Navigating (Re)insurers’ Role In The Evolving Hydrogen Economy

Brandon Statton, Founding Partner, answers questions about the green hydrogen revolution and the effect it will have on insurance

Q. What distinguishes green, blue, and gray hydrogen?

Hydrogen is a potent natural gas that has the potential to be a low-carbon energy source. Its application as an emerging energy source is based on existing scientific knowledge. However, it faces challenges with adoption due to the required modifications to the renewable regulatory initiatives. There are three designations for producing hydrogen based upon the production processes: blue, green, and gray.

Gray hydrogen is the most common and the least renewable form of hydrogen production. Gray hydrogen is produced by rearranging the molecular structure of hydrocarbons. The process includes reforming natural gas, whereby methane is mixed with steam to yield hydrogen and carbon dioxide. From this process, 10 kg of carbon dioxide releases into the atmosphere for every 1 kg of gray hydrogen produced.

The same processing technique used to make gray hydrogen produces blue hydrogen. The difference with blue hydrogen is that the CO2 produced is captured at the production facility and is sequestered in deep geologic formations. Storage is costly and has logistical challenges. Blue hydrogen is considered controversial, dangerous, and inefficient.

Green hydrogen follows a different production process than gray or blue hydrogen as it is not derived from natural gas. This technique instead employs renewable sources of electricity to break water into its two constituent elements: oxygen & hydrogen, with no ancillary CO2 production. Although green hydrogen is the ideal choice for the proliferation of the hydrogen economy, producing it presents particular challenges. Essential equipment such as electrolyzers are costly. Also, the renewable energy sources employed are limited and would need to scale massively to meet the demand for the production of green hydrogen. 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.

Q. What are the expected risks of green hydrogen growth?

Green hydrogen production poses a number of risks, primarily because of the new technological pathway it is forging. There are projected risks and the possibility of unexpected outcomes. The technology for constructing large electrolyzers 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.

Hydrogen is combustible, highly flammable, and its storage or transport requires specialized 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 vapor cloud explosion (VCE). When a flammable mixture of vapor, gas, aerosol, or mist is sparked, it can cause the generation of containment overpressuring and an explosion risk. These leaks can be hard to identify because they are difficult to detect. Additionally, conventional fire systems are not designed to handle these types of leaks, exasperating the opportunity for disasters.

To be handled safely, the hydrogen must be stored at low temperatures. Hydrogen can penetrate high- strength metals and weaken them, resulting in brittleness and high-temperature hydrogen attacks. Material science and specialized maintenance programs will be a key focus to enable the proliferation of the hydrogen economy.

Q. How does hydrogen compare to other renewable technologies?

Productive investments and attention could give hydrogen the power to play a crucial role in the energy transition. It is a practical alternative to wind and solar, as it better aligns with certain companies’ or governments’ capabilities. Solar and wind are specific to particular climates; hydrogen is more attainable for oil and gas-based economies. Alberta, Canada, a once-dominant oil and gas producer, is attempting to make hydrogen a primary energy source. Suncor is a leading Canadian energy company headquartered in Calgary, Alberta. It announced the sale of its wind and solar assets. Suncor is taking a pledge to strive for net-zero emissions by 2050 and will accelerate progress by focusing on hydrogen and renewable fuels. Hydrogen is more compatible with the Alberta environment compared to wind and solar technologies. This transition is the most economical renewable energy option for the province. Suncor’s ability to collaborate with ATCO on a world-scale hydrogen project in Alberta will deploy next- generation renewable technologies such as Enerkem’s waste-to-fuels technology. Suncor’s decision will also spark investment, research, and a solid foundation for future development in the green hydrogen space. This case signifies an intriguing contrast to the popularity of the solar and wind industries.

Q. What are the major applications of green hydrogen right now?

Over the next 30 years, the most promising large-scale applications for green hydrogen include industrial processes, heating, heavy-duty long-haul transportation, and energy storage. The industrial applications of green hydrogen are ambitious because there are technological barriers to overcome, and additional investments will be required. Green hydrogen has the potential to play a critical role in the transportation sector, particularly in 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. Green hydrogen is a zero-emission mode of energy transportation. The hydrogen can be stored on trucks, shipped overseas, or delivered via pipeline. The hydrogen can then be used for transportation, manufacturing, or electricity generation.

When it comes to storing energy for an extended period of time, hydrogen quickly becomes the preferred option. Long-term hydrogen storage systems are hundreds of times cheaper than battery energy storage systems. Green hydrogen has the potential to play a significant role in heat and power generation. It can be injected into natural gas distribution networks to generate commercial and residential heat while reducing carbon emissions. Hydrogen provides a low-cost way to store electricity in countries with excess renewable energy, with the added option of exporting it to countries with limited renewable energy and hydrocarbon resources.

Q. What influence does the growing green hydrogen market have on insurance?

Severe weather, rising emissions, growing energy demands, and the increasing insecurity of fossil fuels drive discussions about hydrogen and its role in the global energy transition. To mitigate climate change by 2050, IRENA believes that renewables need to be supplying nearly 90% of global electricity. Hydrogen as a fuel source is an old concept with new applications. Insurance companies must be open to innovation and take cues from how markets are moving to solve current problems. Insurers can support industry growth both from investment as well as providing underwriting capital for green hydrogen projects.

The opportunities provided by renewables and the hydrogen economy are enormous. However, only about 27% of (re)insurers have evaluated climate change risks in their current portfolio. 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 ten years’ time. 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.

Governments, corporations, and investors must work together to ensure a low-carbon hydrogen technology future can succeed to make the hydrogen economy a reality. (Re)insurers can act as leaders for the popularization of hydrogen-based energy economies.

(Re)insurers can promote this industry through full life cycle 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 in helping in the funding process for hydrogen and renewable projects, foster dialogue with governments to encourage policies that address investment barriers, and build strategic partnerships across the hydrogen and energy value chains. 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. Insurers should be prepared to take a measured, responsible, and forward-thinking approach to move the needle and get the hydrogen economy to start to take shape.

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