Hydrogen Risk and Insurance Advocacy Crucial as Energy Transition Takes Off

Although the global energy transition is well underway, investments in some forms of energy are only just beginning. Hydrogen projects, for example, are growing at a fast pace. As of July 2021, more than 30 countries have released hydrogen roadmaps, according to a report by the Hydrogen Council and McKinsey, and more than 350 hydrogen projects around the world have been announced, with committed funding of more than $150 billion.

Hydrogen represents a storable and transportable energy source, one in which investments will continue to grow in the years to come. The use of hydrogen as an energy source, however, can create multiple exposures. These should be carefully considered — and can be effectively managed with the support of hydrogen-specific risk and insurance specialists right from the start.

Understanding Key Risks

Hydrogen is the most abundant element on the planet. As such, it represents a huge opportunity on the road to low- and no-carbon energy solutions.

Like all energy projects, those involving hydrogen can be complex, often involving multiple project participants and contracts. These projects carry a number of risks that can threaten their viability.

From contractor selection and engineering to procurement and construction to commission and operation, and whether working with hydrocarbons, hydrogen, carbon dioxide (often co-produced in “blue hydrogen” projects), or other technologies and processes, project owners must consider a variety of potential hazards. These include:

  • Vapor cloud explosions.
  • Pool and jet fires.
  • Flash fires.
  • Vessel failure scenarios.
  • Explosive decompression of sealing materials in CO2 equipment.
  • Fractures in liquid/dense phase CO2 pipelines.
  • Solid formation in CO2 equipment.
  • Brittle failure of equipment.

Beyond these risks, project owners must also be mindful of risks that often arise during various stages of any energy project, including business interruption, third-party liability, political risk and terrorism, and technology risks.

How Risk and Insurance Specialists Can Help

For some project participants, these risks may be well understood. For example, industrial gas companies that already manage large pipeline networks understand the risks inherent to distributing liquid and highly pressurized gaseous hydrogen.

Other, newer players, however, may not have the same familiarity with the critical exposures that are common to hydrogen ventures.

Owners and other stakeholders whose projects are still in the early stages have an opportunity to systematically address key risks from the beginning. They can do this with the help of project risk management specialists, energy transition technical risk engineers, and insurance advocates.

These advisors can help companies adopt industry best practices to reduce project and operational risks and avoid potentially costly surprises.

Building the Right Insurance Program

Risk and insurance advocates can also prove invaluable in securing insurance coverage. These advisors can introduce discipline and proven processes that can enable smarter decisions about the coverage you need and how much to purchase. And they can ultimately help ensure that risk profiles and insurance programs are acceptable to all stakeholders.

Risk and insurance advocates can market your program to underwriters globally, highlighting salient features of your risk management program, including the proactive steps you’re taking to limit losses. This can position you to secure more favorable pricing, terms, and conditions.

Specialist hydrogen risk engineering input right from the start can be crucial to the insurance process. Working together, engineers and placement specialists can help stakeholders anticipate how insurers will react to certain decisions made during the design stage. During the pre-FEED stage, for example, engineers can review a project’s initial plot plans, offering guidance on how to adjust the design to reduce the overall cost of risk during a facility’s lifetime. This can greatly improve the insurability of a project and drive greater insurer competition.

As hydrogen becomes an increasingly integrated part of the energy ecosystem, managing risks for project participants will be crucial. Having the right advice and guidance, from specialist risk and insurance advisors, can be the difference between project success and failure.