(Bloomberg) -- The key to avoiding bad investments in the transition away from fossil fuels is to focus on demand, not just supply.
Focusing on energy supply — without thinking about who’s going to buy it — is what led to a lack of investment in green hydrogen, according to Emmanuel Lagarrigue, partner and global co-head of climate at KKR & Co Inc. The US-based alternative asset manager is now betting that its own demand-driven approach could finally lead to major investments in the clean fuel in the coming years.
“If you apply too much a supply mindset, you end up doing really stupid things,” Lagarrigue said at the BloombergNEF summit in London on Tuesday. “People are thinking supply instead of demand, making the entire green hydrogen category completely uninvestible up to now. Now the bubble has burst, the dust is settling.”
Green hydrogen is made by using renewable electricity to separate hydrogen and oxygen atoms in water. The resulting clean-burning gas can be used as a way to cut emissions from industries such as steel and chemicals production, as well as to store renewable power.
The fuel has been hailed by companies and governments in recent years as a potential silver bullet for curbing carbon dioxide emissions. But green hydrogen’s high costs — it’s far more expensive than the fossil fuel alternative and highly inefficient to produce — have made it difficult to invest in, leading to a series of high-profile cancellations of projects and ambitions to scale the fledgling industry.
Still, KKR sees an opportunity in the green fuel. Earlier this year it formed a joint venture to produce green hydrogen with Spain’s Ignis Energia. The country’s abundant renewable power resources provide electricity prices low enough to potentially make green hydrogen attractive for buyers.
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