The Leading Alternative Infrastructure Investment May Surprise You
As the world pivots to sustainable resources, green hydrogen provides strong total returns.
Investors looking for a long-term strong investment that reflects the world’s interest in sustainable resources are wise to look at green hydrogen, according to a recent report from Boston Consulting Group and EDHECinfra. The combination of the economic fallout from COVID-19, rising inflation and collateral damage due to Russia’s invasion of Ukraine have caused infrastructure investment to be a fast-growing and resilient asset class.
Between Dec. 31, 2019, and Dec. 31, 2022, these investments provided an annualized total return of 7.36% and generated positive returns despite last year’s very tough economy. Altogether, investors have assets of $1.1 trillion in the different sectors of energy and environmental, transport and logistics, digital infrastructure and social infrastructure. In addition, 67% of general partners say they plan to increase their investments in renewable energy over the next three to five years.
“Hydrogen is turning into a lucrative alternative investment opportunity and a logical extension for funds with a mandate to develop sustainable resources,” said Wilhelm Schmundt, BCG’s managing director and partner and its global lead for infrastructure investment.
Low-carbon hydrogen is produced through electrolysis powered by renewable energy sources such as wind or solar or fossil fuels paired with carbon capture and storage.
It can help businesses decarbonize their emissions and reach Net Zero by 2050, whether they’re focused on chemicals, aviation, steel production, shipping or long-haul road transportation. While demand just two years ago in 2021 was about 94 million tons, by 2050 it is expected to approach 350 million tons annually.
Key Strategies to Succeed
But one caveat is understanding what investment strategies work best for investors seeking to move early into the emergent hydrogen industry and compete successfully against others also doing so. The report from BCG and EDHECinfra offers these four strategies:
- Follow subsidies and invest only in countries and segments of the value chain where policymakers have created or will monetary mechanisms that limit their risks;
- Shift the technical execution risks to seasoned partners;
- Create a portfolio by investing in hydrogen related projects to generate synergies to help each perform the best they can;
- Expand risk appetite to gain early momentum.