Hydrogen as a storage medium in renewable energy systems has been the subject of various studies in recent years. Such a system consists of a long-term and a short-term storage system. In a battery, energy is stored for short term whereas the electrolyser, H-2-tank and fuel cell combination is used for long-term energy storage to increase the reliability of supply. The same purpose can be achieved by introducing a diesel generator instead of long-term storage. The advantage of such a system is that it needs low investment cost. However, the main disadvantage is that it needs to supply fuel for the operation of the generator. The advantage of hydrogen-based long-term storage over a diesel generator is that it does not need any supply of fuel. In photovoltaic-wind-diesel hybrid systems, the surplus energy during the good season is not stored. In the present study, the possible sites for renewable applications are specified depending on the seasonal renewable energy variation and fuel cost at the site of application. The critical fuel cost is calculated depending on the seasonal solar and wind energy difference. The actual fuel cost at the site of application is compared with critical fuel cost. To find out the actual fuel cost at the location of application, the transportation cost is also included. If the actual fuel cost is higher than the critical fuel cost, the location is cost-effective for hydrogen-based storage. Otherwise, the site is suitable for a diesel-generator backup system. It is found that at present hydrogen storage is not cost-effective compare to a diesel-generator-based system. In the near future when the target cost of the electrolyser and the fuel cell is achieved, the scope of the hydrogen-based storage system will also increase and it will also be cost competitive with diesel-generator system for remote applications. (C) 2003 Elsevier Ltd. All rights reserved.