Imagine watering the garden, then turning the hose into your petrol tank and filling up the car.

It has been a holy grail for an age, a water-based fuel. Well, that technology may already be here, claims small Kiwi company Bios Fuel.

But scientists remain sceptical and say an engine running on water defies the laws of physics.

Bios Fuel began with a concept in 1996, as founder Steve Ryan was tinkering with an old motorbike engine in an Auckland garage.

He started to believe that burning the hydrogen contained in water in a combustion engine was not just science fiction.

In 2002 he left a finance career to focus on researching the concept.

Two years ago Mr Ryan went public, running a 350cc motorbike on water for the 60 Minutes television show.

Now Bios Fuel is preparing to drive 3000 kilometres from Darwin to Adelaide on a blend of waste oil and water, as part of the Panasonic World Solar Challenge.

Mr Ryan says the water-based fuel allows hydrogen to be housed safely in water and released.

It is blended with waste oil for lubrication and a bonding agent, but the power comes from the water.

Waikato University senior engineering lecturer Mike Duke is deeply sceptical of the claims.

He says the problem is that the amount of energy needed to extract energy from water is greater than the energy produced.

There was "a lot of pseudo science out there," Dr Duke said. "They're claiming something that I don't buy, but if they can prove it to me, then I'll buy them a beer."

But Mr Ryan says the fuel runs via a normal combustion system - it's the delivery system that is the key and must remain under wraps.

The Solar Challenge will demonstrate the potential of alternative fuel technology to operate in an extreme environment, says company spokesman Cam Feast.

"It gives us the opportunity to show that recycling second- and third-generation waste is an option when emulsified with water."

A battered old 1989 Land Cruiser with 400,000 kilometres on the clock will be used for the challenge.

The implications of water-based fuels are huge, he says.

"Water doesn't have to be spring-fed, it can be waste water, from your shower or sink, rainwater from the gutter, or seawater.

Diesel engines can be run on very high percentages of water and small amounts of waste oil for lubrication. It requires no electricity, no heat, and emissions consist mainly of water vapour."

So why isn't this technology already on the shelf?

Mr Ryan says scepticism from the scientific community and the public remains the main barrier to water-fuel technology.

He says there has been more support from the United States, and that is where Bio Fuels will focus its efforts.

"New Zealand will still be the home base, but there's a need to go where the market is."