APA Group (ASX: APA) is a leading S&P/ASX 200 Index (ASX: XJO) share. It’s also one of the main energy infrastructure businesses in Australia.

Some investors will know this business is a natural gas pipeline giant which connects sources of supply with markets across Australia. It actually supplies half of the country’s natural gas.

APA also owns, or has interests in, gas storage facilities and gas-fired power stations.

The ASX 200 energy share has been generating growing cash flow and paying growing distributions for more than a decade.

As the country shifts away from coal in a bid to decarbonise, other forms of baseload power may be needed. As such, APA’s gas assets could be important for many years to come.

But while natural gas usage could be needed for the energy transition, there are two other sides to the business that could also help Australia decarbonise.

Hydrogen in the pipeline?

APA’s pipelines may be used for transporting natural gas, but transporting hydrogen could also be in APA’s future.

Last year, APA announced a “landmark” hydrogen pilot project. This will see the conversion of 43km of the Parmelia gas pipeline in Western Australia into Australia’s first 100% hydrogen-ready transmission pipeline.

The project will test and prove the capacity of the existing gas transmission pipeline network to transport hydrogen in pure form or blended with natural gas.

APA pointed to studies that have shown continuing to use gas infrastructure can reduce emissions at half the cost to customers than electrifying the services now provided by gas.

The first phase of the Parmelia gas pipeline conversion has now been completed.

APA is also part of a consortium of Australian and Japanese energy players to establish “Queensland’s largest green hydrogen project”.

This could extend the life of APA’s pipelines and keep generating earnings.

Electricity assets

The business is also involved with renewable energy and electricity transmission.

APA owns some renewable energy generation assets. These include the Darlings Downs solar farm near Dalby in Queensland which supplies electricity to the national energy market (NEM).

The ASX 200 energy share also owns the Badgingarra and Emu Downs wind and solar farms located approximately 200km north of Perth near Cervantes. These supply electricity to the South West Interconnected system in Western Australia.

In FY21, APA’s owned and operated renewable generation assets were the eighth-largest generator of electricity from solar and wind in Australia.

In December 2021, APA reached the final investment decision stage on an 88MW solar farm in Mica Creek. When completed, it will be the “largest solar farm outside of the main electricity grid”.

As renewable electricity generation increases, the importance of electricity transmission also increases.

APA owns a part share in the Murraylink and Directlink interconnectors and operates these assets to transmit electricity between NEM regions.

The ASX 200 energy share also recently completed the acquisition of Basslink. Basslink owns and operates the 370km high voltage direct currency electricity connector between Victoria and Tasmania. It had a construction cost of approximately $877 million, although APA bought it for $773 million.

Contracts are in place with Hydro Tasmania and the State of Tasmania to provide predictable revenue while APA works to convert Basslink to a regulated asset under an agreed consultation process, and enact improvements.

APA’s acting CEO Adam Watson said:

The acquisition of Basslink is consistent with APA’s strategy to increase its electricity transmission footprint and to play a leading role in the energy transition.

APA share price snapshot

APA has been an impressive business over the last two decades and I think there’s more to come. I’d be happy to invest in it as an infrastructure or passive income play, though I wouldn’t expect strong capital growth because of the nature of what it does.

Over the past year, the APA share price has risen by 8%.

The post Could this ASX 200 share be the best way to play the energy transition? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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