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Giving the green light to green hydrogen - what insurers need to know

  • Market Insight 17 December 2020 17 December 2020
  • Asia Pacific

  • Insurance & Reinsurance

Giving the green light to green hydrogen - what insurers need to know

Analysts are becoming increasingly more bullish about the long term future of green hydrogen, with recent estimates suggesting that the APAC, U.S. and European markets could be worth €10 trillion combined (AUD $16.3 trillion) by 2050.

Australia in particular is taking steps to be at the forefront of developing what could become one of the world's most significant energy sources.

How does green hydrogen work?

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Image 1: https://hsfnotes.com/energy/2019/03/20/developing-green-hydrogen-projects/

Green hydrogen uses renewable energy such as solar, wind and tidal power energy to produce hydrogen from water by splitting hydrogen molecules from oxygen molecules.

When produced by electrolysis in this way, the process is CO2 free, hence the term 'green' hydrogen.

The most important hydrogen-derived fuel is ammonia, which can be stored or transported at less extreme temperatures or pressures than would otherwise be required for pure hydrogen, making it easier to handle. In addition, one cubic meter of ammonia contains about 50% more energy than the same space filled with hydrogen.

For these reasons, ammonia is an attractive marine fuel. It is also attractive as a transportation means, and Australia is currently investigating ways of using green ammonia to ship large quantities of green hydrogen to Europe, with the suggestion that it could become the preferred hydrogen carrier to pipelines. 

The Australian Pilbara project

The Australian government has recently granted environmental approval for what has been billed as the most ambitious hydrogen project in the world to-date. The ‘Asian Renewable Energy Hub’ is an AUD $16bn project which spans 6,500 square kilometres in the Pilbara region of Western Australia, aiming to produce 26GW of renewable wind and solar power, and zero-emission green hydrogen for the local and export markets. Around 3GW will be reserved for local Pilbara users while the rest will go towards producing hydrogen and ammonia.

The economic benefits and job creation opportunities are significant and could transform Australia into a world-leader in the hydrogen industry; it is hoped that Japan and South Korea in particular will become Australia's major green hydrogen export markets.

There are a number of other green hydrogen projects developing in Australia, including Origin Energy's collaboration with Japan's Kawasaki Heavy Industries to design and engineer a 300MW electrolyser in Townsville, Queensland, which will produce more than 36,000 tonnes of green hydrogen a year for the export markets.

Green hydrogen is also being embraced across Europe, the Middle East, and Asia.

In Asia, Japan is green hydrogen's most advanced market. One of the world's largest green hydrogen plants has opened in Fukishima, Japan, which will be used to power fuel cells in vehicles and at stationary sites. The positioning of the plant is intentionally symbolic, in a region severely affected by the nuclear power station accidents of 2011.

In the Middle East, Saudi Arabia has recently announced construction of a US $500 billion futuristic supercity named Neom, where green hydrogen will be used and sold as the primary source of energy. 

Europe has significantly increased its funding for construction of electrolysis plants and other hydrogen infrastructure, with Germany allocating the largest portion of its clean energy stimulus funds to green hydrogen.

What are the potential pitfalls?

Although green hydrogen has a number of advantages, it is not without its challenges. For example, green hydrogen:

  • requires large electrolysers to power electrolysis plants that are not yet widely available;
  • is difficult to store given the large volume required (hence the attraction of green ammonia as an alternative);
  • is difficult to transport and is prone to making steel pipes and welds brittle (again, hence the attraction of green ammonia as an alternative);
  • is highly flammable and can escape through miniscule leaks if not stored properly; and
  • may actually and conversely damage the stratosphere if released into the environment, contributing to the build-up of greenhouse gases. This can however be mitigated through carbon capture technology.

Engineers are researching ways to minimise the production costs and the storage and transportation risks associated with green hydrogen. Researchers at RMIT University in Melbourne have recently developed sustainable and cost-effective technology which uses biosolids to develop hydrogen from wastewater. The method involves converting biosolids to 'biochar', a stable, carbon–rich form of charcoal, produced by burning organic matter such as wood and crop residues, under conditions of low oxygen. When created on-site at wastewater plants, the biochar can be used to trigger a chemical reaction to produce hydrogen. This not only removes the need for expensive catalysts but also makes the production of green hydrogen more efficient and could lead to an emissions-neutral wastewater sector.

So is the future really green?

Notwithstanding the focus that has been given by some of the world’s major economies to investing in this new fuel source, green hydrogen production still contributes to just 0.1% of worldwide hydrogen production. As stated above, this percentage is expected to grow significantly between now and 2050, as shown below in global terms.

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Energy insurers should be prepared for an increase in demand from insureds seeking insurance to construct and operate electrolysis plants and pipelines for green hydrogen production and transportation. While this presents a huge new growth area for the energy insurance market, appropriate weight must be afforded by underwriters to the potential risks associated with storage and transportation of this flammable gas when assessing risk exposure. The jurisdictions in which these projects are likely to emerge will also of course require local environmental understanding of the proposed site, and local law where relevant.

References

https://www.barrons.com/articles/goldman-sachs-says-so-called-green-hydrogen-will-become-a-12-trillion-market-heres-how-to-play-it-51600860476

https://www.forbes.com/sites/arielcohen/2020/10/19/the-green-hydrogen-revolution-is-now-underway/?sh=2e94b44a232c

https://e360.yale.edu/features/green-hydrogen-could-it-be-key-to-a-carbon-free-economy#:~:text=Green%20hydrogen%2C%20which%20uses%20renewable,taking%20off%20around%20the%20globe.&text=The%20Saudis%20are%20going%20big,hydrogen%20molecules%20from%20oxygen%20molecules

https://www.afr.com/policy/energy-and-climate/renewable-energy-hub-in-pilbara-to-get-major-project-status-20201021-p567dc

https://www.nature.com/articles/s41558-020-0891-0

https://www.technologyreview.com/2020/08/07/1006126/green-hydrogen-affordable-solar-wind-renewables/

https://www.hsbc.com/insight/topics/renewables-can-make-hydrogen-green

https://afdc.energy.gov/fuels/hydrogen_production.html

https://connectedworld.clydeco.com/post/102gktj/is-hydrogen-the-fuel-of-the-future

https://www.forbes.com/sites/arielcohen/2020/10/19/the-green-hydrogen-revolution-is-now-underway/?sh=3637e604232c

https://www.mediastatements.wa.gov.au/Pages/McGowan/2020/10/Major-step-forward-for-world-leading-Pilbara-renewable-energy-project.aspx

https://reneweconomy.com.au/green-hydrogen-export-potential-lifts-australia-to-no-3-on-global-renewables-index-54304/

https://reneweconomy.com.au/origin-eyes-huge-townsville-green-hydrogen-project-five-big-battery-options-15116/

https://reneweconomy.com.au/green-hydrogen-export-potential-lifts-australia-to-no-3-on-global-renewables-index-54304/

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