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Energy

South Korean conglomerate SK makes big push into hydrogen

Country's leading oil refiner pours $1.5bn into US fuel cell company

SK Group's investment in Plug Power shows the South Korean conglomerate starting to move from fossil fuels to cleaner energy sources. (Photo courtesy of Plug Power)

SEOUL -- SK Group, one of South Korea's biggest oil refiners, has a made a cross-border move to grow its hydrogen energy business with an investment in American fuel cell developer Plug Power.

The South Korean conglomerate is set to purchase a 9.9% stake in Latham, New York-based Plug Power for roughly $1.5 billion by the end of March, becoming its top shareholder.

The deal shows SK starting to shift from fossil fuels to cleaner energy sources in line with growing international commitments to slash greenhouse gas emissions.

Environmental, social and governance activities "are an investment in future customers," SK Chairman Chey Tae-won has said.

Founded in 1997, Plug Power has a track record in building hydrogen fuel supply chains, including liquid hydrogen plants and hydrogen stations. It has delivered hydrogen-powered forklifts used in sprawling warehouses of Amazon.com and Walmart.

The Nasdaq-listed Plug Power's share price surged elevenfold in 2020 on hopes for rising hydrogen demand. The stock has become a popular pick for ESG portfolios.

The rally continues this year, with the news of the capital tie-up with SK Group and a planned joint venture with Groupe Renault for small commercial vehicles. The share price has doubled since the start of 2021.

SK Group's investment in Power Plug will let it tap into the U.S. company's expertise in building hydrogen supply chains. This will help the conglomerate build such infrastructure in South Korea, laying the groundwork for wider use of fuel cell vehicles.

The move reflects a global shift away from fossil fuels. SK Group created a dedicated team for promoting its hydrogen business in 2019. Plans call for to build a liquid hydrogen plant with an annual capacity of 30,000 tons in Incheon in 2023, to be scaled up to 280,000 tons in 2025.

Anchored by semiconductor supplier SK Hynix and mobile carrier SK Telecom, the group generates about 20% of its revenue from petrochemicals. The global decarbonization movement risks turning existing petrochemical plants and workers from an asset into a burden.

With Plug Power's know-how, SK will eventually be able to transform its 3,070 gasoline stations in South Korea to hydrogen stations. SK plans to build a business model at home first before expanding hydrogen infrastructure operations to other parts of Asia.

The partnership will also give Plug Power access to SK's wide-ranging operations in Asia. The two have said they will consider collaborating in other parts of Asia, setting up joint ventures in China and Vietnam.

From its origins as a textile maker in 1953, SK has grown into South Korea's third-largest conglomerate through acquisitions in oil, telecommunications and semiconductors. Its 1980 acquisition of Korea Oil Corp (YuKong), now SK Innovation, became the foundation of the group's energy and petrochemicals businesses.

The country's shift to a hydrogen society has been spearheaded by Hyundai Motor, whose Nexo automobiles are the world's top-selling brand in the fuel cell field, beating Toyota Motor and General Motors.

Hyundai, which also continues to develop trucks and other commercial vehicles, has also unveiled a new fuel cell brand HTWO for autos and industrial machinery, with a sales target of 700,000 units by 2030.

Midsize conglomerate Hanwha has developed a fuel cell power plant and acquired Cimarron Composites, a U.S. startup that makes tanks for the safe transport of hydrogen.

The moves by these companies come amid the South Korean government's 800 billion won ($729 million) commitment to the country's shift to a hydrogen economy for 2021, including R&D and infrastructure subsidies, which would mark a 30% increase on the year.

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