ITM Power’s £46.5m Grant Green Light and Index Entry Set Stage for Hydrogen’s Data Center Play

ITM Power secures £46.5M UK grant for Sheffield electrolyser line, slashing costs 40% and tripling output ahead of MSCI index inclusion.

The UK government has signed off on a £46.5 million grant for ITM Power, clearing the way for a fully automated electrolyser production line in Sheffield that will slash costs by 40% while tripling output. The decision, confirmed on May 20, removes a major overhang that had some analysts warning of a 52% downside scenario — and comes just days before the company joins the MSCI United Kingdom Small Cap Index on May 29.

Investors have already priced in much of the optimism. ITM shares have rocketed 175% over three months, closing at €1.95 on Tradegate last Friday. But the recent price action has been choppy: a 7.4% drop to 143.30p on heavy volume saw the stock become the most-sold name on the AJ Bell platform among retail traders, even as short sellers slashed their positions by 40.3% between mid- and late April.

The grant is part of a broader £86.5 million state package — including £40 million from Great British Energy — that supports the company’s £120 million project to manufacture the next-generation Chronos electrolyser. The unit promises triple the power of the current model, a 40% reduction in capital cost and half the physical footprint. Management has said it will take a final investment decision immediately after the grant is confirmed, with production slated for 2028.

That timeline dovetails with a structural demand shift that goes far beyond hydrogen’s traditional industrial use case. The International Energy Agency expects data center electricity consumption to double to 945 TWh by 2030, growing at roughly 15% annually. Facing grid bottlenecks, operators are scouting decentralised backup power — and green hydrogen is emerging as an alternative to diesel generators. ITM Power is well placed to supply that market, analysts say.

The index entry later this week will amplify the story. Passive funds tracking the MSCI UK Small Cap Index will be forced to buy the stock, a technical tailwind that typically boosts liquidity and raises visibility among international institutional investors. With a market capitalisation of around £1.11 billion, the effect should be meaningful.

Operationally, the company is making progress. The adjusted EBITDA loss narrowed to £11.9 million in the first half, from £16.8 million a year earlier. ITM raised its full-year revenue guidance to between £40 million and £43 million, and the order book stands at £152 million, with 71% of those contracts deemed profitable. Cash at year-end is expected to land between £210 million and £215 million, leaving a comfortable buffer even if execution stumbles.

Analyst views remain deeply split, a reflection of the stock’s binary risk profile. Morgan Stanley upgraded the shares to “Overweight” with a 170p target — the first positive rating on a UK hydrogen name since 2021. Jefferies went further, setting a 200p target. On the other side, Berenberg kept a “Buy” but lowered its target to 110p, while UBS stuck at “Neutral” with a 60p fair value estimate. The gap between the highest and lowest targets is a chasm of 140p.

Inside the company, the message is mixed. Technology chief Simon Bourne sold the bulk of roughly 1.3 million option shares at an average of 157.44p, a move officially tied to tax obligations. He retains just under 656,000 shares. Chief executive Dennis Schulz, meanwhile, has linked his own 1.3 million shareholding directly to the successful delivery of Chronos and the signing of profitable contracts — a bet that aligns his interests with the company’s most critical milestones.

With the grant now confirmed and the index entry days away, the mechanical buying will soon dissipate. The real test for ITM Power is whether the rally in its shares can be sustained by hard numbers — order-book conversion, margin expansion, and a credible path to profitability by 2028. The hydrogen industry has burned investors before. This week may show whether ITM is different.