Hydrogen Supply or Self-Production? A Financial Modeling Guide for Developers

As green hydrogen gains traction globally, energy developers, consultants, and investors are increasingly faced with a critical decision: should they source hydrogen from external suppliers or invest in producing it themselves? This isn’t just a theoretical dilemma—it’s a financial one that directly impacts project viability, cost structure, scalability, and investor returns.

At the heart of this decision lies the need for robust financial modeling. Understanding the long-term economics of hydrogen projects requires more than surface-level metrics. You need visibility into capital expenditure (CapEx), electricity pricing, operational costs, policy incentives, utilization factors, and infrastructure requirements. Financial modeling helps quantify the trade-offs and gives project teams clarity when it matters most.

Currently, the Levelized Cost of Hydrogen (LCOH) Model is the only mature Excel tool available to support this decision-making process. It provides a foundational lens into what it really costs to produce hydrogen at scale under different project conditions. While other tools—such as hydrogen supply contract calculators, internal-vs-external comparison models, and portfolio expansion planners—are still in development, the LCOH model alone offers powerful insight into project economics.

Let’s explore the value of the LCOH model in detail, while also previewing what additional modeling tools will soon bring to the table once completed.

The LCOH model simulates the cost to produce one kilogram of hydrogen over the life of a project, taking into account key variables such as electrolyzer efficiency, electricity pricing, operations and maintenance costs, capital cost of equipment, and the plant’s utilization rate. It provides a per-unit cost figure—usually in dollars per kilogram—which developers and investors can use as a benchmark against market hydrogen prices or long-term offtake agreements.

For example, consider a green hydrogen project using a 20 MW electrolyzer system with an efficiency of 50 kWh/kg. If the cost of electricity is $0.04 per kWh, then the electricity cost alone is $2.00 per kg of hydrogen. Add $2.50 in O&M costs, and you arrive at a total LCOH of $4.50/kg. This number becomes the basis for critical decisions. If you can sign a supply contract to buy hydrogen at $5.00/kg, is it worth producing it yourself at $4.50/kg? What if electricity costs drop? What if your CapEx goes up? The LCOH model gives you the flexibility to run those scenarios.

A key advantage of the LCOH model is that it is entirely transparent and editable. Unlike black-box calculators or online tools with fixed assumptions, the Excel model allows consultants and developers to input site-specific data. You can simulate different electrolyzer technologies—such as alkaline, PEM, or SOEC—each with unique efficiencies, costs, and degradation rates. You can also toggle in or out certain line items, such as stack replacements or labor escalation. And with sensitivity tables built in, you can quickly see how changes in electricity pricing or utilization impact the final LCOH.

The LCOH model is particularly helpful in guiding early-stage feasibility studies. Developers evaluating multiple potential project sites can plug in real or projected electricity rates, water costs, land lease expenses, and other localized inputs to compare LCOH across regions. This is especially useful when responding to investor inquiries or qualifying for grants that require a well-structured financial analysis.

While the LCOH model is currently the most actionable tool available, several additional Excel-based models are in development and expected to further enhance decision-making for hydrogen professionals. Among them is a hydrogen supply agreement analyzer. This tool will help developers model cost savings over time when entering long-term hydrogen procurement contracts. For example, if a supplier offers hydrogen at $5.00/kg compared to a baseline market price of $7.00/kg, the model will show cumulative cost savings across 5- to 10-year horizons and include a net present value (NPV) calculation to account for time value of money.

Another upcoming model is the internal-vs-external hydrogen production comparison tool. This will be particularly useful for developers considering whether to build their own production facilities or rely on third-party suppliers. It will allow users to model both CapEx-heavy self-production pathways and fully variable cost scenarios from sourcing. Users will be able to view side-by-side IRR, payback period, and breakeven year for each strategy.

A third tool currently being scoped is a multi-site demand and expansion forecaster. As hydrogen developers move from single projects to portfolios, managing demand across many sites becomes complex. This model will project growth in demand across various geographies and timelines, helping developers determine when additional production or supply agreements must be executed. This will also be vital for infrastructure planning, as hydrogen delivery logistics become more expensive with distance and scale.

Also in early development is an ESG and carbon savings tracker. Many green hydrogen projects are motivated not just by economics but by decarbonization goals. This tool will allow developers to calculate avoided CO₂ emissions based on hydrogen usage in various sectors—transport, industry, or power. It will also allow users to model revenue from carbon credits or estimate potential compliance offsets.

All of these models, once completed, will be complementary to the LCOH tool. But for now, the LCOH model stands as the foundation upon which developers can assess their projects. If your LCOH is high, you’ll struggle to win offtake contracts or attract financing. If your LCOH is low and based on reliable assumptions, you can confidently pursue bankability and scale.

For consultants, the LCOH model is an essential tool in your offering. You can use it in feasibility studies, investor reports, and permitting applications. You can also offer it as a training product, showing clients how to use the model to test various assumptions. Even developers with internal finance teams often prefer third-party validation of their models. Offering a refined LCOH model with scenario planning and investor-facing outputs—like IRR or DSCR—can give your firm a competitive edge.

Investors also rely on the LCOH model to evaluate the credibility of pitches and proposals. A well-structured Excel model builds confidence that the developer understands the inputs and assumptions that drive project success. It also allows for quick integration into portfolio-level financial dashboards or comparison tools.

To ensure that professionals get the most out of this tool, we’ve included multiple usability features in the LCOH model. These include color-coded input cells, predefined drop-down menus for technology selection, sensitivity analysis tabs, and customizable assumptions for CapEx, O&M, electricity, and financing structure. There’s also a built-in summary dashboard that highlights key financial metrics and visualizes how changes in inputs affect project outcomes.

Looking ahead, the full suite of models—including hydrogen procurement analysis, self-production comparison, multi-site forecasting, and ESG tracking—will be offered as part of the upcoming Hydrogen Project Financial Toolkit on ReneEnergy.com. Each model will be available individually, with optional bundled pricing for consultants, developers, and educational institutions.

The final vision is to create a complete Excel-based ecosystem where green hydrogen professionals can model any project type, from pilot-scale plants to multi-GW hubs. Until then, the LCOH model remains the go-to financial tool available today—ready to support real-world hydrogen projects, investor presentations, and development decisions.

In summary, hydrogen development is evolving quickly, and financial modeling is becoming central to competitive success. Whether you're working on your first project or scaling a regional hydrogen hub, using models like the LCOH calculator empowers you to make smarter, faster, and more defensible decisions. As more tools come online, the future of hydrogen planning will become even more data-driven, strategic, and precise.

For now, start with what’s available. Master the LCOH model. Use it to guide your next site evaluation, funding pitch, or offtake negotiation. And when the next models are ready, you’ll already have the foundation in place to expand your analytical toolkit.

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