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Hydrogen economy brings risks, opportunities: AGCS

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Allianz Global Corporate and Specialty (AGCS) has predicted the growing popularity of green hydrogen as an energy source, replacing fossil fuels such as coal, will lead to increased demand for insurance coverage of the fuel.

Green hydrogen is generated using electrolysis powered by renewable electricity.

The global shift towards decarbonisation has triggered strong momentum in the hydrogen industry, the corporate arm of Allianz says in a risk bulletin.

More than 30 countries have produced hydrogen roadmaps and governments globally have committed at least $US70 billion ($90.3 billion) in public funding to support the initiatives, the bulletin says, citing figures from consultancy McKinsey.

There are more than 200 large-scale projects in the pipeline, and if all come to fruition, total investments will exceed $US300 billion ($387 billion) in hydrogen spending through 2030, the equivalent of 1.4% of global energy funding.

“Given the numerous projects planned around the world, insurers can expect to see a significant increase in demand for insurance in future to construct and operate electrolysis plants and pipelines for green hydrogen production and transportation,” AGCS says in the bulletin.

“While this has the potential to be a notable new area of growth for energy insurers, underwriters will need to stay on top of the potential downsides as this risk bulletin demonstrates.

“Insurers will need to develop a more detailed underwriting approach to this segment and apply the same rigor in risk selection and underwriting as they do on existing energy construction and operational business.”

AGCS says fire and explosion hazard is one key risk associated with green hydrogen production, storage and transportation.

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

An AGCS analysis of more than 470,000 claims across all industry sectors over five years shows how costly the risk of fire and explosion can be.

Fire and explosions caused considerable damage and destroyed values of more than €14 billion ($21.7 billion) over the period under review. Excluding natural disasters, more than half of the 20 largest insurance losses analysed were due to this cause, making it the number one cause of loss for businesses worldwide.

“As with any energy risk, fire and explosion is a key peril,” AGCS Global Head of Energy and Construction Chris van Gend said.

“Business interruption and liability exposures are also key as are transit, installation and mechanical failure risks.

“There is rightly great enthusiasm around hydrogen solutions as a key driver towards a low-carbon economy, but we shouldn’t overlook that these projects involve complex industrial and energy risks and require high levels of engineering expertise and insurance know-how in order to be able to provide coverage.”

Click here to access the report.