Hydrogen made from renewable energy will be used to help power an Australian town for the first time as part of a landmark trial along the country's sun-drenched west coast.

Horizon Power, the state-owned regional electricity utility in Western Australia, has unveiled a pilot project that will convert electricity from a solar plant to make so-called green hydrogen in Denham, 820 kilometres north of Perth.

From there, the hydrogen will be used to power a fuel cell capable of generating enough electricity to supply about 100 homes, or a quarter of the town's demand.

WA Energy Minister Bill Johnston said the trial was a breakthrough for the use of hydrogen as a fuel that could backup renewable energy when the wind was not blowing or the sun was not shining.

He said such deep storage was the "Holy Grail" of the switch to renewable energy, noting it could potentially be used to underpin electricity systems for days at a time.

By contrast, he said other forms of storage such as batteries were either ill-equipped to run for long periods of time or, in the case of pumped hydro such as Snowy 2.0, not suitable for flat landscapes like those in WA.

"It's the first time in the world we've used hydrogen in a micro-grid," Mr Johnston said.

"And this is the future of energy because it allows the storage of renewable energy over a long period of time to move to … what's called 100 per cent firm renewable."

Slashing the use of diesel

Under the trial, the hydrogen fuel cell will be plugged into Denham's existing stand-alone power system, which includes a battery, a wind turbine and a conventional diesel-fired plant.

When fully up and running, Horizon said the hydrogen project was expected to cut the use of diesel in the town by 140,000 litres a year.

State Hydrogen Industry Minister Alannah MacTiernan said the displacement of diesel was a focus of the trial given the fuel's skyrocketing cost and Australia's total dependence on imports for supply.

"We are importing into this state 6.7 billion litres of diesel each year," Ms MacTiernan said.

"You just think about that from the carbon footprint, our supply chain vulnerability, and the fact is we put that 6.7 billion litres of diesel on diesel trucks and drive it thousands of kilometres across the state.

"We can start to make some serious inroads into that reliance on diesel."

'Enormous' complexity involved

The start of the Denham trial comes amid widespread efforts by investors and governments around the world to find ways of producing hydrogen without generating emissions.

Among those being pursued domestically is a project in South Australia to turn surplus renewable energy into hydrogen before injecting it into the reticulated gas network.

There are also plans in Queensland to produce green ammonia — a type of fertiliser — using hydrogen made from clean energy sources.

Despite the flurry of activity, doubts remain about how viable hydrogen will be as a fuel source given the current high costs of production.

Horizon chief executive Stephanie Unwin acknowledged the dilemma, saying the Denham project showed the "enormous" complexity of designing a system to run on hydrogen.

But Ms Unwin argued it was only through such trials that production costs could be brought down to make hydrogen more affordable compared with fossil fuels.

What's more, she said Denham could provide a blueprint for the uptake of green hydrogen in electricity systems elsewhere, starting in WA.

"WA has got a huge competitive advantage in terms of our wind and solar resource. So it's all about finding those places and really making that work together.

"I'd love to see more and more of this."

Locals welcome 'way of the future'

Philip Wood, who owns and runs a marine electrical business in Denham and has lived in the town for 15 years, welcomed the $8 million investment by the state and federal governments.

Mr Wood said there seemed to be little doubt that renewable energy was "the way of the future" and anything that could help with the transition was a good thing.

The 71-year-old said Denham's reliance on diesel for energy as well as transport was also a link that would have to be broken.

But like most locals, he said reliability of power supplies was considered essential, especially given the town's scorching heat for much of the year and susceptibility to cyclones.

"Electricity is very important," Mr Wood said.

"But it's good to be chosen as one of the trial places for renewable energy.

"It's good as a trial, too, to test it out and see how it's going to stand up to cyclones and a few years under its belt."