Bellshill-based IE-CHP will use the latest funds from its backers, which also include the Scottish Investment Bank, to develop its mini power station or smart power unit prototype.
It says the fuel cell technology, which works alongside existing heating systems, has the potential to reduce the fuel bills of millions of home owners.
The technology takes mains gas and converts it into hydrogen, which is then fed into a hydrogen fuel cell stack. The cell then acts like a mini power station by converting the hydrogen into low-cost electrical power and heat, which can be used in the home.
IE-CHP technical director Mark Bugler, who hopes to start rolling out the technology in 18 months, said the latest funds will allow it "to finish some of the development work we are doing".
He noted: "We've got some political lobbying to do to get a fuller understanding really of the potential for fuel cells. Certainly on the technology side, it [the funding] helps.
"This is really the start of the journey to get the whole of the UK excited about the potential for what ultimately is the best form of using a gas in a chemical process, rather than burning it."
The funding boost, which takes the total raised by IE-CHP to £5 million, coincides with research suggesting the installation of millions of mini power stations could transform the UK power market.
A report by Ecuity, the energy analyst, claimed the roll out of five million fuel cell smart power units across the UK by 2030 would generate annual energy bill savings of £1000 for five million consumers.
It is understood smart units are significantly more efficient than power stations, where energy is lost through production and transmission. More than 80,000 smart power units have been installed in Japan, which plans to roll out 5.3 million by 2030 as it replaces nuclear power with fuel cells.
Mr Bugler said: "We see this as part of the UK energy mix for the future. At the moment you have got centralised power stations, which generate electricity at less than 50 per cent efficiency.
"By decentralising power and putting power stations at the homes, rather than centrally in the country, you avoid all the emissions plus all the losses and extra cost of upgrading and maintaining the network."
He added: "SSE and Centrica have announced cancellation of their big wind farms because the economics don't stack up. There will have to be some other low carbon technology which replaces that. We think fuel cells is probably that technology."