The small coastal town of Denham, in Western Australia's Shark Bay world heritage area, could become a zero-emission community as it prepares to trial a hydrogen plant powered by solar energy.

Key points: A hydrogen plant in Denham will produce enough energy to power 100 homes

A hydrogen plant in Denham will produce enough energy to power 100 homes It's the first regional WA town where the capability of hydrogen is being tested

It's the first regional WA town where the capability of hydrogen is being tested There are difficulties producing hydrogen, such as storage and transport issues

The hydrogen plant will produce enough energy to power about 100 homes and will supplement four existing wind turbines, which the local council said already produced 60 per cent of the town's electricity.

If successful, the model could provide a blueprint for hydrogen power in other regional towns.

"Hopefully it works, then it can be introduced into other areas that are suffering power loss, like your Perenjoris and those sort of areas, and those Wheatbelt towns", Shire of Shark Bay chief executive Paul Anderson said.

A hydrogen-powered micro grid is set to be installed in the WA town of Denham. ( Supplied: Horizon Power )

The project is being run by Horizon Power, which has sought expressions of interest from companies to build the 60-kilowatt plant.

The shire has already agreed to lease Horizon Power a 20-hectare parcel of land outside the town, 700 kilometres north of Perth.

Under the scheme, a 500-kilowatt solar farm would generate electricity to power an electrolyser, to split water into hydrogen and oxygen.

The hydrogen would then be stored in fuel cells which would generate electricity for local homes and businesses.

The hydrogen plant will produce enough energy to power about 100 homes in Denham. ( Supplied: Shire of Shark Bay )

Excess energy from the solar panels would be fed directly into the grid, adding to the wind power from the turbines and the solar energy from panels on people's homes.

Denham trial a WA first

Denham is the first regional town where the capability of hydrogen as a future renewable energy source is being tested.

"Proving the reliability of such a hydrogen plant provides the opportunity to expand the plant to supply the full power requirements for the town in the future," Horizon Power chief executive Stephanie Urwin said.

Horizon Power said storing the hydrogen in fuel cells ensured it was available around the clock, whereas electricity from a conventional solar farm was dependent on the sun shining.

Denham's average temperature drops to only 22 degrees Celsius in winter, meaning solar power is in abundance. ( ABC News: Gian De Poloni )

The regional electricity supplier wanted to replace Denham's old diesel generators with renewable energy as part of its goal to provide no new diesel power from 2025.

But there was still caution in the town of about 750 people, which swells to more than 2,000 in the peak tourist season during the July school holidays, seeing power demand skyrocket.

"You still need to have diesel generation in the background for when a cloud goes over or the wind drops, so you've still got that issue," Mr Anderson said.

"Our old station is passed its use-by date and needs updating."

Hydrogen has its difficulties

Business analyst Peter Strachan warned hydrogen technology was in its infancy and any widespread rollout was decades away.

Mr Strachan said producing hydrogen using electricity from a coal-fired power station used more energy than was actually created from the hydrogen itself.

It was also difficult to store and transport.

"It's a very light element and it can be stored and compressed slightly, but unlike natural gas it's not easy to compress and store for any period of time," Mr Strachan said.

"Even the optimists are talking about this as something for the next 10 or 20 years. It's not going to happen at scale at any time in the next decade."

Denham's population swells to about 2,000 people in peak tourism times, raising concerns about power supply. ( Supplied: Shire of Shark Bay )

But he saw the Denham hydrogen micro grid project as an important trial, which would be widely watched and could help solve the problem of transporting power long distances across the state.

"What Horizon Power has found is that they've got poles and wire running 20–30 kilometres out to customers that might only produce $20,000 worth of revenue, and it's costing them $2 million a year, say, to keep those poles and wire in good shape," he said.

"And there's a danger and a liability associated with it. So they're saying rather than run poles and wire out to customers that don't support the grid, we'll just cut that grid off completely and we'll set up a micro grid out there.

"The low cost of photovoltaics mean you can supply a megawatt of power to customers, which would otherwise be a very costly exercise for Horizon."