For Jemena, the trial is about embracing innovation to ensure the electricity and gas infrastructure owner and its assets have a role in the transforming energy supply system, said new managing director Frank Tudor.

"We as an industry are going through a 'Kodak moment'," said Mr Tudor, the former head of Horizon Power who took over last week at Jemena, owned jointly by China State Grid Corporation and Singapore Power.

"We want to innovate to adapt our infrastructure to make sure it's got a role going into the future."

Economic benefits

Federal Energy Minister Angus Taylor said the Australian-first trial would demonstrate the potential of using existing gas networks as a form of carbon-free energy storage.

Storage is increasingly important to secure the stability of the electricity grid.

"The development of renewable hydrogen production, storage and export facilities at scale would also deliver economic benefits to Australian businesses and communities and provide reliable, affordable and low emissions energy to overseas trading partners," according to a statement from Mr Taylor's office.

Jemena's Project H₂GO is expected to generate enough hydrogen to power about 250 homes, using a 500 kilowatt electrolyser, to be built at a University of Western Sydney site.

Mr Tudor said hydrogen could eventually replace up to 10 per cent of natural gas in the grid, with no discernible impact on gas users, and that putting that volume of "green gas" into Jemena's gas distribution network in NSW would provide as much energy storage capacity as 8 million Tesla Powerwall batteries. Such a move would also help alleviate the gas supply shortage affecting the east coast.

"This is all about proving the fact that we can produce hydrogen from the electricity network which has a high component of renewable energy and then use hydrogen which has this flexibility in different ways," he said, adding that scaling up the system has the potential to create a "virtual inter-dependency" between the electricity and gas networks.

Intellectual property and know-how garnered from the project will be shared broadly.