Energy bills could rise by £250 a year in the next decade under plans to tackle climate change, it was revealed last week.
The governments renewable energy strategy, announced by Ed Miliband, the energy secretary, aims to cut greenhouse gases by more than a third by 2020, partly by boosting the amount of power from renewable sources from 6% to 30%. However, the cost of the switch could add as much as £250 to annual bills.
The government tried to soften the blow by suggesting that the rises would be offset by energy-efficiency savings, meaning typical consumers would be only £77 a year worse off.
Miliband has also announced a series of measures that should make it easier for households to go green. Under the plans, 1.5m homes will be encouraged to create their own power through a â€œclean energy cashback system, under which they would be paid for any power they produce.
About 7m already qualify for grants for energy makeovers, which the government claims will offer substantial savings on bills. We look at the measures.
Generating your own
The government wants to encourage households to generate energy using solar panels or wind turbines. Several energy companies already pay households for excess energy they generate, called feed-in tariff but rates vary widely.
British Gas pays only 5p a kilowatt hour, while others pay up to 15p. The government, therefore, wants all suppliers to have a standard fixed rate that will enable consumers to work out how much they could make. Even with the highest rates, however, it could take nearly 20 years to recoup the cost of installing micro-generation in your home, according to figures from comparison site Confused.com.
Green energy provider Good Energy currently offers the best buyback scheme with its Home Gen tariff, which pays 15p for each unit generated. To qualify, you will need a microgeneration tool such as a wind turbine or solar panels and an export generator or total generation meter.
If you invested £12,500 in a wind turbine the height of a telegraph pole and generated the average 3,300 kWh of energy, you would never recoup your investment through selling energy. If, however, you generated the maximum 5,000 kilowatts, you would cover your own energy needs, saving about Â£410 based on the average annual electricity bill. You would also make enough to sell back to the grid, netting Â£251 a year â€” a total of nearly Â£662. This would mean you would recoup your investment in nearly 19 years. Gareth Kloet of Confused said: Even 19 years is probably enough to dissuade all but the greenest of homeowners from the microgeneration path unless the government comes up with more incentives.
More straightforward energy efficiency measures can be just as effective. For example, insulating your loft would cost £500 without a grant or £250 with, but you would save £150 a year if you had no insulation already, said the Energy Saving Trust.
Anyone over 60 or in receipt of certain benefits, such as disability living allowance, can already apply to the government for grants of up to £2,700 to help with the cost of green home improvements.
You do not have to be financially vulnerable, though. Gas and electricity suppliers also run grant schemes that can cut the cost of measures such as loft or cavity-wall insulation by hundreds of pounds.
The UK Green Building Council will also propose a pay as you save scheme in the coming weeks, in which you borrow money from a local council via your energy company to cover the upfront costs of making your home energy efficient. It would be repaid out of the reduction in your fuel bills. The charge will be linked to the property, not the individual, so if you move house, it will stay with the new owner.
Even with low or even zero-interest rates, it could take some time to make back the upfront costs. The Committee on Climate Change calculates the owner of a three-bedroom Victorian end-of-terrace home, with three exposed walls, could expect to spend Â£10,280 on a package of energy-saving measures, including a new boiler. Even with 0% interest, this would cost £514 a year in repayments over 20 years. The energy savings would total £802 making them £288 a year better off.
If, however, they spent £32,180 on a top-of-the-range energy-efficiency package with deluxe double glazing, insulation on all external walls, solar panels and a ground-source heat pump, this would cost £1,609 a year in repayments over 20 years. The savings on their annual bills would be only £1,400, but the alterations could add value to their home.
There are already green loans available for energy-efficient improvements. The Co-operative Bank, for example, charges only 1.54% on additional borrowing of up to £20,000 for green home modifications, while Ecology building society offers discounts on its standard rate of 4.65%.
You must have a standard home loan with each lender to qualify for these deals. The Co-operative Bank is offering a five-year fixed-rate deal at 4.99% with a £995 arrangement fee, while Ecology always lends at its standard rate 4.65% with discounts varying according to your plans environmental benefits.
Richard Morea of L&C Mortgages, a broker, said: â€œWe would advise environmentally-minded borrowers to find the best possible mortgage deal and put the savings to ecological use instead.