloitte, another global consultancy, predicts that the global hydrogen market could reach $1.4 trillion by 2050. But what about the next three years? The true growth potential of Plug Power stock may surprise you.

The demand for hydrogen is still in its infancy

While wind and solar power get most of the attention, hydrogen power has a big opportunity to help the world transition away from fossil fuels. That’s because hydrogen is particularly good at decarbonizing what economists call “hard to mitigate” sectors. Asphalt, cement, steel, shipping, aviation — these are just a few areas where replacing fossil fuels with renewable energy remains very difficult.

Hydrogen is a viable substitute for two reasons. First, it has a much higher energy density than batteries. This makes it a suitable option for trucks and aviation where transporting bulky and heavy batteries is not practical. In addition, sectors such as steel production, cement production and petrochemicals require very high temperatures to operate, sometimes over 1,000 degrees. Hydrogen can create this high level of heat, while electricity — whether produced by clean or dirty forms of energy — struggles.

If we want to decarbonize sectors of the economy that are difficult to mitigate, hydrogen has a strong argument. But the demand is still in its infancy. There’s a reason why research from Deloitte and McKinsey & Co focuses on the 2050 timeline – it will take that long for the hydrogen economy to take off.

Hydrogen in general is not yet cost competitive with fossil fuels. And hydrogen can be produced using cleaner or dirtier methods, meaning a transition to hydrogen fuel won’t necessarily decarbonize the sector. In addition, hydrogen requires a lot of infrastructure — everything from production and transportation to distribution. It also needs a fleet of end users ready to accept it as a fuel source.

Hydrogen fuel is very promising. But there are clear obstacles that make this a multi-decade story. Don’t expect that equation to change in the next three years.

Will Plug Power be able to ride the clean energy wave?

There’s no doubt that Plug Power has an early start. The company was launched in 1997 and went public in 1999 at the height of the dot-com bubble. Suffice it to say, it’s been a long journey. Long-term investors were not so pleased. If you had invested in the company during the IPO, you would only have 1.25% of your initial capital left.

PLUG Total Return Level data by YCharts.

The problem facing Plug Power over the next few years is not unlike the challenges that have plagued the company since its inception. Hydrogen energy, for all its promise, is still ahead of its time, and an inflection point is nowhere near. Goldman Sachs estimates that Plug Power’s equity life — or the weighted average life of its cash flows — is about 26 years.

It’s a long time to wait. And in the meantime, expect heavy dilution. Over the past few decades, Plug Power’s stock has struggled due to a lack of profitability, but also due to the massive stock dilution required to keep the company afloat.

Over the next three years, there aren’t many major catalysts to look forward to. Raising capital will continue to be a challenge and management is expected to continue to promote the potential of the hydrogen economy as a whole. But even if the hydrogen economy unexpectedly takes off, there’s no guarantee that Plug Power technology in particular will win out.

Where will Plug Power be in three years? Probably the same place they are today: Struggling for funding, hoping that a hydrogen tipping point will arrive much sooner than expected.