Australians will soon power their homes with hydrogen in a five-year trial that scientists say could open the door to the widespread use of a new form of renewable energy.

Within two years, gas company Jemena and the Australian Renewable Energy Agency (Arena) plan to mix a small amount of hydrogen into the domestic gas grid in western Sydney.

The zero-carbon fuel, which gives off only water vapour when burned, can be used for heating and cooking, and can replace most fossil fuels. A Jemena spokesman said a 10% hydrogen gas mix would make no noticeable difference for households.

In the long term, the CSIRO believes hydrogen can boost Australia’s renewable sector, replace petrol in cars and be sold for export.

Australia’s chief scientist, Dr Alan Finkel, has identified hydrogen export as a $1.7bn opportunity for Australia by 2030. Daniel Roberts from the CSIRO said hydrogen had been viewed “for decades” as the key to creating a zero-carbon society.

Hydrogen can be produced by passing a current of electricity through water, which separates hydrogen molecules from oxygen molecules. If the electricity is sourced from renewables, the gas becomes a zero-carbon fuel.

To launch the trial, Jemena and Arena will build a $15m electrolysis plant – the largest of its kind in Australia – in western Sydney.

The first homes will start using the hydrogen mix by 2020, and at maximum capacity, Jemena will produce enough hydrogen to power 250 homes and a vehicle refuelling station.

A Jemena spokesman said embracing hydrogen would help Australia’s transition to renewables as the gas could store electricity much like a battery.

“Solar and wind are reliant on the wind blowing or the sun shining,” he said. “With hydrogen, we can store it in the gas pipelines the same way you would a battery, and draw upon it when we need it.”

Roberts said Australia was uniquely placed to become one of the world’s biggest hydrogen producers because of its reliable supplies of solar and wind.

In August the CSIRO announced a breakthrough in the way hydrogen could be stored and shipped. Researchers in Queensland have developed a membrane that can extract high purity hydrogen from liquid ammonia.

This meant it was now feasible and cost-effective to transport hydrogen, Roberts said.

“One of the challenges with hydrogen is storing it and moving it around. By storing it as ammonia, it’s really easy to move around: it’s just liquid and we do it quite commonly.”

“We can now make hydrogen from the sun, turn it into ammonia, ship that around Australia or to Japan, and use it to fuel a car.”

According to a report prepared by the chief scientist’s office, countries such as Japan and South Korea are “hungry for hydrogen”. Japan’s government has set a target of 40,000 hydrogen cars on the road by 2020.

“When a big economy like Japan puts in strong long-term policies to import low-carbon energies, people listen,” Roberts said. “They don’t have much solar or wind resources, so they need to import that. It’s a real opportunity for us.”

The West Australian government has set up a renewable hydrogen council to drive the development of the export industry, particularly in the Pilbara.

“The Pilbara, with its abundance of sunlight, land and port infrastructure, will be front and centre to a renewable hydrogen future for WA,” the regional development minister, Alannah MacTiernan, told the West Australian.

“We are already seeing serious interest in renewable hydrogen in the Pilbara, with companies like Yara, Woodside and InterContinental progressing down this path.”

One kilogram of hydrogen contains 2.4 times the energy of one kilogram of natural gas, the chief scientist’s report said, and the gas was already “routinely transported” in Europe and the US.