To provide hydrogen to the initial FCV users and realize reasonable price and high efficiency as well as reduction of CO2 emission, we have started to develop small-scale hydrogen supply systems aiming at the initial FCV market. One of them is a hydrogen supply system that simultaneously generates electricity and heat. This systems uses phosphoric acid fuel cell to produce hydrogen for FCVs while reliably providing electric power and heat for use in facilities and buildings, therefore even there is no/low demand for hydrogen, it can work effectively. From FY2006 we are working with University of Yamanashi and receiving subsidy from Japanese government, and we are developing small-scale hydrogen purification unit focusing on several mix gases including hydrogen. In FY2007 we finished to install demonstration system in Yamanashi University Hospital, and started demonstration operation of hydrogen generation. This paper describes some of our efforts and output of demonstration system.