15 December 2022

As businesses look to reduce their reliance on fossil fuels, the race for alternative energy sources is finally gathering pace. And whilst electric power is nudging ahead, investment in green hydrogen is generating great interest. Simon Cutmore looks at the state of play for hydrogen and some of the key risk management issues its wider use could present.

Manufacturers across a range of industries are presently looking closely at the potential for Green Hydrogen to reduce their carbon footprint and ensure their businesses are sustainable going forwards. With regard to the commercial fleet sector for example, the insurance-market funded Thatcham Research centre recently confirmed it is working with motor manufacturer Toyota to develop a hydrogen version of its popular Hilux pick-up truck.

Hydrogen has been touted as an alternative fuel for decades – it was, after all, hydrogen that powered the ill-fated Hindenburg airship. But aside from the dangers of explosion which the 1934 disaster highlighted – hydrogen is no more dangerous than many other gases in regular use today.

In terms of its role in supporting moves away from fossil fuels however, progress has, until recently, been very limited as most of the hydrogen manufactured today is what is known as grey hydrogen. It is made by a process involving steam and methane which takes a significant amount of energy, with by-products that include the greenhouse gas, carbon dioxide. Blue hydrogen is also very similar in this regard, apart from the fact that the carbon dioxide created is recovered and recycled to be used in other applications (such as in fire extinguishers, putting the fizz into beer and making dry ice).

Green Hydrogen ambition

The great hope however is green hydrogen – which is not made by fossil fuels and does not produce harmful emissions. It involves generating electricity via wind or solar power, passing this electricity through water, and collecting the two gases that come off as a result – hydrogen and oxygen. The  hydrogen is then bottled, put on the back of a truck, and moved to wherever it needs to be, potentially utilising existing gas transportation infrastructure.

The downside of green hydrogen– and one of the reasons why it presently only makes up 4% of UK hydrogen manufacture - is that the process is not cheap, and even in these days of high fuel inflation, is not competitively priced. But that could all change, and quickly, through renewed investment in innovation and a focus on scaling up processes. After all, green hydrogen has huge potential as a replacement for fossil fuels. It is the most abundant element in the universe, it can be burned or exploded, is lighter than air and is relatively easy to transport. And when it is mixed with oxygen, the chemical reaction which makes electricity, only has one by product - pure water.

A fleeting liasion

Green hydrogen is a particularly attractive alternative to electricity for those operating heavy goods vehicles where a greater range is needed than can be supplied by heavy batteries, and also for mechanical handling equipment such as forklift trucks. Benefits include the ability to refuel vehicles in a matter of minutes, zero harmful emissions and that it can be used as an intermediate “additive” to internal combustion engines to enable them to run 20% hydrogen as part of the fuel mix. Transportation and storage of hydrogen are also similar to that for Liquid Petroleum Gas (LPG).

A matter of risk management

In terms of the key risk management issues for businesses looking to embrace hydrogen, the devil will undoubtedly be in the detail, but property insurance underwriters will already be starting to research and pose questions around transportation, storage, refuelling and waste management.

The first risks that need to be addressed are around transportation and the supply chain, which is around how the gas will be delivered to the business. It may be possible for example for some existing gas pipelines to be used, raising questions over the difference, if any, in terms of how potential breaches will be managed and maintained. Other unknowns include whether there is a higher propensity for leakage due to the nature of hydrogen and if weather conditions will enhance or hamper burn rates.

Other risk factors to be taken on board are around safety protocols. Will these be the same as for natural gas? And, of courses, particularly if fuel shortages remain a constant over the next few decades, what anti-theft protocols would be deemed to be the minimum required.

For those businesses using green hydrogen to power their vehicle fleets, another issue to be addressed will be around how they would deal with the water that is emitted from the exhausts.

There are also some known unknowns, such as the potential dangers of accidental release of significant amounts of hydrogen into the atmosphere through tank rupture. It is not inconceivable, for example, that escaped hydrogen could go straight up into the air, fail to disperse quickly and end up being sucked up into an aircraft engine causing a major explosion – and creating a complex insurance claims scenario.

In the final analysis, it seems highly likely that green hydrogen will become increasingly affordable and available over the next few decades – if not sooner - and businesses, and their risk management teams, will need to consider all the options as they look to invest in new fleets, new machinery and new processes to future proof their businesses.

Simon Cutmore

M: +44 (0) 786 460 9105

E: Simon.cutmore@verlingue.co.uk