To Connect or Not to Connect: Demystifying Hydrogen Power Procurement Options, Risks, and Opportunities

This report by RMI examines the power procurement options and associated risks for green hydrogen projects, specifically focusing on the challenges of achieving hourly matching for the U.S. Inflation Reduction Act's 45V tax credit. It analyzes four procurement archetypes—Behind-the-Meter, Virtual PPAs, Physical PPAs, and Hybrid systems—and details how weather variability, logistic complexity, and grid volatility impact project bankability and economic viability.

• The cost of power is the primary economic driver for hydrogen production, and the volume of power procurement required represents a significant risk to project bankability.
• Hydrogen producers face a trade-off between maintaining fixed offtake volumes and ensuring hourly matching for tax credits; to avoid production shortfalls during poor weather, developers may need to contract 40% more power than they would for average conditions.
• Behind-the-Meter (BTM) configurations create 'project on project risk,' where the hydrogen project's success depends on the timely completion of the renewable project, and vice versa.
• Grid-connected projects using Virtual Power Purchase Agreements (vPPAs) are exposed to high short-term volatility; for example, a single month with average power costs exceeding $160/MWh, such as August 2023, could severely damage project economics.
• The report identifies four primary power procurement archetypes: Behind-the-Meter (on-site renewables), Virtual PPAs (financial settlement via contract for differences), Offsite Physical PPAs (renewable electricity passed through a utility), and Hybrid systems (combining multiple strategies).
• To mitigate risks, the report suggests several solutions, including the use of insurance products for production shortfalls, flexible hydrogen contracts with variable offtake, and the development of spot hourly Energy Attribute Credit (EAC) markets.

APA

RMI (2024). To Connect or Not to Connect: Demystifying Hydrogen Power Procurement Options, Risks, and Opportunities. https://rmi.org/resources/to-connect-or-not-to-connect-demystifying-hydrogen-power-procurement-options-risks-and-opportunities/

Chicago

RMI. To Connect or Not to Connect: Demystifying Hydrogen Power Procurement Options, Risks, and Opportunities. 2024. https://rmi.org/resources/to-connect-or-not-to-connect-demystifying-hydrogen-power-procurement-options-risks-and-opportunities/.

Wikipedia

{{cite report |author=RMI |title=To Connect or Not to Connect: Demystifying Hydrogen Power Procurement Options, Risks, and Opportunities |date=20 November 2024 |url=https://rmi.org/resources/to-connect-or-not-to-connect-demystifying-hydrogen-power-procurement-options-risks-and-opportunities/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmi2024connect, author = {{RMI}}, title = {{To Connect or Not to Connect: Demystifying Hydrogen Power Procurement Options, Risks, and Opportunities}}, institution = {RMI}, year = {2024}, month = nov, url = {https://rmi.org/resources/to-connect-or-not-to-connect-demystifying-hydrogen-power-procurement-options-risks-and-opportunities/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }