"We don't know at what point they'll be able to make a profit," Jo Evans, deputy secretary at the Department of Climate Change, Energy, the Environment and Water, told a federal inquiry.
But the intent is not to have an industry that needs constant subsidies.
"The objective here is definitely to reduce costs," she said on Friday.
CSIRO executive director Peter Mayfield said getting lower electricity costs would be key to getting production costs down, along with more efficient electrolysers, which are the critical technology for the production of low-emission hydrogen.
Scientists are also researching more concentrated solar power, known as solar thermal, which could be used for industrial processes that need high temperatures.
Competing with larger clean energy programs already underway in the United States and Europe, the May budget allocated $2 billion for green hydrogen production, with no restrictions on whether it is for domestic use or export.
The Hydrogen Headstart program will back two or three flagship projects that will need up to 1000 megawatts of electrolyser capacity by 2030.
Aiming for Australia to be one of the first movers, the funding will bridge the price gap between the cost of producing the alternative fuel and what the market is prepared to pay.
Despite calls for gas-derived hydrogen to be bankrolled, officials confirmed the program is focused on green hydrogen and its derivatives such as ammonia.
As the world's heavy industries seek to decarbonise, project director Sam Lowe said partnerships are in place with Japan, South Korea and Singapore along with Germany, India and the United States.
There is also potential for a "use it where you make it" approach with a potential domestic market for use in industrial processes and transport, officials told the joint committee on trade and investment growth.
A consultation paper will be released in July and expressions of interest will be due in the first three months of 2024.
Unlike other programs, funding will be available for running costs not as a lump sum, officials confirmed.
The plants themselves don't exist - they need to be built and when they start to produce operators will get taxpayer-funded production credits.
Payments will be awarded over 10 years, from 2026/27 to 2036/37.
Although the production credits are for green hydrogen, department officials confirmed there is work underway on hydrogen from other sources.
This includes a certificate of origin that will show whether the fuel is derived from gas - known as blue hydrogen - or brown hydrogen made using coal.
Hydrogen will be one of the first products delivered under the scheme, which will verify emissions intensity and how goods are produced.
State governments are also supporting the emerging industry - green, blue and brown hydrogen - through network concessions and streamlined approvals.
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