The largest distributor of gas in NSW is blending hydrogen produced with renewable energy into its gas network.
Jemena managing director Frank Tudor says the two-year trial is the "first step" in decarbonising the company's gas network.
The hydrogen is coming from a $15 million facility in Sydney's west, co-funded by Jemena and the Australian Renewable Energy Agency (ARENA).
Mr Tudor described the facility as a "living laboratory" designed to demonstrate how green hydrogen can be produced and stored.
The first hydrogen blended into the gas network is expected to reach about 23,500 homes, 100 commercial customers and seven industrial sites.
From next year, the facility will also provide hydrogen for transport uses.
Mr Tudor says Jemena is "driving the transition to a low-carbon future by providing cleaner energy solutions to our NSW customers" because "green hydrogen" is renewable and doesn't emit carbon.
Energy and Emissions Reduction Minister Angus Taylor says it's a "major milestone for the development of the Australian hydrogen industry", a key goal for the federal government which wants the country to become a major supplier globally by the end of the decade.
The announcement came on the same day that Australian National University fellow Dr Thomas Longden warned Australia could be left with redundant hydrogen production plants by committing to the wrong technology.
"Green hydrogen" like that from the Jemena and ARENA funded hub uses electricity from renewable sources to split water into hydrogen and oxygen, while "blue hydrogen" uses natural gas to achieve the same result, then relies on carbon capture and storage to reduce emissions.
Dr Longden says that could make the price of blue hydrogen uncompetitive in the future, while methane from the extraction of natural gas also poses a problem.
"Going down the natural gas route is quite risky and means that we could have a hydrogen industry that increases our emissions," Dr Longden warns.
The use and export of green and blue hydrogen, which the federal government's strategy collectively calls "clean hydrogen", could provide a $50 billion boost to Australia's GDP by 2050, Mr Taylor says.