Nik Spencer, 48, from Worcestershire, came up with the Home Energy Resources Unit (HERU) while running a recycling plant.
It cost Nik £12,000 to create the HERU and he claims a full load of 2.5kg rubbish can produce a tankful of hot water.
He said: "It is completely inefficient to collect recycling from a home to be taken to a site to be incinerated to generate heat to be used to fuel someone's home.
"What I wanted to do was to effectively cut out the middle man and build something that could do the job of using these materials to generate heat on a smaller scale."
Rubbish and food waste including plastic coffee cups, nappies and bottles are placed inside the cylinder which is the size of a washing machine drum.
The chamber is heated to 100C (212F) which dries the moisture from the waste to create steam.
This steam passes over heat exchangers which transfers it to heat the water supply.
The temperature is then ramped up to 300C (572F) which triggers a process called pyrolysis which turns the rubbish into a charcoal-like substance.
At this stage of the cycle oxygen is pumped back inside the chamber and is used to burn the pyrolised waste.
The energy produced is then used to heat the water in a boiler.
After a full cycle the waste is almost completely gone and users simply flush the remaining ash down the drain.
There are currently HERUs being trialled in a home, a cafe and another business in Worcestershire.
If successful, the firm hopes to roll out production as early as 2020 with an estimated price tag of £3,500.
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