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Two of the insurance sector’s largest companies, insurer Zurich and broker Aon, have launched a new hydrogen production plan to boost development of a sector seen as key to the shift to clean energy.
The platform will bring together a number of insurers, led by Zurich, to underwrite smaller individual projects of up to $250 million in capital expenditure that might otherwise struggle to find insurance. The projects will have a range of coverage, from construction to operational risks.
The development comes amid growing concerns about whether there is sufficient capacity in the insurance industry to provide the trillions of dollars of coverage that will be needed for green energy projects.
“The insurance often makes the difference between go or no-go [smaller] projects,” said Joseph Peiser, global chief executive of commercial risk at Aon.
The cover focuses on two main low-carbon methods of producing hydrogen: making it from methane gas and capturing the carbon emissions released, known as ‘blue’ hydrogen, and splitting it from water using renewable electricity, known as ‘ green’ hydrogen, which is currently only available in small quantities but is by far the less polluting of the two processes.
Peiser said the insurance facility had been in development for two years, but that the first projects were now being bid for and that eventually policies could be written for 10 to 20 projects a year, with total coverage running into billions.
About two-thirds of such hydrogen projects would fall within the scope of the program, he added.
Zurich will be the lead insurer on each project, in combination with other insurers, a model that is common when insuring large commercial risks. Businesses will be able to buy cover for a range of risks, from construction public liability, to breakdown cover once a facility is built.
Sierra Signorelli, CEO 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 cut carbon emissions, hoping it can be used in place of fossil fuels in sectors from steelmaking to transportation and heavy industry.
However, most of the hydrogen used today is made by splitting it from methane gas, which releases carbon dioxide. Green hydrogen involves electrolysis to split water.
Both processes require large investments and the sector is held back by high costs and uncertainty about demand. The Zurich-Aon scheme aims to cover a range of hydrogen infrastructure including production, storage and transport.
According to S&P Global Commodity Insights, only 7 percent of clean hydrogen projects worldwide have been greenlit with a final investment decision so far.
An example of this is the $8.4 billion Neom green hydrogen project in Saudi Arabia, which is scheduled to begin production in 2026.
Molly Iliffe, head of hydrogen at consultancy Baringa, said insurance was “certainly a limiting factor” for some projects.
While hydrogen production in large-scale industrial facilities had been assured for decades, she added, the new low-carbon production “takes the sector into new areas with new risks that are not yet fully understood.”
In a separate project in Switzerland, Zurich is providing coverage as part of a project to build 1,600 hydrogen-powered trucks by 2025.
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