The agreement will see the units being made exclusively available to British Gas customers from the second quarter of 2009 with Baxi predicting the link up could generate revenue of £40million per year.
The companies are now launching a series of pilots with various designs being tested in the homes of British Gas customers.
The deal has gained the backing of Energy Minister Mike O'Brien who highlighted how consumers could take advantage of newly approved feed-in tariffs where households are paid for the energy they export to the National Grid.
He said: “People who install small scale boilers to generate heat and electricity can reduce their household energy bills and their carbon footprint.
'The deal between British Gas and Baxi means customers installing this kit will benefit from new Government plans to give them money for producing their own energy.”
Baxi Group Chief Executive Martyn Coffey said: “This is a big step forward for Ecogen. It is an outstanding micro-CHP product and we are delighted to be working with such a strong partner in British Gas.
“It will provide the platform for Ecogen to become established and prove its worth with domestic customers.
“Baxi Group believes it has developed the most effective technology to date for the residential micro-CHP mass market and this deal puts the supply chain in place to make this long awaited development a present day reality in peoples’ homes.'
Eddy Collier, Managing Director at British Gas New Heating, said; “This technology challenges the way we heat our homes and the way we generate and distribute electricity.
'The Ecogen unit replaces an existing gas boiler, generates electric power, saves energy costs and reduces carbon emissions. We are delighted to work with Baxi to make this technology a great success.”
Baxi’s Ecogen boiler is the first commercially available wall-hung micro-CHP in the UK. It is capable of generating 1kWh of electricity, which can be exported back to the National Grid, while also providing heating and hot water.
According to figures from the Society of British Gas Industries residential CHP could take 30 per cent of the boiler replacement market in the UK by 2015.
With 1.5 million boilers replaced every year Baxi believes the deal with British Gas could generate £40 million annually
Mr Coffey said: “We also see good opportunities in other international markets to roll out the Ecogen technology. With recent rises in energy costs and with governments in many countries increasing regulation because of climate change we see strong potential for this product.”
The Ecogen uses a free piston Stirling engine and has been developed by Baxi Group for domestic applications to operate virtually noise and vibration free in a casing that is no bigger than a standard domestic boiler.