Centralised or on-site hydrogen production and how to choose
Once an industrial site has identified a credible use for renewable hydrogen, the next decision is where to produce it.
There are two main routes. Hydrogen can be produced at a central facility and transported to the customer, or an electrolyser can produce it directly on-site.
Neither model is automatically better. The right choice depends on demand, distance, available infrastructure, electricity costs, storage requirements and the operational consequences of an interrupted supply.
How centralised hydrogen supply works
Centralised production concentrates hydrogen generation at a larger facility. The hydrogen is then transported to industrial users as compressed gas, liquid hydrogen, or a chemical carrier.
For industrial sites without pipeline access, compressed hydrogen delivered by tube trailer is one of the most established options. Liquid hydrogen can carry more hydrogen per journey, but liquefaction requires additional energy and specialised cryogenic infrastructure.
Centralised supply has several potential advantages. A larger production facility may benefit from economies of scale, access to lower-cost renewable electricity and specialist operating teams. Industrial customers can also begin using hydrogen without financing and operating their own production system.
This makes delivered hydrogen particularly relevant for:
Pilot projects and early-stage applications
Sites with small or occasional demand
Operations where future hydrogen consumption is uncertain
Facilities close to an established hydrogen producer or pipeline
Companies that do not want to operate production equipment
However, the price at the production plant is not the same as the price at the point of use.
Hydrogen may need to be compressed, liquefied or converted into another form before it can be transported. It must then be loaded, delivered, unloaded, stored, and, in some cases, compressed or purified again before use.
The US Department of Energy identifies transportation, storage, and final delivery as major contributors to hydrogen costs and energy use because of hydrogen’s low volumetric energy density.
The European Commission’s Joint Research Centre reaches a similar conclusion. Its assessment found no single optimal delivery method. The most economical route depends on the quantity transported, the distance, the final application and whether suitable infrastructure already exists.
What changes with on-site production
On-site production removes the need to transport hydrogen. An electrolyser uses electricity and treated water to produce hydrogen at or near the point of consumption.
For industrial burner integration, on-site production is the practical choice, particularly when both the hydrogen and oxygen produced during electrolysis can be used directly in the process. Transporting and storing both gases from a central production facility would add cost and logistical complexity.
On-site production can reduce exposure to delivery charges, road logistics and supplier availability. It also gives the industrial operator greater control over when hydrogen is produced and which electricity source is used.
Producing hydrogen where it is consumed is already a well-established industrial model. The European Hydrogen Observatory reported that 88% of Europe’s hydrogen production capacity in 2023 was dedicated to captive, on-site consumption. Most of this capacity still relied on conventional production methods. However, the figure shows how widely hydrogen production and consumption are already integrated within industrial facilities.
Electrolysis enables the same model to be applied to renewable hydrogen. However, producing hydrogen on-site does not automatically make it renewable. Its environmental impact depends heavily on the source and carbon intensity of the electricity used. When powered by renewable electricity, electrolysis can produce hydrogen without direct carbon emissions.
On-site production also requires responsibility for the initial investment, electricity and water supply, maintenance, safety systems and integration with the existing industrial process. Depending on the project model, these responsibilities may remain with the industrial operator or be shared with the technology and service provider.
The economics depend on more than scale
A central production plant may produce hydrogen at a lower initial cost because it can operate larger equipment and aggregate demand from several customers. Whether that advantage reaches the end user depends on what happens between production and consumption.
The Joint Research Centre found that hydrogen delivery costs vary with distance, volume, and mode of transport. Economies of scale affect not only production but also compression, conversion, storage and unloading.
On-site electrolysis avoids many of these delivery costs, but introduces its own cost structure. This includes the electrolyser, balance-of-plant equipment, installation, electrical connections, water treatment, maintenance, financing and any required compression or storage.
Electricity is usually one of the highest operating costs. Electrolyser utilisation is another important factor.
The European Hydrogen Observatory estimated that, in 2023, the average production cost of hydrogen from grid-connected electrolysis in Europe was €7.94/kg. The estimated average for electrolysis connected directly to renewable electricity was €6.61/kg. However, the country-level result varied considerably. Direct renewable production ranged from €4.13 to €9.30/kg.
These are historical European estimates, not current supplier prices. They illustrate why a generic cost for on-site hydrogen can be misleading. Electricity prices, grid charges, renewable availability, and utilisation can substantially affect the result.
A direct connection to solar or wind power can reduce exposure to network charges. However, it may also limit the electrolyser’s operating hours. Lower utilisation spreads the investment across fewer kilograms of hydrogen.
The best electricity arrangement is therefore not necessarily the one with the lowest price per megawatt-hour. The site must evaluate electricity price, availability, carbon intensity and electrolyser utilisation together.
The questions that should guide the decision
1. What will the hydrogen be used for?
The end application determines whether delivered hydrogen is a viable option or whether on-site production is required. The assessment should consider the required flow, pressure, purity and continuity of supply, as well as whether the process can use the oxygen produced during electrolysis.
For industrial burner integration, on-site production is the practical choice when both hydrogen and oxygen are used directly in the process.
2. How much hydrogen does the process need?
Annual consumption provides an initial indication, but it is not enough to size a supply system.
The assessment should examine hourly and daily demand, minimum consumption, peak demand, shutdown periods and expected growth. A process requiring a stable hydrogen flow will produce a different result than one that uses the same annual volume in occasional batches.
Small or experimental demand often supports hydrogen delivery. Regular demand provides a stronger basis for on-site production, as the electrolyser can achieve higher utilisation.
3. How predictable is demand?
An electrolyser should not be sized solely around the highest anticipated peak.
If normal demand is significantly lower, the system may spend much of its time underused. This increases the capital cost per kilogram of hydrogen.
A common approach is to size on-site production around stable base demand. Buffer storage or delivered hydrogen can then cover temporary peaks.
Modular electrolyser systems provide another option. Capacity can be installed in stages as hydrogen consumption becomes more certain.
4. How far is the site from the available supply?
Distance influences delivery cost, lead times and the number of viable suppliers.
A site close to a hydrogen pipeline or major production centre may have access to competitive centralised supply. A remote site may face higher transport charges, fewer alternatives and greater exposure to delivery interruptions.
The physical site must also accommodate the delivery process. Tube trailers require appropriate road access, turning space, unloading areas and safety procedures. These requirements can be difficult to integrate into older or space-constrained industrial facilities.
5. Is suitable electricity available?
On-site production requires sufficient electrical capacity. The assessment should consider the available grid connection, connection upgrade costs, renewable generation and the reliability of the electricity supply.
The operating strategy matters as much as the headline electricity price. An electrolyser could run continuously, follow the industrial process, respond to renewable generation or operate during selected electricity-price periods.
Each strategy affects production cost, storage requirements and system utilisation differently.
6. Is water availability a constraint?
Electrolysis requires treated water. Practical requirements exceed the amount consumed by the chemical reaction because purification and supporting processes also use water.
The Joint Research Centre has estimated that practical water consumption can reach about 17 kg of water per kilogram of hydrogen, depending on the system and process boundaries.
For many industrial sites, this is manageable. In water-stressed areas, however, local availability, treatment requirements and competing uses must be considered from the beginning.
7. What pressure and purity does the process require?
Assess the hydrogen system at the actual point of use.
Industrial burners, chemical processes, refuelling stations and storage systems have different pressure, flow and purity requirements. Producing or purchasing hydrogen at a higher specification than necessary may add avoidable cost.
On-site production can be configured around the intended application. However, applications requiring higher pressure may still need compression. Hydrogen purification, drying, measurement and buffer storage may also form part of the complete system.
A meaningful cost comparison must therefore use the same hydrogen specification and delivery pressure for both routes.
8. How much hydrogen must be stored?
On-site production can reduce the need to hold enough hydrogen to last between scheduled deliveries. It does not necessarily eliminate storage.
A buffer may be needed to manage differences between production and consumption, process start-up, maintenance and short interruptions. The required volume depends on how quickly demand changes and how much resilience the process needs.
Delivered hydrogen may require a larger inventory because storage must cover the period between deliveries. The site may also need spare capacity in case a delivery is delayed.
Large amounts of compressed hydrogen require space, safety distances and suitable handling infrastructure. Storage should therefore be designed around the operating requirement rather than added after the production decision.
9. How important is supply security?
Delivered hydrogen depends on production at another facility, transport availability and the supplier’s delivery schedule.
On-site generation removes some of these dependencies, but it introduces others. Production becomes dependent on the electrolyser, the electricity supply, water treatment and site maintenance.
On-site hydrogen should not automatically be described as more secure. The answer depends on system design.
A critical industrial process may require modular production units, buffer storage, spare components or an emergency delivery agreement. Safety and availability must be considered across production, storage and use. Electrolyser installations must manage hydrogen, oxygen and electrical hazards through appropriate design, controls and operating procedures.
10. Can the site operate and maintain the system?
An electrolyser is an industrial asset. It requires monitoring, preventive maintenance, operating procedures and integration with the site’s safety and control systems.
The company must decide whether it has the necessary capabilities internally or needs lifecycle support from the technology provider.
The evaluation should include staffing, training, remote monitoring, maintenance response times, component availability and planned downtime. A technically efficient system can still underperform if these operational requirements are overlooked.
Compare the full cost at the point of use
A supplier’s factory-gate hydrogen price should not be compared directly with the production cost at an electrolyser outlet.
For delivered hydrogen, the assessment should include:
Hydrogen purchase price
Compression, liquefaction or conversion
Transport and unloading
Storage and equipment rental
On-site compression or purification
Delivery losses
Contractual price escalation
The operational cost of an interrupted supply
For on-site hydrogen, the assessment should include:
Electrolyser and balance-of-plant equipment
Installation and electrical connection
Electricity and water treatment
Compression, drying and purification
Buffer storage
Maintenance and component replacement
Financing and insurance
Planned and unplanned downtime
Both options should be compared using the same pressure, purity, availability and carbon-intensity requirements.
The best answer may combine both routes
The choice does not need to be entirely centralised or entirely on-site.
A company can begin with delivered hydrogen while testing the process and building a reliable demand profile. On-site production can then cover regular demand once the application has been validated.
Another option is to install an electrolyser to meet base demand while retaining delivered hydrogen for peaks, maintenance periods, or emergencies. This can improve electrolyser utilisation without compromising supply resilience.
A phased approach can also reduce investment risk. Modular capacity can expand alongside the industrial process, rather than requiring the site to install its full future production capacity immediately.
Choosing the right route
Delivered hydrogen is often the more practical option when demand is small, irregular or uncertain. It can also be competitive when the site is close to established production or pipeline infrastructure.
On-site production becomes more compelling when demand is regular or growing, transport is expensive, suitable renewable electricity is available, and greater control over supply has operational value.
The final decision should not be based on a general assumption about which model is cheaper. It should come from a site-specific assessment of landed hydrogen cost, infrastructure, carbon intensity and supply risk.
Where hydrogen is produced will shape how reliably, efficiently and economically it can be used.
Find the right on-site hydrogen configuration
Hydrogenera designs and manufactures alkaline electrolysers for integration into industrial processes. Its engineering process covers initial assessment, system design, manufacturing, installation, commissioning and ongoing support.
The Z Series provides modular, containerised hydrogen production for industry, transport and Power-to-X applications. Capacity can expand as demand grows, while the system can integrate with renewable and existing energy infrastructure.
The E Series produces hydrogen and oxygen on-site for direct integration into industrial combustion processes. It is designed for applications including industrial burners, boilers, cement and mining processes, food production and greenhouses. Immediate use can reduce dependence on hydrogen deliveries and minimise the requirement for bulk storage.
Where buffering or controlled low-pressure delivery is required, Hydrogenera also develops metal hydride storage systems, ranging from compact units to containerised industrial configurations.
Before selecting a system, Hydrogenera can assess the site’s hydrogen demand, electricity and water availability, pressure and purity requirements, storage needs and future expansion plans.