As use of hydrogen grows, so will the need for insurance coverage

29th April 2021

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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Hydrogen is expected to play a leading role in the transition towards a low-carbon economy as an alternative to fossil fuels like oil and coal.

This is likely to drive increased demand for insurance coverage for hydrogen solutions including for fires and explosions, embrittlement and business interruption risks, says insurance and risk multinational Allianz Global Corporate & Specialty (AGCS).

Many of the technologies used for the generation of hydrogen or energy from hydrogen are well known in principle and risk consultants have considerable experience with handling hydrogen projects in a number of different areas. Today, the vast majority of hydrogen is produced and used on site in industry, says AGCS Allianz Centre for Technology risk consultant and expert Thomas Gellermann.

“What is new is that the type and scale of its adaption are changing fundamentally, with the expected rapid growth of plants in future. We see the advent of gigascale projects in many countries with various new players entering the market and established players sizing up, and risk management has to keep pace.”

“Hydrogen produced from low-carbon or even renewable energies is of growing importance for the substitution of fossil fuels in the fields of energy supply, mobility and industry. It has the potential to morph from a niche power source into big business, with countries committing billions to scale up their infrastructure and with projects being introduced around the globe,” says AGCS energy and construction global head Chris van Gend.

“Despite these successes, there are challenges to overcome for hydrogen to become a major part of the energy transition, such as the cost of production, supply chain complexity and a need for new safety standards,” he adds.

As with any energy risk, fire and explosion is a key peril. Business interruption and liability exposures are also key as are transit, installation and mechanical failure risks, Van Gend explains.

Given the numerous projects planned around the world, insurers can expect to see a significant increase in demand for coverage in future to build and operate electrolysis plants or pipelines for hydrogen transportation, AGCS says in its April 2021 risk bulletin 'The Hydrogen Economy: Opportunities and risks in the energy transition'.

The main risk when handling hydrogen is of explosion when mixed with air. In addition, leaks are difficult to identify without dedicated detectors, since hydrogen is colourless and odourless. A hydrogen flame is almost invisible in daylight.

Industry loss investigation statistics show about one in four hydrogen fires can be attributed to leaks, with about 40% being undetected prior to the loss.

“Fire and explosion protection needs to be considered on three different levels: preventing the escape of flammable gases as much as possible; ensuring safe design of electrical and other installations in areas where ignition sources cannot be excluded; and constructing buildings and facilities to withstand an explosion with limited damage. Proper handling of hydrogen gas is critical, and any emergency situation requires appropriate fire safety equipment,” says Gellermann.

An AGCS analysis of more than 470 000 claims across all industry sectors over five years shows that fire and explosions caused damage of more than €14-billion. Excluding natural disasters, more than half (11) of the 20 largest insurance losses analysed were as a result of this, and it is the main cause of loss for businesses worldwide.

Further, diffusion of hydrogen can cause metal and steel (especially high-yield steels) to become brittle and a range of components could be affected, for example, piping, containers or machinery components, the risk bulletin states.

“In conjunction with embrittlement, hydrogen-assisted cracking (HAC) can occur. For the safety of hydrogen systems, it is important that problems such as the risk of embrittlement and HAC are taken into account in the design phase. This is ensured by selecting materials that are suitable under the expected loads as well as considering appropriate operating conditions (gas pressure, temperature, mechanical loading). High-yield strength steels are particularly at risk of hydrogen-related damage.”

Meanwhile, hydrogen production or transport typically involves high-technology equipment and failure to critical parts could result in severe business interruption and significant financial losses, AGCS says in the risk bulletin.

In case of damage to electrolysis cells used in water electrolysis or heat exchangers in liquefaction plants, it could take weeks to months to replace such essential equipment, resulting in production delays.

In addition, business interruption costs following a fire can significantly add to the final loss total. AGCS analysis shows that, across all industry sectors, the average business interruption loss from a fire incident is about 45% higher than the average direct property loss.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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