Hydrogen generation could become a $1 trillion per year market, Goldman Sachs says

Hydrogen has an important role to play in any transition to net-zero and its generation could develop into a market worth over $1 trillion a year, according to Goldman Sachs.

"If we want to go to net-zero we can't do it just through renewable power," Michele DellaVigna, the bank's commodity equity business unit leader for the EMEA region, told CNBC's "Squawk Box Europe" earlier this week.

"We need something that takes today's role of natural gas, especially to manage seasonality and intermittency, and that is hydrogen."

Hydrogen has a diverse range of applications and can be deployed in a wide range of industries.

"It's a very powerful molecule," DellaVigna said. "We can use it for heavy transport, we can use it for heating, and we can use it for heavy industry."

The key, he argued, was to "produce it without CO2 emissions. And that's why we talk about green, we talk about blue hydrogen."

Described by the International Energy Agency as a "a versatile energy carrier," hydrogen can be produced in a number of ways. One method includes using electrolysis, with an electric current splitting water into oxygen and hydrogen.

If the electricity used in this process comes from a renewable source such as wind or solar then some call it green or renewable hydrogen.

Blue hydrogen refers to hydrogen produced using natural gas — a fossil fuel — with the CO2 emissions generated during the process captured and stored. There has been a charged debate around the role blue hydrogen can play in the decarbonization of society.

"Whether we do it with electrolysis or we do it with carbon capture, we need to generate hydrogen in a clean way," DellaVigna said.

"And once we have it, I think we have a solution that could become, one day, at least 15% of the global energy markets which means it will be ... over a trillion dollar market per annum."

"That's why I think we need to focus on hydrogen as the successor of natural gas in a net-zero world."

DellaVigna's comments echo the analysis in a recent report from Goldman Sachs Research which he co-authored.

Published earlier this month, the report's bull scenario sees hydrogen generation's total addressable market having the potential to hit more than $1 trillion by 2050 compared to around $125 billion today.

While there is excitement in some quarters about hydrogen's potential, the vast majority of its generation is currently based on fossil fuels. Efforts are being made to address this, however.

The European Commission, for instance, has laid out plans to install 40 GW of renewable hydrogen electrolyzer capacity in the EU by the year 2030.

During his interview, DellaVigna was asked about the stocks investors should look at to take advantage of the hydrogen sector's projected growth.

"There's two ways to invest in hydrogen," he said. "One is to buy the pure play electrolyzer companies which … have the pure exposure to hydrogen."

The alternative would be to invest "through conglomerates which already have hydrogen as part of their ongoing businesses." This included energy service companies, industrial gas companies and oil and gas firms, he said.