Announced in August 2012, the flagship state-federal fund, known as the Advanced Lignite Demonstration Program, was touted as a saviour for the Latrobe Valley, opening up new markets for the state's vast brown coal reserves.

But more than four years later, two of the big projects awarded funding under the scheme have now collapsed. A third has been granted a six-month extension to allow it to meet key environmental and planning deadlines.

The scheme involved joint contributions of $45 million each from the Victorian and federal governments for carefully selected projects to transform the valley's plentiful but low-grade coal into higher-valued uses such as briquettes, fertiliser and liquid fuel.

Fairfax Media can reveal that Ignite Energy Resources, which was to be handed $20 million in public funding, has now withdrawn from a planned $84 million pre-commercial plant to convert brown coal into synthetic crude oil and higher-grade steel-making coal.

The revelations come amid concerns about the future of the Latrobe Valley, with the government scrambling to develop a strategy to cope with the looming closure of Hazelwood Power Station.

A spokeswoman for state Resources Minister Wade Noonan said that once the funding agreement with Ignite Energy Resources had been "formally terminated", the unused funds would be considered for other government priorities.

That follows the November 2015 collapse of a plan by multibillion-dollar Chinese company Shanghai Electric Australia to build a $119 million plant to convert coal into briquettes.

The project was to get $25 million in state and federal funding, but no money was paid after the company failed to generate the necessary private investment.

A single project now remains. Coal Energy Australia (CEA), which has been awarded a $30 million grant, is pressing ahead with plans to develop a $143 million demonstration plant to produce fertiliser, oil and high-value coal for steel making.

The project follows a decision by the Victorian government in July to grant the company a six-month extension, allowing it more time to meet key environmental and planning approval milestones.

Mr Noonan's spokeswoman said the extension was needed to allow for a ruling on the company's eligibility for "significant tax offsets".

"Given that the delay experienced was outside of CEA's control, the request for a six-month extension was deemed as reasonable and the extension was granted," she said.

The Environment Protection Authority said it had not yet received a formal works approval application from Coal Energy Australia.

EPA development assessments manager Tim Faragher said the authority expected to receive an application from CEA to convert brown coal into oil and to export dry coal to Japan.

Mr Faragher said a works approval was required for industrial and waste management activities that had the potential for "significant environmental impacts".

Environment Victoria campaigns manager Nicholas Aberle said state and federal funding from the scheme should be ploughed back into the region to help it transition from coal.

"These coal projects were picked as the best out of dozens of applications for funding, but they're still not delivering anything," Dr Aberle said.

"Both federal and state governments should pull the plug on these go-nowhere coal projects, and use the money to start planning a real transition for the region."

Victorian Greens leader Greg Barber said governments needed to stop blowing billions of dollars trying to make coal clean.

"With the [Latrobe] Valley facing a big transition, government should be getting behind the industries that are growing locally, including agriculture, health, education and manufacturing," Mr Barber said.

Coal Energy Australia and Ignite Energy Resources were both unavailable for comment.

In a 2014 press release, Ignite chief executive Len Humphreys said the decision to award the company $20 million was a "vote of confidence" from the Commonwealth and Victorian governments.

"This will bring new opportunities and jobs to the Latrobe Valley that were not thought possible just a few years ago, and could hold the key to moving towards a lower carbon and higher value future for Victoria's vast lignite resources," he said.