CRL Energy Ltd would spend $533,334 to show how the nation could switch to using hydrogen-based energy, and hoped to have a discussion paper by the end of the year, the company's research manager Tony Clemens said.

The paper would not only canvass the potential to use hydrogen to run vehicles and generate electricity , but how ``surplus'' electricity -- from sources such as windpower, wavepower or ocean currents -- could be used to split hydrogen out of water and store it until the energy was needed.

The paper would also look at other ways to produce hydrogen, ranging from the heavily-hyped concept of extracting it from NZ's big coal deposits -- and re-burying the unwanted carbon -- to producing it in methane from digester systems making use of wastes such as manure and other effluent from dairy farms.

CRL Energy is half-owned by the coal industry and half by a state science company, the National Institute of Water and Atmospheric Research (Niwa).

State-owned miner Solid Energy has previously said New Zealand could be given energy security if coal could be used to economically produce hydrogen gas, with the carbon being dumped back underground.

Chemical fuelcells can use hydrogen as a feedstock, combining it with oxygen via a catalyst to generate electricity, with heat and water the only ``waste''.

A pilot hydrogen plant operated by CRL Energy was given $6 million of taxpayer funding in June 2002, shared with Industrial Research Ltd (IRL), which has expertise in gas clean-up and fuelcells.

The pilot plant began turning coal into hydrogen in 2004 at Gracefield, Lower Hutt, to generate hydrogen gas for use in an alkaline fuelcell. IRL has run a 5kW fuel cell on hydrogen.

Separately, Solid Energy has been developing its own hydrogen ``roadmap'' for the coal industry and technologies for managing the carbon dioxide emissions from coal used to produce hydrogen.

From 2008, companies are expected to have to account for their carbon dioxide emissions to the atmosphere and Kyoto Protocol constraints on greenhouse gases bite.

According to Solid Energy, New Zealand's 10 billion tonnes of economic coal reserves could last 1000 years at current annual production levels, if environmental constraints can be met.

Solid Energy wants to prove the technology by producing enough hydrogen to power a 50kW generation plant that could meet the electricity needs of 10 to 20 houses or a small-scale commercial operation.

It has said that if a series of technologies -- hydrogen extraction from coal, re-injecttion of carbon to underground sinks, and fuel cells running on hydrogen -- can all be made to work, both urban and rural consumers may be able to generate their own electricity.

In big city buildings it may become possible to switch off power from the national grid and generate electricity ``in house''.