Meridian Energy has chosen Australian resource firm Woodside Energy as its preferred partner to develop a green hydrogen project in Southland.

The production of hydrogen and ammonia from renewable energy in the South Island has been touted as a suitable use of power whether or not the Tiwai Point smelter closes after 2024.

Woodside was shortlisted, along with Fortescue Future Industries, to put forward proposals for large-scale hydrogen and ammonia production using renewable energy.

Meridian's chief executive Neal Barclay said Woodside had been selected because of its established track record.

"In addition to its operational and marketing expertise, Woodside has demonstrated climate change ambitions, and as we are a 100 percent renewable energy company and committed to sustainability, that was a key focus for us in selecting a partner."

Contact Energy originally joined Meridian in the investigation, but has now opted out, although it would be available to supply electricity to the project.

However, Japanese industrial conglomerate Mitsui has joined the project to develop the potential market for ammonia. It is the largest importer of ammonia into Japan.

The three companies would now start the engineering design for the project, which was targeting the production of 500,000 tones of ammonia a year.

Woodside chief executive Meg O'Neill said the project was right for the time.

"Woodside brings the technical skill and operations experience to develop this project at pace to meet customer demand for hydrogen, which we expect to grow in the energy transition."

Barclay said the consortium had consulted with Ngāi Tahu and would remain closely in touch to ensure the project was consistent with iwi values and interests.

He was expecting broad, future economic gains from the project.

"We believe a large-scale hydrogen and ammonia facility in Southland, focused on the export market, will accelerate the development of a domestic hydrogen economy and strengthen New Zealand's platform to contributing to decarbonising our transport and industrial sectors."

"It will also create new opportunities in an emerging industry for the local community. We expect the facility will have the added benefit of being able to provide up to 40 percent of New Zealand's dry year flexibility needs to the electricity sector."

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