Climate change risk and liability report 2021
Insurance 2022 - the year ahead
Repurposing existing energy infrastructure for green hydrogen use carries significant property and liability risks that carriers need to get up to speed with – especially in relation to the phenomenon of ‘hydrogen embrittlement’.
In November this year, Fortescue Future Industries (part of Australian iron ore giant Fortescue Metals) and UK plant machinery manufacturer JCB entered into a multi-billion-pound contract that will see FFI supply the UK firm with green hydrogen produced in Australia.
The deal highlights the fact that, whatever the future holds for the greening of the energy market, it is likely to involve repurposing existing infrastructure and machinery to allow green hydrogen use. This will present a huge business opportunity and the potential to generate significant insurable risks.
Proponents of green hydrogen as an alternative to traditional fossil fuels argue that, in addition to its low environmental impact, a major advantage of this transition is that existing storage and distribution infrastructure can be re-purposed for hydrogen use.
However, this retrofitting process is not without its challenges – a significant one being the phenomenon of ‘hydrogen embrittlement’.
Unlike fossil fuels, hydrogen can (under certain conditions) permeate metals and make them brittle and thus more susceptible to potentially catastrophic failure. While the retrofitting process can address this risk, it is possible to see the potential for major property damage risks.
Whatever solutions are devised for reducing the risk of embrittlement, insurers will need to get a handle on the nature of the peril and develop products that are adapted to what will be a rapidly developing area of specialist engineering.
In addition to the property risks, the move to hydrogen-based systems also implies major professional and general liability exposures for engineers and other contractors involved in building and maintaining the physical assets, plus the asset owners, and the designers and manufacturers of infrastructure and machinery.
And in the event of a major disruption in hydrogen supply, there is also the potential for substantial business interruption (BI) exposures, as well as contingent BI for customers of green energy suppliers.
Together, these risks present a huge opportunity for energy insurers to create new products and access new markets. However, the market will need to keep abreast of rapid developments in engineering, and additional capacity will be needed – whether from incumbents or new entrants to the market – to meet the potential demand for coverage.