WASHINGTON (CNN) - The United States may be one step closer to using hydrogen fuel cells to power the nation, following an announcement that Dow Chemical Company and General Motors are teaming up to test the technology.

"This is a significant milestone, not only from a technology and business perspective, but from an environmental one as well," said Bill Jewell, Dow's business vice president of energy. "This step can prove the feasibility of manufacturing and using fuel cells in significant quantities."

The companies plan to test hydrogen fuel cell technology in Dow's largest manufacturing facility, in Freeport, Texas. Sources close to the project say the initial investment is about $50 million.

The two-year project is set to begin late this year.

The fuel cells are expected to generate as much as 35 megawatts of power, which is enough electricity to run 25,000 homes for about a year. If all goes according to plan, sources said, the companies plan to take hydrogen fuel cell power commercial by 2006.

"This is a small but significant step on the path to a more sustainable energy future," said Peter Molinaro of Dow Chemical.

General Motors said it hopes that by investing in the project, it will help move the technology forward so GM can begin using hydrogen fuel cells in cars on a commercial -- and affordable -- basis.

"It points to a growing interest among businesses in using fuel cells to power factories and buildings," said Larry Burns, GM's vice president of research and development and planning. "The most compelling reason for GM to collaborate with Dow is ultimately to reduce the cost of fuel cells and improve their durability so that we may put them in cars by the end of the decade."

GM has already invested tens of millions of dollars to produce hydrogen-powered vehicles, and its current project is a fuel cell vehicle called the Hy-Wire. GM said it hopes to make a future generation of the vehicle available to consumers by 2010.