This paper considers the technical and economic feasibility of using renewable energy with hydrogen as the energy storage medium for two remote communities in Bhutan, selected to illustrate two common scenarios presenting different challenges. The Royal Government of Bhutan has published plans to provide electricity to all households in the next 20 years, but the practical problems of extending the grid over long distances and mountainous terrain will make that target difficult and expensive to achieve. Consequently, the possibility of using natural energy and diversified generation is attractive. This paper examines the use of hydro power in one community and photovoltaics with wind power in another. Hydrogen is the proposed energy storage medium in both cases. Analysis suggests that it is technically possible to use renewable energy and hydrogen for diversified power supplies and that where, as here, the costs of grid extension are high, it may also be financially viable. Thus we argue that there is a good case for establishing a test and demonstration system near the capital Thimphu for further investigation prior to use in remote locations. (C) 2006 International Association for Hydrogen Energy. Published by Elsevier Ltd. All rights reserved.