Hydrogen will play a crucial role in driving the green transition, with demand expected to surge in the coming decades. Around 60 governments have adopted hydrogen strategies, while the number of planned projects is already exceeding 1,500 globally compared with around 200 in 2021 – an increase of around 600%. To realize these projects, a total investment volume of $680 billion until 2030 may be needed, according to the Hydrogen Council and McKinsey, which will trigger a greatly increased demand for insurance to protect against risks as this investment is activated. Europe is leading the way by far, with 617 planned projects and the highest total investment announced, at $199 billion.
While the potential of hydrogen is undoubted, there are still challenges and headwinds to overcome. The potential size and scope of the hydrogen economy will depend on a range of factors, including the evolving political, trade, and economic environment, as well as demand. Policymakers and regulators need to address costs for the development of the infrastructure, so scaling up at a level competitive with other energy sources is possible.
Across all industries, stringent safety measures will be vital to manage hydrogen's inherent risks. This is where the insurance industry comes into play. According to Allianz Commercial's latest risk, "Hydrogen: Opportunities, Uses and Risks in the Energy Transition," as hydrogen becomes integrated into the global economy, insurers can expect to see a significant increase in demand for coverage,. Allianz Commercial expects the insurance market for hydrogen project coverage to grow to over $3 billion in premiums by 2030.
Hydrogen offers great potential but also challenges and risks
While it holds much promise and has been used in the chemical and refinery sectors for many decades, hydrogen's integration into other industries brings a range of challenges, with risks such as fire, explosion and embrittlement being already well-known. Energy production facilities will involve hydrogen storage and high-temperature combustion, which can lead to leaks and explosions. Currently planned mega projects require a scale-up of risk management.
In transport, applications like hydrogen fuel cell vehicles will also face risks of hydrogen embrittlement and leaks. Port operators, bunkering facilities and fuel handlers will need to manage highly flammable and cryogenic hydrogen fuels, bringing accident and contamination risks.
Risk management and mitigation are crucial for hydrogen projects
Given hydrogen's unique properties and high combustibility, ensuring safety throughout the value chain is crucial. Analysis of hydrogen-related incidents shows that undetected leaks can easily lead to explosions. Equipment design, maintenance and training can help prevent the escape of flammable hydrogen gas. The risks of ignition can also be reduced by locating hydrogen facilities in the open. Embrittlement risks can be managed using hydrogen-compatible materials and specifically designed resistant coatings.
In addition to preventing incidents, organizations can take steps to limit the extent of property damage, business interruption, and third-party liability. Buildings and facilities should be designed and constructed to withstand natural hazards, fire and explosion, and limit damage to adjacent property and equipment. Robust hydrogen leak detection and isolation systems are paramount. Human error is also a common factor in large losses. Operational, safety, emergency procedures, and training should be frequently updated, including having robust and well-rehearsed plans in place for accidental releases.
Given the wide reach of the hydrogen value chain and its potential uses, the implications for insurance could be far-reaching, touching on multiple sectors and lines of business over the next decade. From an exposure and potential claims perspective, product lines such as energy, natural resources and liability are likely to see the biggest impact from hydrogen risks over the next five to 10 years, followed by property and marine.
To read the full Allianz Risk report on hydrogen, please visit: Hydrogen: opportunities, uses and risks in the energy transition | Allianz Commercial.
