Victoria's first wave power unit has been installed off the state's south-west coast as part of a 12-month trial to make the sector commercially viable.

Developer BioPower Systems deployed the 26-metre prototype west of Port Fairy on Tuesday.

It was one of about 20 sites worldwide to be identified for a prospective wave power station.

If successful, the $21 million project is expected to feed 250 kilowatts of power into the national grid.

Chief executive of the company Dr Timothy Finnigan said it could turn a corner for the industry.

"This is somewhat of a breakthrough in ocean energy, because it converts it straight into grid quality electricity," he said.

The site was one of around 20 worldwide identified for a prospective wave power station. ( Supplied: BioPower Systems )

"This is the first ever ocean scale deployment of this technology... If we get that part right, we think it will work not only in our wave technology, but pretty much any wave technology.

"It's a major step forward for BPS and for marine energy in general."

A similar project destined for Portland, west of Port Fairy, was axed last year.

The $233 million proposal received $66.5 million in funding from the Australian Renewable Energy Agency (ARENA) before its developer Ocean Power Technologies decided the project was not commercially viable.

ARENA chief executive Ivor Frischknecht said the wave energy sector still had some way to go to be successful.

"[It] is still in its relatively early stages, it hasn't been commercially proven," he said.

"The goal really is to develop these technologies further until they're commercially viable."

CSIRO projections show that wave energy could become a large part of Australia's energy mix, with the majority of projects centred in Victoria's west.

A report by the organisation — Ocean Renewable Energy: 2015 - 2050: An analysis of ocean energy in Australia — said the industry could provide up to 11 per cent of Australia's energy production within the next 35 years - enough to power Melbourne.

Research scientist Jenny Hayward said if developed, the sector had potential.

"Because of the unique properties of wave energy ... it's got a fairly high capacity factor compared to other technologies," she said.

"But it is at a much earlier stage in its development than other renewable technologies... it's more like wind was 15 or 20 years ago."

The unit will remain in place for the next 12 months.