The Australian Renewable Energy Agency (ARENA) on Friday announced a grant of $47.5 million towards French energy company ENGIE's green hydrogen and ammonia project near Karratha in Western Australia.

Climate Change and Energy Minister Chris Bowen said the project would help Australia become a world leader in hydrogen generation.

"As we move to a more renewable economy, hydrogen will become an increasingly important part of our energy mix, and will be important in supporting industrial and hard to abate sectors," he said.

ARENA chief executive Darren Miller said the plant could make an immediate difference, because fossil fuels would be replaced by renewable energy to make hydrogen.

"It is also a huge export opportunity for Australia to provide clean energy and emissions-free materials to the rest of the world," he said.

The $87.1 million Yuri project includes a 10-megawatt electrolyser to produce renewable hydrogen, powered by solar and with lithium-ion batteries for energy storage, and will be one of the world's largest.

The largest electrolyser currently operating in Australia is the 1.25MW hydrogen plant located in Adelaide's Tonsley innovation district, in South Australia.

Suppling hydrogen and electricity to Yara Pilbara Fertilisers at its neighbouring liquid ammonia facility, the new project will produce up to 640 tonnes of renewable hydrogen per year.

The hydrogen industry's peak body says Yuri would put Western Australia on the map as one of the world's first industrial-scale facilities to use green hydrogen to produce clean ammonia.

"Production of ammonia is by far the largest user of gas in the whole chemicals sector which means there is an opportunity to decarbonise this industry," said Fiona Simon, CEO of the Australian Hydrogen Council.

It would pave the way for other industries that use high-heat processes, she said, including food and meat processing.

WA Hydrogen Industry Minister Alannah MacTiernan welcomed the final investment decision from ENGIE and Yara as an important milestone for the state's renewable hydrogen industry.

ENGIE has formed a joint venture with Japan's Mitsui, which has agreed to acquire a 28 per cent stake, to develop and operate the Yuri project.

Electrolysers use renewable electricity to split water into hydrogen and oxygen. The renewable hydrogen produced can be used for electricity generation, transport fuel or as a feedstock for ammonia.

Ammonia is most commonly used to produce agricultural fertilisers, which is currently made using hydrogen derived from fossil fuels and produces around 1.8 per cent of global carbon dioxide emissions, similar in scale to the aviation industry.

Construction of the Yuri plant will begin next month and is due to be completed by early 2024.

Two other applicants are also close to securing ARENA funding, the agency said.

Australian Associated Press