Does going green have to send you into the red?

Making your home energy efficient will save you money, but there are up-front costs. Alessia Horwich reports

No one ever said concern for the environment was going to be cheap. The Energy Secretary, Ed Miliband, announced last week that Britain becoming a low carbon-economy will cause the average annual energy bill to rise by as much as £92 a year by 2020. Figures from the UK Energy Research Centre show the increase could be closer to £230. However, making your home more energy efficient can cut your bills although, in most cases, upfront costs are unavoidable.

Compared to countries on the continent, the housing stock in the UK is old. A large proportion of properties have been around more than 60 years and are leaking heat all over the place. However, improvements can be made. The first step is insulation. As much as 33 per cent of a typical home's energy is lost through the walls and 26 per cent through the ceiling. Aidan Quinn, managing director of eco-home designers ecohab.co.uk says: "Insulation is the most important factor. But it's very difficult to insulate traditional houses."

Properties built after the 1930s usually have cavity walls, which can be filled with foam. For a three-bedroom, semi-detached house this type of insulation would typically cost between £250 and £500 and would reduce energy bills by £115 a year, according to energysavingtrust.org.uk. For solid walls, insulation resembling super-insulated plasterboard attached to the external or internal walls does the same job. However, this is more disruptive, costly, and can compromise the appearance of a period home.

Once your walls are sorted, the next thing to tackle is your windows. This is a lower priority, firstly because the surface area is smaller, and secondly because it's a lot more expensive. You lose as much as 18 per cent of your energy through your windows, but installing double glazing in a three-bedroom, semi-detached house costs between £4,000 and £6,000. The potential savings of £135 per year might not seem good enough motivation.

A high-efficiency boiler coupled with solar thermal panels can reduce heating bills. Solar thermal panels installed facing south will produce as much as 30-40 per cent of the power needed to heat your water annually. However, according to the Energy Saving Trust, a standard system will cost from £3,000 to £5,000 to install, meaning it will take between seven and 14 years to recoup the investment.

Though these measures will save money in the long term, the initial figures are less than breathtaking and the costs significant. By far the simplest way to be energy efficient is to buy a new-build home. "New-build homes are more energy efficient," says Mat Colmer, the head of housing and supply chain at the Energy Saving Trust. "Building regulations are becoming more stringent, and building efficiency into the structure is more effective than adding it afterwards."

New builds come complete with cavity walls, roof insulation and double-glazing. From next year, as well as heating, lighting, ventilation and fans, the efficiency rating on a new build will also cover the water system, requiring heating systems to be much more efficient. If you are buying a unit in a development that is yet to be built, you can save more by requesting a temperature control for each room. Mr Colmer says, "When a new boiler system is being installed the cost of introducing heat zoning is small. Wireless thermostat controls may cost just £70 to £80." Alternatively, for wet heating systems, controls on each radiator let you change the temperature in each room and are standard on newer radiators.

These controls can be bought cheaply and put on any radiator in any house. There are other cheap savings to be made. For example, turning appliances off rather than leaving them on standby can save £33 per year, and using energy-saving light bulbs will save another £40 per year.

If you wish to go the whole hog, you can reduce your energy bills by 90 per cent by investing in an Eco-Hab, a pre-fabricated eco pod built to your specifications. The key money-saving feature of these pods is that they are passive, meaning that they are almost completely airtight, drastically reducing energy loss. "A passive house is almost completely sealed except for the hot air recovery unit," says Mr Quinn. "You extract the heat from the air being expelled and put it into the new air, so there is virtually no heat loss. Considering about 75 per cent of your energy bill goes on heating water and space, if you can dramatically reduce that, then you have a house which is very inexpensive to run." The pods include solar panels, which generate 60-70 per cent of the power needed to heat water and run the under-floor heating. A 96 sq metre pod, big enough for up to four bedrooms over two levels, costs less than £70,000, including installation.

Getting finance to buy a home like this can be costly, as lenders are currently hesitant to lend on anything out of the ordinary. David Hollingworth, a spokesman for brokers London & Country, says, "Slightly wackier property construction with environmental concerns, and using non-standard construction, will often make standard lenders run a mile." Buyers of such properties will potentially have access only to eco or green mortgages which often have higher rates.

Norwich & Peterborough building society was the first to offer a green mortgage in the 1990s. It is currently offering two green products with a discounted rate for four years, one at 4.55 per cent for new builds, the other for all houses at 4.75 per cent variable. The building society will plant 40 trees over the first five years of your mortgage to offset your carbon emissions. But, at a relatively high rate, these products are not for everyone. "It is a luxury for those who have the flexibility to pay a higher rate," says Richard Barker, the product manager for mortgages at Norwich & Peterborough. "For those who have to make the mortgage cost as low as possible, another product will be better."

As fuel prices rise, investing in a more energy efficient property will be more rewarding. "Over and above the environmental concerns, we need to think about fuel supply," Mr Colmer says. "If you want to secure against increased heating and electricity costs, then being more efficient in your home is the way to go."