New Plymouth-based Powerco, now owned by investment bank Babcock and Brown, has engaged crown research institute Independent Research Ltd to try the "fuel cell system".

It is only at prototype stage and has been developed by Australian listed company Ceramic Fuel Cells.

It runs on natural gas and is more efficient - producing more electricity from a quantity of gas - than a power station.

Powerco corporate affairs manager Neil Holdem said: "It is a little generator that produces electricity from gas and the heat that is a by-product is then funnelled into a hot-water cylinder."

The unit is about the size of a big cupboard or double-doored fridge. The trial would establish how it performed in the field as opposed to a laboratory.

The prototype was able to supply only one kilowatt of power, and it was heating a small hot-water radiator. It was still a long way from being sold on the market because the average home would need a 7kW generator.

The fuel cell technology consisted of several hundred CD-sized ceramic plates stacked alongside each other with metal plates in between. The plates were heated up and gas and oxygen were passed separately through the ceramic, which created the voltage and heat.

"It wouldn't be cost-effective for you to put it in your home right now and disconnect from the grid," Mr Holdem said.

If the technology proved commercial, a house would only need to connect to a gas reticulation system and consumers would pay one daily line charge instead of two as they did now if they used gas and electricity.

The fuel cells could be used by remote households or businesses not connected to electricity networks and could use bottled lpg.

Asked what was in it for Powerco if the technology could make electricity lines redundant, Mr Holdem said Powerco had a gas pipelines network in the lower North Island and this could increase the uptake of gas.

The technology is different from the WhisperGen household combined heat and power system, which is an external combustion engine and uses gas to produce hot water and electricity. Whisper Tech has a $300 million order for 80,000 of the systems. The Christchurch company is owned by lines company Orion and state power firm Meridian Energy.