Designed for domestic use, the Combined Heat and Power (CHP) generator's ceramic fuel cell converts natural gas directly into electricity by a process of electrolysis, which "cracks" hydrocarbon molecules, releasing electrons and creating heat, water vapour and carbon dioxide.

The generator produces 1 kilowatt of electricity -- the average base household load, according to CFC. At peak periods the unit draws power from the existing supply grid. When power needs are less than 1kW, the generator can feed power back into the grid.

CFC executive chairman Julian Dinsdale said the process was almost 50 per cent more efficient at producing electricity than coal-fired power plants, the most common form of generation.

The process also generates heat of up to 800C, which is used to run a water heater and central heating. This allows the CHP unit to capture a total of 80 per cent of the energy released from the gas, compared to about 33 per cent for coal-fired power. Also, the CHP produced 60 per cent less carbon emission than coal power, and none at all if run on hydrogen or ethanol, he said.

Although overall cost savings for households would be minimal, it is these environmentally-friendly qualities that CFC hopes will make the unit a big seller internationally, with countries signed up to the Kyoto treaty aiming to reduce their greenhouse gas emissions.

New Zealand utility Powerco has bought the first generator unit, and will test its performance over the next 12 months.

CFC is already in sale negotiations with a Victorian energy player, and further sales to European utilities are expected shortly.

While the testing units were being sold for "hundreds of thousands", CFC aims to sell them for about E5000 ($7820) apiece once full-scale production begins in European plants slated to open in 2007.

With European electricity prices about three times the price of gas, Mr Dinsdale said there was a strong economic incentive for utilities to lease the units to their customers.

But Australia's plentiful supplies of cheap coal and gas, as well as its refusal to sign the Kyoto agreement, meant it would not be a major market for the generators.