A proposed Hunter Valley hydrogen hub in NSW industrial heartland will produce up to 5500 tonnes of the alternative fuel each year and create about 100 jobs.
Energy Minister Chris Bowen on Thursday announced the investment in the Origin Energy-led project as the next step towards using locally produced renewable hydrogen in heavy industries.
Reducing pollution from emissions-intensive manufacturing is key to Australia's ambition to be net-zero by 2050.
But a reliable supply of an alternative to gas is needed, which is why chemicals giant Orica has been working with Origin on the hub.
By replacing gas with renewable hydrogen in industrial processes, Orica said it also intends to free up domestic gas supply for Australian households.
Phase one of the federal and state government-backed project will produce hydrogen from recycled water and renewable electricity supplied by Origin, using a 55-megawatt electrolyser.
The hub will be located next to Orica's Kooragang Island manufacturing site in Newcastle, also near the deep-water port for future exports.
Green hydrogen made at the facility will be piped to Kooragang where it will be used to replace gas in the production of green ammonia and ammonium nitrate – crucial products used in mining, agriculture, health and food industries.
Agreements have been established between Orica, Origin and the Port of Newcastle to potentially scale up production.
Ammonia storage and a potential domestic and international terminal as part of the port's clean energy precinct are also on the table.
Orica said these partnerships put ambitions for an export-scale Australian renewable hydrogen and green ammonia industry within reach.
Hydrogen will also be available for refuelling buses and trucks, potentially providing a reliable supply for the Hunter, Central Coast and Greater Sydney regions and supporting fuel cell electric vehicles powered by hydrogen.
Pending a final investment decision, Origin aims for first hydrogen production from 2026.
"There are challenges that still need to be overcome for Australia to deliver hydrogen at scale, and strong collaboration across industry, governments and communities will be a critical factor to success," Origin CEO Frank Calabria said.
Orica chief executive Sanjeev Gandhi said the project clearly demonstrates that emissions reduction is possible in Australia's heavy industries.
He said the recently legislated emissions safeguard regime has provided policy certainty and given Orica confidence to accelerate decarbonisation plans, including at its Yarwun operations in Queensland.
"We will continue to invest across our operations, to ensure Australian manufactured products remain competitive as the world transitions to a lower carbon economy," he said.
The announcement comes after the federal government contributed $32 million to a trial swapping gas for hydrogen to power alumina refining at Rio Tinto's Yarwun plant.
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