The Hamburg-based renewable energy group Lichtblick and its automaker partner Volkswagen say the plants would produce not only heating and hot water but also electricity, with any excess power fed into the local grid.
The two firms said the concept of "SchwarmStrom" (literally, "swarm power") would allow Germany to abandon nuclear and coal power stations sooner and help compensate for the volatility of renewables like wind and solar power.
The plants also reduce harmful carbon dioxide emissions by up to 60 percent compared to conventional heat and electricity generation, they added in a joint statement.
In the coming year the programme will install 100,000 of the mini plants, producing between them 2,000 megawatts of electricity, the same as two nuclear plants, Lichtblick and VW said.
"SchwarmStrom is revolutionizing power production in Germany. It clears the way for more renewable energy and an exit from power from nuclear and coal," the statement added.