Insurers should be prepared to take a measured, responsible and forward-thinking approach to help the hydrogen economy as it starts to take shape, according to Nardac Insurance Services founding partner Brandon Statton.
Statton told ESG Insurer that (re)insurers can act as leaders for the popularisation of hydrogen-based economies as well as helping to promote the industry through full lifecycle asset assessment, conscientious underwriting and proper risk management processes.
“To support the implementation of the hydrogen economy, insurers will need to play an active role by helping in the funding process for hydrogen and renewable projects, fostering dialogue with governments to encourage policies that address investment barriers, and building strategic partnerships across the hydrogen and energy value chains,” he said.
“Implementing this plan will necessitate an understanding of the challenges and risks, the establishment of common safety standards, promoting product innovation and accepting game-changing technologies.”
Statton said hydrogen could play a crucial role in the energy transition and is a practical alternative to wind and solar, which are specific to certain climates.
There are three designations for producing hydrogen based upon the production processes: grey, blue and green.
Grey hydrogen, which is produced by rearranging the molecular structure of hydrocarbons, is the most common and the least renewable form of hydrogen production – 10kg of carbon dioxide is released into the atmosphere for every 1kg of grey hydrogen produced.
Blue hydrogen follows a similar process to grey hydrogen but captures CO2 at the production facility and stores it in deep geologic formations.
“Storage is costly and has logistical challenges. Blue hydrogen is considered controversial, dangerous and inefficient,” Statton said.
Green hydrogen is not derived from natural gas and instead uses renewable sources of electricity to break water into its two constituent elements: oxygen and hydrogen, with no ancillary CO2 production.
However, essential equipment for the process is costly and renewable energy sources would need to massively scale up to meet demand.
“Green hydrogen is a source of clean energy and can reduce emissions, but cost-effective solutions and innovations are needed to tap into its potential,” Statton said.
The Nardac executive believes green hydrogen has the potential to play a critical role in the transportation sector, particularly for long-distance, heavy duty transportation via land, sea and air.
“Hydrogen-based synthetic fuels are more energy-dense than batteries for air and sea transport applications, while green hydrogen is a zero-emission mode of energy transportation,” he said.
“The hydrogen can be stored on trucks, shipped overseas, or delivered via pipeline. It can then be used for transportation, manufacturing, or electricity generation.
“Long-term hydrogen storage systems are hundreds of times cheaper than battery energy storage systems. Green hydrogen also has the potential to play a significant role in heat and power generation.”
Many of the risks with green hydrogen are centred on the new technological pathway it is forging.
“The technology for constructing large electrolysers and incorporating electrolysis plants into existing renewable energy infrastructure is still in its infancy. Companies operating in this space may face new risks because of the need to prototype technologies and the risk that implementation involves possible infrastructure challenges,” he said.
“Hydrogen is combustible, highly flammable and its storage or transport requires specialised safety considerations. One of the most significant risks is the susceptibility to hydrogen leaks since it is the smallest element, and existing materials for containment are not always suitable for hydrogen.
“A simple static spark has the potential to ignite a leak. Another potential hazard is that hydrogen has a high risk of vapour cloud explosion. When a flammable mixture of vapour, gas, aerosol or mist is sparked, it can cause the generation of containment overpressure and an explosion risk.
“These leaks are difficult to detect. Additionally, conventional fire systems are not designed to handle these types of leaks.”
Statton believes material science and specialised maintenance programs will be a key focus to enable the proliferation of the hydrogen economy.
Open to innovation
He said insurers can support industry growth both through investment as well as providing underwriting capital for green hydrogen projects.
“Hydrogen is a long-term market opportunity, and it is difficult to price a risk today that accurately reflects the environment to be faced even in 10 years’ time,” he said.
“Risks can be inaccurately factored into current models, resulting in underpricing policies. It is necessary to have experienced, knowledgeable research to properly assess risk factors.
“Many claims can arise in the construction phase of any large-scale capital infrastructure project. Consideration needs to be given to such varied things as corrosion, assembly, supplier selection, safety and more.”