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Two of the biggest companies in the insurance industry, Zurich insurer and broker Aon, have created a new hydrogen production plan to support the development of a sector seen as key to the clean energy transition.
The platform will bring together a number of insurers, led by Zurich, to underwrite smaller individual projects worth up to $250 million in capital expenditure that would otherwise struggle to find insurance. Projects will be offered a range of coverage from construction to operational risks.
The development comes amid growing concern about whether there is enough capacity in the insurance industry to provide the trillions of dollars in coverage that will be needed for green energy projects.
“Insurance is often the difference between going or not [smaller] projects,” said Joseph Peiser, global managing director of commercial risk at Aon.
The shelter focuses on two key low-carbon methods of producing hydrogen: producing it from methane and capturing the released carbon emissions, known as “blue” hydrogen, and splitting it from water using renewable electricity, known as “green” hydrogen, which is currently available only in small quantities but is by far the least polluting of the two processes.
Peiser said the insurance tool has been in development for two years, but is now pricing its first projects and could eventually provide policies for 10 to 20 projects a year, with total coverage in the billions.
About two-thirds of such hydrogen projects would be under the program, he added.
Zurich will be the lead underwriter for each project in combination with other underwriters, a model common to underwriting large commercial risks. Businesses will be able to buy coverage for a range of risks, such as third-party construction liability to outage coverage once the facility is built.
Sierra Signorelli, managing director of commercial insurance in Zurich, said hydrogen has “enormous potential” as a greener alternative to fossil fuels.
Many countries are counting on hydrogen to help reduce carbon emissions and hope it can be used instead of fossil fuels in sectors ranging from steelmaking to transportation and heavy industry.
However, most of the hydrogen used today is produced by splitting it from methane gas, which releases carbon dioxide in the process. Green hydrogen involves electrolysis to split water.
Both processes require large investments and the sector is hampered by high costs and uncertainty about demand. The Zurich-Aon scheme is to cover a range of hydrogen infrastructure including production, storage and transport.
According to S&P Global Commodity Insights, so far only 7 percent of clean hydrogen projects worldwide have received approval for a final investment decision.
These include the $8.4 billion Neom green hydrogen project in Saudi Arabia, which plans to start production in 2026.
Molly Iliffe, head of hydrogen at consultancy Baringa, said insurance was “definitely a limiting factor” for some projects.
While hydrogen production in large industrial facilities has been insured for decades, she added, new low-carbon production “is pushing the sector into new areas with new risks that are not yet fully understood.”
In a separate project in Switzerland, Zurich is providing coverage for a project to build 1,600 hydrogen-powered trucks by 2025.
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