Hydrogen gas has long been seen as a potential alternative to fossil fuels in hard-to-abate sectors such as heavy road transportation and aviation, as it emits water when burnt, not CO2, the greenhouse gas emitted by coal, oil and natural gas.
But making hydrogen from water by electrolysis, using renewable power, requires large amounts of electricity and the technology does not currently exist on a large scale.
Orsted, the world's largest developer of offshore wind, said it and six partners had received funding of 34.6 million Danish crowns (3.95 million pounds) for the construction of a 2 megawatt (MW) electrolysis plant which also will include hydrogen storage.
The plant will use green electricity from two Siemens Gamesa offshore wind turbines and the daily hydrogen production is expected to total around 600 kgs - enough to power 20-30 buses. The process uses about 10 litres of water per kilogramme of hydrogen, an Orsted spokesman said, adding theoretically sea water or tap water can be used.
Orsted's partners in the so-called H2RES project include freight forwarder DSV Panalpina <DSV.CO and Norwegian hydrogen firm.
"Renewable hydrogen could potentially form a cornerstone of Denmark's ambition to reduce greenhouse gas emissions by 70% in 2030," said Orsted's head of hydrogen activities, Anders Nordstroem.
The cost of offshore wind has fallen roughly 70% since 2012 making it a more commercially viable source.
(Reporting by Stine Jacobsen; Editing by Emelia Sithole-Matarise)