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

The report examines four power procurement archetypes for green hydrogen—Behind-the-Meter (BTM), Virtual Power Purchase Agreements (vPPAs), Offsite Physical PPAs, and Hybrid systems—analyzing how each manages risks related to weather variability, logistic complexity, and grid volatility. It emphasizes that the cost of power is the primary driver of hydrogen production economics and highlights the challenges of maintaining hourly matching for tax credit compliance under the Inflation Reduction Act's 45V credit. To mitigate these risks, the report suggests solutions such as hydrogen-specific insurance, flexible offtake agreements, phased construction, and the development of spot hourly Energy Attribute Credit (EAC) markets.

• The cost of electricity is the most significant factor influencing the economic viability of hydrogen production.
• Hydrogen developers face a significant trade-off between ensuring production volumes for offtakers and maintaining hourly matching for tax credits; to avoid production shortfalls during poor weather, developers may need to contract up to 40% more power than they would for average conditions.
• Behind-the-Meter (BTM) configurations create 'project on project risk,' where the hydrogen plant's profitability depends on the timely completion of the renewable asset, and vice versa.
• Grid-connected projects using vPPAs are exposed to high short-term price 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 CFD and grid electricity), Offsite Physical PPAs (direct renewable electricity via utility), and Hybrid systems (combining multiple strategies).
• To address weather-driven production shortfalls, the report suggests the development of hydrogen-specific insurance products, though these currently face high premiums and require government or concessionary capital to catalyze the industry.

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} }