When a Green Hydrogen Project Looks Viable — But Should Still Be Rejected
Hypothetical 100 MW Electrolyser · Saudi Arabia
The answer in two minutes.
| Metric | Base Case | Decision Threshold / Gate | Status |
|---|---|---|---|
| Total installed CAPEX | $215m | ≈ $202m* / ≤ $190m conditional-go gate | FAIL |
| Base LCOH | $4.52/kg | Plant-gate cost metric; not approval test | WATCH |
| Project NPV @ 8.5% | –$3.7m | ≥ $0 | FAIL |
| Project IRR | 8.3% | Must clear project cost of capital | FAIL |
| Equity IRR | 10.4% | ≥ 12% | FAIL |
| Minimum DSCR | 1.22x | ≥ 1.45x base / ≥ 1.30x downside gate | FAIL |
| Utilisation | 60% | ≈ 63%* / ≥ 68% conditional-go gate | FAIL |
| Net realised H₂ price | $4.50/kg | ≈ $4.64/kg equivalent to clear 12% equity NPV | FAIL |
| Bankable offtake | Not demonstrated | Creditworthy take-or-pay for ≥80% of output | FAIL |
Near LCOH break-even is not investability
At a $4.50/kg base selling price, project NPV remains –$3.7m, Project IRR is 8.3%, Equity IRR is 10.4%, and minimum DSCR is 1.22x.
Revenue is not bankable yet
No public evidence establishes a directly comparable Saudi plant-gate contract price; a higher price counts only if embedded in bankable offtake or committed support.
De-risking, not FID
The recommended next step is limited development expenditure focused on revenue, shaped power cost, validated CAPEX, hourly dispatch, and lender resilience—not construction capital.
Investment conditions, not optimistic scenarios.
Every material claim has a status.
Quantitative analysis is a decision layer.
Base technical screen
Approximate first-year hydrogen output from a 100 MW alkaline electrolyser at 60% utilisation and 53 kWh/kg system electricity consumption.
- Electrolyser: 100 MW alkaline — model assumption
- Utilisation: 60% — model assumption; requires hourly validation
- Consumption: 53 kWh/kg — model assumption
- Delivered power: $27.5/MWh — model assumption, not observed tariff
- Economic life: 20 years — model assumption
Base investment screen
Levered Equity IRR under the disclosed screening financing assumptions.
- Installed CAPEX: $215m — base-case assumption
- H₂ selling price: $4.50/kg — model assumption, not verified offtake
- LCOH: $4.52/kg — calculation
- Project NPV @ 8.5%: –$3.7m — calculation
- Project IRR: 8.3% — calculation
- Min. DSCR: 1.22x — calculation
Strategic attractiveness is not commercial viability.
Long-term attractive, near-term difficult
Low-emissions hydrogen remains a small share of total hydrogen supply and firm offtake remains a constraint.
Real, but insufficient alone
Renewable resources, industrial demand and development capability strengthen the context, but do not eliminate buyer economics or bankability requirements.
Revenue quality comes first
Debt should not be inserted merely to manufacture an attractive Equity IRR. Contracted cash-flow quality must be demonstrated first.
What could make this recommendation wrong?
A creditworthy industrial buyer could accept a materially higher long-term price. Decision impact: potentially reversing. Required validation: term sheet, tenor, volume, indexation, take-or-pay and counterparty credit.
Competitive EPC, localization or integrated design could reduce total installed cost. Required validation: project-specific bankable EPC quotations.
A hybrid renewable/grid/storage configuration could increase utilization, but any added infrastructure and electricity cost must be modeled simultaneously.
Mandates, carbon pricing or support mechanisms could increase willingness to pay. Only legally applicable project-specific support should enter the investment case.
Allocate capital only after the case earns it.
| Alternative | Economics | Execution | Revenue certainty | Risk | Decision |
|---|---|---|---|---|---|
| Invest now | Weak | Moderate | Weak | High | NO |
| Redesign | Potentially attractive | Moderate | Moderate | Moderate | YES |
| Secure offtake first | Improves bankability | Moderate | Strong if achieved | Moderate | YES |
| Delay | Preserves optionality | Strong | Unknown | Moderate | YES |
| Abandon immediately | — | Strong | — | Low | PREMATURE |
Final recommendation — NO-GO FOR FID
Do not commit construction capital under the currently demonstrated conditions. Authorise only a time-boxed de-risking phase focused on bankable revenue, all-in shaped power cost, Class 3 installed CAPEX and performance guarantees, and an independently reviewed hourly model linked to lender covenants before returning to FID.
Red-Team Gate: recommendation survived · Finding confidence: High for NO-GO at current terms.
A recommendation is a dated record, not a rewritten history.
CONDITIONAL GO FOR LIMITED DE-RISKING EXPENDITURE ONLY
Public evidence used in Decision 001.
- International Energy Agency — Global Hydrogen Review 2025. Market, production and offtake context.
- ACER — European Hydrogen Markets Monitoring Report 2025. European renewable-hydrogen production-cost context; not treated as a Saudi offtake price.
- IRENA — Electrolyser Costs. Technical and cost context for renewable hydrogen.
- NEOM Green Hydrogen Company / Air Products — Financial close announcement. Public benchmark for integrated financing and 30-year offtake structure.
- European Commission — European Hydrogen Bank. Policy-support context; auction premium is not treated as an unsubsidised commodity price.
- European Commission DG Climate Action — Second Hydrogen Bank auction. Auction participation and support context.
- International Energy Agency — Global Hydrogen Review 2026, Executive Summary. Current demand, cost, regulation and infrastructure barriers.
- IRENA — Renewable Power Generation Costs in 2024.
- IRENA — Green Hydrogen Strategy: A Guide to Design.
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