Promoted by government programs worldwide, hydrogen is predicted to play a leading role in the energy transition towards a low-carbon economy. As an alternative to fossil fuels, hydrogen solutions can help tackle climate change in the future, helping many industries towards reducing their emissions.

While hydrogen offers clear benefits, the potential size and scope of the hydrogen economy will depend on a wide range of factors, including geopolitics, infrastructure development, policy and regulation, and, of course, the cost, relative to other sustainable alternatives. Hydrogen’s properties also bring challenging risks and hazards – notably fire, explosion and embrittlement – that will require stringent adherence to risk management and loss prevention to ensure safe operation.

Risk Mitigation Measures

Given hydrogen’s unique properties and high combustibility, ensuring safety throughout the hydrogen value chain is crucial. Key to managing these exposures are the design and location of hydrogen systems, measures to address embrittlement, hydrogen gas detection solutions, training, maintenance, and emergency planning and response.

Analysis of hydrogen-related incidents reveals that undetected leaks can easily lead to explosions. Relative to natural gas, hydrogen can have a greater tendency to leak through valves, seals, pipes, threads and joints. Equipment design, maintenance and training can help prevent the escape of flammable hydrogen gas, while the risks of ignition can also be reduced by locating hydrogen facilities in the open, and through the design of electrical installations and surfaces to avoid sparks and the buildup of static electricity. Ventilation is also important, especially in enclosed spaces, to avoid accumulation of hydrogen gas and to mitigate the risk of explosion and asphyxiation.

A common problem with hydrogen is embrittlement and fatigue of equipment and infrastructure, which can lead to cracks, leakages, fire and explosions. These risks can be managed through material selection and the use of hydrogen-compatible materials and coatings that have been specifically designed to resist hydrogen embrittlement. Repurposed equipment will need to be assessed for embrittlement and may require modifications.

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 also paramount. Sensors are essential to detect leaks promptly, while the ability to shut off the supply of escaping hydrogen is crucial to mitigating the impact of fire and explosion.

Human error is also a common factor in large losses. Operational, safety, emergency procedures and training should be frequently updated and documented, while equipment should be clearly labeled. In addition, organizations should establish an incident/emergency response plan for accidental releases, establish specialist response teams, and ensure adequate fire protection resources are available. Organizations should also track and review hydrogen incidents and standards globally and update safety measures accordingly.

The quality and reliability of energy and water supply is critical for electrolyzers. Fluctuation or outages in power supply can cause production problems and potentially electrical damage, so backup capacity is essential where energy supply may vary, such as with wind turbines. Water feed quality should be monitored, and when commissioning electrolyzers, demineralizing, cleaning and testing of supply is a must. Random borescope inspection prior to and after commissioning is an additional risk mitigation measure to consider.

The Critical Role of Insurance

The insurance sector is set to play an important role in the hydrogen economy, addressing risks across the supply chain, from construction and production through to the end user. In addition, insurers such as Allianz also support the hydrogen industry through providing funding for tangible infrastructure projects, such as green hydrogen and ammonia production.

Underwriters can provide a range of coverages to the hydrogen sector, including physical damage to assets and equipment, third party liability, machinery breakdown, business interruption, construction and marine insurance.

 As hydrogen becomes integrated into the global economy, the demand for comprehensive coverage will increase and broaden, and the market could reach $3bn+ globally by 2030, although there are many factors which could impact this valuation. The construction of new hydrogen facilities and the repurposing of existing infrastructure will require specialized insurance solutions, while existing property, liability and specialty coverages will need to be adapted for end users with hydrogen exposures.

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, however, 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.

Integrating hydrogen into the energy/natural resources and construction sectors brings a range of challenges. Energy production facilities will involve hydrogen storage and high-temperature combustion, which can lead to leaks and explosions. In transport, applications like hydrogen fuel cell vehicles will face risks of hydrogen embrittlement and leaks. In chemical feedstock and fertilizer production, safe storage and transportation are crucial to prevent contamination and explosions.

The adaptation of hydrogen in shipping will introduce new exposures for marine insurers. Adapting engines for hydrogen could increase the risks of machinery breakdown or give rise to safety issues. Shipping companies will also encounter the heightened risks of hydrogen embrittlement, gas leaks, and explosions. Port operators, bunkering facilities and fuel handlers will need to manage highly flammable and cryogenic hydrogen fuels, increasing accident and contamination risks. Across all these industries, stringent safety measures are vital to manage the inherent risks associated with hydrogen use.

The biggest challenge for insurers is the sheer amount of innovation, with new technology and uses of hydrogen emerging at a fast pace. Failure rates for new technology are typically higher but reduce as the technology matures over time. As a result, underwriters must carry out due diligence when providing coverage to prototypes, while manufacturers’ warranties and service will be key considerations. Underwriters will need to assess the quality and experience of installers, contractors and operators. They will also look at the quality of training, adherence to standard operating procedures and maintenance to mitigate hazards and ensure hydrogen is handled safely.

Insurers need to understand the risks of new and emerging hydrogen technologies. While there may be very little loss data available, there is a lot of innovation that can help insurers understand the quality of new technology. Insurers can also be involved at an early stage of technology development and can leverage their specialist risk engineering teams to help clients identify potential risks and make risk recommendations.

To read the full Allianz Risk Report on Hydrogen, please visit: Hydrogen: opportunities, uses and risks in the energy transition | Allianz Commercial