In a UK first, the companies plan to turn a by-product of the wastewater treatment plant at Davyhulme into gas for the local network and fuel for a fleet of sludge tankers.

The "biogas" will be upgraded to remove carbon dioxide and trace elements, leaving biomethane which will be conditioned with propane and odorants before being pumped into the network, back into homes.

"Biomethane is a fuel for the future," said Janine Freeman, of the National Grid's Sustainable Gas Group. "Not only are we reusing a waste product, but biomethane is a renewable fuel, so we helping to meet the country's target of 15% of all our energy coming from renewable sources by 2020."

Biogas is produced through "anaerobic digestion" when wastewater sludge is broken down by microbes.

The £4.3m. project should be operational by early 2011 and supply enough gas for 500 homes. The overall potential of biomethane from a plant like Davyhulme would be to supply 5,000 homes, National Grid said.

Unlike electricity generated from wind turbines, biogas offers a steady stream of green energy. "Sewage treatment is a 24-hour process so there is an endless supply of biogas," Caroline Ashton, United Utilities biofuels manager, said. "It is a very valuable resource and it's completely renewable. By harnessing this free energy we can reduce our fuel bills and carbon footprint."