Task 2 involved the establishment of an engineering and economic model for the evaluation of various options in water electrolysis. The mode, verification of the specific coding and four case studies are described. The model was tested by evaluation of a nearly commercial technology, i.e., an 80-kW alkaline electrolyte system, operating at 60/sup 0/C, which delivers approximately 255 SLM, hydrogen for applications such as electrical generation cooling or semiconductor manufacturing. The calculated cost of hydrogen from this installed non-optimized case system with an initial cost to the customer of $87,000 was $6.99/Kg H/sub 2/ ($1.67/100 SCF) on a 20-yr levelized basis using 2.5 cents/kWh power costs. This compares favorably to a levelized average merchant hydrogen cost value of $9.11/Kg H/sub 2/ ($2.17/100 SCF) calculated using the same program.