Hydrogen Energy said it was beginning feasibility studies into the potential development of the project in Western Australia, which could be operational by 2014.

The project would gasify locally produced coal from the Collie region to produce hydrogen and carbon dioxide.

The hydrogen would be used to fuel the power station, while about 4 million tonnes of CO2 each year would be captured and stored permanently in a deep underground geological formation.

“This has enormous potential to affect the way that coal will be used for power generation across the world. Clean coal technology such as this will be essential to reducing greenhouse gas emissions, both in Australia and globally,” Hydrogen Energy chief executive Lewis Gillies said.

The power station would be capable of producing 500 megawatts of low-carbon electricity, or enough power for 500,000 homes.

Gillies said because the costs of low-carbon, hydrogen-fuelled power generation are higher than traditional methods, the project would require appropriate policy and regulatory support in order to compete in the electricity market.

“Subject to the successful outcome of detailed engineering and commercial studies, and providing government policy is in place to make the project commercially viable, a final investment decision to develop the project could be made in 2011, with the project coming into operation after a three-year construction period,” Gillies said.

The project’s gasification facility and power station would be located in Kwinana, 45km south of Perth, alongside BP's refinery and Rio Tinto’s HIsmelt facility.

Plans are also underway for the proposed development of two other hydrogen power projects – in Peterhead, Scotland, and in California, USA.