Allan Farrar, director of the company's Australian subsidiary, told The Age it was exploring selling the brown coal briquettes it will make at a new demonstration plant within Australia as well as exporting them to China.

The project is backed by Shanghai Electric Power, a state-owned Chinese company valued about $1.7 billion.

The Napthine government has been eager to develop and export Victoria's vast brown coal reserves, which until now have been almost exclusively used for domestic energy production.

While senior government figures such as former resources minister Martin Ferguson have talked up the prospect of the Latrobe Valley becoming a major export hub, Mr Farrar said it was too early to make those predictions and Shanghai Electric would also consider selling locally.

"It depends on the economics at the end of the day. If we have got people wanting the product here then we won't have the transport costs," he said.

In his first interview since the project was awarded federal and state government money, Mr Farrar said the company should know in six months where its market would be.

Environmentalists want the coal left in the ground because of the high greenhouse gas emissions produced when burnt. Complicating the issue for the government is the fallout from the Hazelwood mine fire earlier this year, with the investigation into the disaster expected to be released on Tuesday.

The company is initially planning to process 580,000 tonnes of coal a year into briquettes - compressed brown coal bricks used for firing power plants and in other industries. Its demonstration plant is due to be built by 2017.

An existing Morwell-based briquette maker, Energy Brix, recently announced it was mothballing its plant two years after a $50 million federal government bailout due to it losing customers and changes in the energy market.

Energy Brix sold briquettes to the Hazelwood and Loy Yang A brown coal power plants in the Latrobe Valley, among others. Mr Farrar said Shanghai Electric had had only "very preliminary" discussions about selling briquettes to existing plants.

Asked whether a company of Shanghai Electric's size needed taxpayer funds, Mr Farrar said it was making its first steps into overseas markets and government support was critical.

He said the company was also still studying the transport options for exports. But he said the process used by the company to turn raw coal into briquettes, which included adding a wax cover, made them safer to move than other brown coal products, which are often highly flammable.

"The big question with it all is whether the transport costs make it viable," he said.

Mr Farrar said the company had been testing its brown coal briquette making process, which he said was more energy efficient, at a pilot plant in Shanghai since 2011.

Pressed on the environmental impact of using more brown coal, Mr Farrar said the company was being "commercially realistic" that a transition to cleaner fuel sources would take longer than environmentalist and scientists expected. He said Shanghai Electric Power was also looking at investing in Australian renewable energy projects.