Is ITM Power plc or Royal Dutch Shell plc the energy company of the future?

The Motley Fool
A Shell fuel nozzle
A Shell fuel nozzle

These two companies are the Little and Large of the energy sector. So which one has the biggest future ahead of it?


You've got the power

Energy storage and clean-fuel company ITM Power (LSE: ITM) is operating in an exciting but high-risk area, with plenty of potential but also the danger of going bust on the coin-flip of government policy or technological change. Right now, it's going from strength to strength, as it looks to expand its UK hydrogen refuelling stations and contracts. The £49m market cap posted a full-year pre-tax loss of £4.36m in July but has just signed two high-profile refuelling contracts this month.

The first was with Hyundai Motor UK, for refuelling its iX35 Fuel Cell Vehicle fleet. Hyundai joins Toyota, Commercial Group, Arcola Energy and Arval as fuel customers. ITM currently has £16.85m of projects under contract and a further £4.15m of contracts in the final stages of negotiation, making a total of £21m, up from £16.32m in July. Just 10 days later it added Europcar UK to the list, creating what ITM chief executive Dr Graham Cooley called the largest privately owned fleet of hydrogen cars for chauffeur drive and corporate rental.

Bucks fizz

Last week it was granted full planning permission from South Bucks District Council to construct a hydrogen refuelling station (HRS) at the Shell filling station, Beaconsfield, to open next spring. It also has full permission for other HRS ops at Shell stations based in Gatwick, Kollam and Cambridge. Jane Lindsay-Green, Shell UK retail future fuels manager, hailed it as another example of Shell's commitment to providing low carbon fuels for the future.

ITM's share price has doubled to 24p since hitting a low of 12p in mid-February, leaving it close to its 52-week high. Its increasingly impressive pipeline augurs well for its early-stage technology, but it still has a long and risky road ahead of it.

Unsure of Shell

You could say the same about oil giant Royal Dutch Shell(LSE: RDSB) right now, as it continues to feel the pain of the low oil price. Brent Crude is rising towards $47 a barrel over growing hopes that Saudi Arabia will drop its 'pump and dump' oil policy, after failing to drown US shale drillers. The recent discovery of the 20bn barrel Wolfcamp Shale geologic formation in Texas, which also contains an estimated 16trn cubic feet of natural gas and 1.6bn barrels of natural gas liquids, suggests supply could remain high whatever Opec decides. So don't expect salvation from this quarter.

Chief executive Ben van Beurden has worked hard to offset falling oil, gas and liquefied natural gas prices by cutting costs and bolting on February's acquisition, BG Group, and this helped boost Q3 earnings by 18% to $2.8bn year-on-year, easily beating consensus forecasts. The share price is up 25% over the past year, partly due to Brexit, as its dollar dividend is now worth more to UK investors, but Shell still yields a juicy 5.87%. Net debt of $77.8bn is a worry, and cheap oil could continue to inflict damage. Remarkably, ITM looks to have a smoother path ahead of it right now.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.