Decentralized hydrogen production within industrial facilities is gaining traction as a strategic approach to meet process demands while enhancing efficiency, sustainability, and cost-effectiveness. Industries such as refining, ammonia synthesis, and steel manufacturing require substantial hydrogen volumes, traditionally supplied through centralized production or delivery systems. However, on-site hydrogen generation offers distinct advantages, including reduced transportation costs, lower emissions, and improved supply reliability. Key technologies for decentralized production include steam methane reformers (SMR) and electrolyzers, each with unique benefits and trade-offs.

Steam methane reforming is the most established method for hydrogen production, accounting for the majority of global supply. In a decentralized setup, SMR units can be installed directly at industrial sites, converting natural gas into hydrogen and carbon dioxide. The process operates at high temperatures (700–1000°C) and requires catalysts to facilitate the reaction. One significant advantage of on-site SMR is its ability to produce large quantities of hydrogen at relatively low costs, especially in regions with affordable natural gas. For example, refineries using decentralized SMR can avoid the logistical expenses and risks associated with transporting hydrogen over long distances. However, the carbon footprint of SMR remains a challenge, as the process emits approximately 9–10 kg of CO2 per kg of hydrogen produced. To mitigate this, some facilities integrate carbon capture and storage (CCS) systems, though this adds complexity and cost.

Electrolyzers, particularly proton exchange membrane (PEM) and alkaline types, are emerging as competitive alternatives for decentralized hydrogen production. These systems use electricity to split water into hydrogen and oxygen, offering a zero-emission pathway when powered by renewable energy. Electrolyzers are modular and scalable, making them suitable for industries with fluctuating hydrogen demands. For instance, ammonia plants can pair electrolyzers with intermittent renewable sources like wind or solar to produce green hydrogen on demand. While electrolysis is more energy-intensive than SMR, with efficiencies ranging from 60–75%, the declining costs of renewable electricity and advancements in electrolyzer technology are narrowing the economic gap. In regions with abundant low-cost renewables, such as Scandinavia or Australia, industrial facilities are already adopting electrolyzers to reduce reliance on fossil fuels.

The choice between SMR and electrolyzers for decentralized production depends on several factors, including energy prices, carbon policies, and operational requirements. SMR is often favored in settings where natural gas is cheap and carbon emissions are not heavily penalized. In contrast, electrolyzers are more attractive in areas with stringent emissions regulations or access to inexpensive renewable power. A hybrid approach, combining both technologies, can also be viable. For example, a refinery might use SMR for base-load hydrogen supply and electrolyzers to handle peak demand or capitalize on excess renewable energy.

Cost savings from decentralized hydrogen production stem from multiple sources. Eliminating transportation reduces expenses associated with compression, liquefaction, and delivery, which can account for 20–30% of total hydrogen costs. On-site production also minimizes supply chain disruptions, enhancing operational reliability. In ammonia synthesis, where hydrogen is a critical feedstock, decentralized systems can prevent production halts caused by external supply issues. Additionally, industries leveraging renewable-powered electrolyzers can benefit from tax incentives or carbon credits, further improving economics.

Carbon footprint reduction is another compelling advantage, particularly for industries under pressure to decarbonize. Steel manufacturers, for instance, are exploring hydrogen-based direct reduction processes to replace carbon-intensive blast furnaces. By producing hydrogen on-site using electrolyzers powered by renewables, these facilities can achieve significant emissions cuts. Similarly, refineries adopting green hydrogen for hydroprocessing can lower their Scope 1 and 2 emissions, aligning with global climate targets.

Real-world examples highlight the potential of decentralized hydrogen in heavy industries. A German refinery has integrated a 10 MW PEM electrolyzer to supply hydrogen for desulfurization, reducing annual CO2 emissions by 20,000 tons. In Japan, a steel plant is testing a hybrid system combining SMR with CCS and electrolyzers to transition toward low-carbon production. The fertilizer industry, a major hydrogen consumer, is also shifting toward decentralized electrolysis, with projects in the Netherlands and India demonstrating the feasibility of green ammonia synthesis.

Despite the benefits, challenges remain. Electrolyzers require substantial upfront investment and access to affordable renewable energy to be competitive. SMR, while cheaper, faces increasing scrutiny due to its emissions. Regulatory frameworks and infrastructure readiness also play critical roles in adoption rates. However, as technology advances and economies of scale materialize, decentralized hydrogen production is poised to become a cornerstone of industrial decarbonization strategies.

In summary, decentralized hydrogen production offers industries a pathway to enhance efficiency, reduce costs, and meet sustainability goals. By carefully selecting technologies based on local conditions and operational needs, facilities can optimize their hydrogen supply chains while contributing to a lower-carbon future. The transition is already underway, with pioneering projects demonstrating the viability of on-site generation across diverse sectors. As the hydrogen economy evolves, decentralized systems will likely play an increasingly central role in industrial energy strategies.