2021 Weather, Climate and Catastrophe Insight
Navigating New Forms of Volatility
Lightening the Load: Hydrogen and the Energy Transition
The world’s lightest element could help solve our heaviest problem, and insurance can play a pivotal role in reshaping our future.
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Ways of generating hydrogen:
There are three main ways to generate hydrogen, represented by the colors grey, blue, and green.
Green hydrogen is produced from renewables with net zero emissions.
Upstream Hydrogen Production
Midstream Distribution and Conversion
Various transport and conversion modes facilitate the distribution of hydrogen, including compression, liquification, or converting hydrogen into ammonia or even through an organic carrier molecule. Hydrogen is flammable and explosive – it is also odorless and colorless. If not stored properly, it can escape through minuscule leaks, especially when large volume storage is required. Hydrogen is also prone to making steel pipes and welds brittle.
Downstream End Applications
Hydrogen’s application is broad, from fueling transport, powering heavy industry and heating in our homes. Through continued investment in infrastructure, hydrogen can provide a green energy solution for the future. There will be considerable opportunities in hydrogen-related projects over the next decade; however, prototypical technologies and infrastructure challenges may pose new risks to companies operating in this space.
Export and import hydrogen hubs will be needed globally, disrupting the balance of current oil and gas energy hubs. Countries with large swaths of undeveloped land and abundant renewable energy are already developing strategies to produce green hydrogen and export excess, highlighting the possibility of significant political and cyber risks, among others.
Methods of Production, Distribution & End Uses
Hydrogen Production Pathways, Including Carbon Costs
Green Hydrogen could break even with Grey Hydrogen before 2030, especially when including carbon costs for emissions related to grey and blue hydrogen production.
The world is transforming at an unprecedented pace. At Zurich we believe we can have a positive impact in our role as an insurer and in society. Zurich’s aim is to help customers transition from carbon-intensive industries. We see the emergence of hydrogen as a clear example where there is a need for innovative product offerings to support the de-risking of projects and provide additional balance sheet protection to clients.
The Hydrogen markets estimated worth by 2050
$11.4 trillion
The energy industry is on a journey to net zero, and coronavirus (COVID-19) has accelerated the transition towards renewables globally. Hydrogen is rapidly becoming a legitimate alternative to fossil fuels and is set to play a vital role in the energy transition – a market that Goldman Sachs estimates could be worth as much as $11.4 trillion by 2050.
To grasp this opportunity, it is vital that the energy industry both understands and articulates the risk transfer challenges experienced throughout the lifecycle of hydrogen. In doing so, projects can proceed to execution, lowering companies’ carbon footprint and at the same time improving their ESG credentials.
Economic Losses From Natural Disasters Were Estimated At $343 Billion In 2021
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From Aon’s view, the business imperative is not about spending more time trying to optimize a limited market, but in creating net new investment capacity. And this is not a concept; we’ve proven that matching private capital with public interest is viable. Our discussion going forward must include how we create the incentives to do this everywhere around the world at a level of investment that will materially advance technology, encourage companies to take action, and accelerate the path to zero carbon.”
Greg Case
Aon Chief Executive Officer
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Frank Streidl - Head of Energy
Marine & Construction,
Zurich Insurance PLC
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Hydrogen has the highest amount of energy per unit weight of any substance (120-141MJ/kg compared to 44MJ/kg of gasoline), but its lower density complicates unit energy transportation costs.
An electrolyzer is a system that uses electricity to break water into hydrogen and oxygen in a process called electrolysis. Although the fundamental processes of renewable energy and electrolysis plants are relatively well understood, the technology of building large electrolyzers and incorporating hydrogen-producing electrolysis plants into existing renewable power infrastructure is still relatively new. In addition, potential risks associated with local jurisdictions and environmental understanding of the proposed sites are likely to emerge.
Source: Hydrogen Council, McKinsey & Company: Hydrogen Insights Report 2021, Aon Inpoint analysis
The most promising large-scale applications for green hydrogen over the next 30 years are industrial processes, heating, heavy-duty long-haul transportation and power storage — applications where few other viable options exist.
Hydrogen also has the potential to decarbonize steel and cement production. The industrial uses of green hydrogen are among the most promising, although there are technological barriers, and further reinvestments will be required.
Hydrogen could play a vital role in the transportation space — especially in long-haul, heavy-duty transportation, including land, sea and air. Hydrogen-powered vehicles have the advantage of shorter refueling times than battery- powered electric vehicles. For air and sea transport, hydrogen-based synthetic fuels store more energy in less weight than batteries.
Large Scale Green Hydrogen Applications
Green hydrogen could also play a significant role in heat and power. It can be injected into natural gas distribution networks to generate commercial and residential heat, reducing carbon emissions.
For countries with excess renewable energy, hydrogen offers a low-cost way to store electricity with the added option of exporting it to countries with limited renewable energy and hydrocarbon resources.
Australia, for one, has set its sights on becoming a major global player in green hydrogen, according to a recent announcement from Australia’s Treasurer, Josh Frydenberg. Australian companies like BHP and Fortescue, founded more than a century ago, are investing in renewables to power their mines as they pursue their own goal of net-zero operational emissions by 2050. Fortescue has also begun setting up hydrogen hubs in New South Wales and Queensland. Australia is urging (re)insurers, banks and superannuation funds to collaborate with global governments to support sectors of the economy that will need investment to make the successful transition to net-zero emissions.
The opportunities presented by renewables and the hydrogen economy are massive, and (re) insurers are taking note. However, less than 27 percent of (re)insurers have assessed climate change risks in their current portfolio, risk management activities and investment strategies.
Making the hydrogen economy a reality will require governments, corporations, investors and civil society to collaborate in building an environment where low-carbon hydrogen technologies can prosper.
Potentially the insurance industry could act as a catalyst to enable the wide adoption of hydrogen-based energy by using both exclusion and engagement in asset management, underwriting, and risk management.
Public and Private Partnerships
How?
This will help ensure a smoother transition to a resilient net-zero global economy and the insurance sector can accomplish this by:
Playing an active role in funding hydrogen and renewable projects
Active Role
Maurizio M
STMicroelectronics
Fostering dialogue with governments to encourage policies to address investment hurdles
Fostering Dialogue
Pete B
Dart Enterprises
Building strategic partnerships across the hydrogen and energy value chain to enable implementation
Building Partnerships
Oriada G
Antea Cement SH. A. Titan Group
Enacting this plan will require understanding challenges and risks, establishing common safety standards, innovating products and adopting breakthrough technologies. In this way, the industry can mitigate emerging risks and take a step toward addressing climate change.
The hydrogen market presents a once-in-a- generation opportunity for (re)insurers to develop solutions to reduce the physical, transition and liability risks arising from climate change.
Using current (re)insurance penetration rates across regions, green hydrogen could potentially generate commercial insurance premiums of $427 billion by 2050. Goldman Sachs estimates the globally addressable market of green hydrogen will achieve $11.4 trillion in revenue by 2050 for the utilities industry alone, with $2.6 trillion in Europe, $3.4 trillion in the U.S. and $5.4 trillion in APAC.
Estimated green hydrogen addressable insurance market, 2050E
Green hydrogen market could reach USD 11.4 trillion and generate commercial insurance premium of USD 427 billion by 2050E.
The (Re)insurance Role: A Rare Opportunity
Hydrogen value chains are complex and require cross-sector coordination, presenting multiple risks and hurdles in upstream, midstream and downstream production. This dynamic offers opportunities for (re)insurers to take a responsible, forward-looking approach to hydrogen by identifying, assessing, managing and monitoring risks and opportunities along the value chain.
01
Generating new and sustainable insurer capacity for the hydrogen value chain
02
Product innovation and wording development, offering client solutions to enable projects and the energy transition
03
Scaling up our global resources in combination with a risk-based approach
Aon is focused on:
Insurance as an Enabler
Aon views insurance as an enabler – building confidence and providing the catalyst for new projects and developments.
If you would like to discuss any aspects of these insights, or to better understand our capabilities in this area, please do not hesitate to get in contact with our team.
James Heald
Director, APAC Lead Consultant
james.heald@aon.com
Alfy Ramdzan
Associate
alfy.ramdzan@aon.com
Elsie Yang
CPCU, ARe Manager
elsie.yang@aon.com
Euan Nicolson
Chief Commercial Officer Global Energy
euan.nicolson@aon.co.uk
Rob Colver
Energy Risk Engineer
rob.colver@aon.co.uk
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James Stretton
Chief Commercial Officer Global Energy
james.stretton@aon.co.uk
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The energy industry is on a journey to net zero, and coronavirus (COVID-19) has accelerated the transition towards renewables globally. Hydrogen is rapidly becoming a legitimate alternative to fossil fuels and is set to play a vital role in the energy transition – a market that Goldman Sachs estimates could be worth as much as $11.4 trillion by 2050.
To grasp this opportunity, it is vital that the energy industry both understands and articulates the risk transfer challenges experienced throughout the lifecycle of hydrogen. In doing so, projects can proceed to execution, lowering companies’ carbon footprint and at the same time improving their ESG credentials.
Fostering Dialogue
Fostering dialogue with governments to encourage policies to address investment hurdles
Building Partnerships
Building strategic partnerships across the hydrogen and energy value chain to enable implementation
Fostering dialogue with governments to encourage policies to address investment hurdles
Contact Us
Legal
Privacy
Cookie Notice
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