How the energy Green Deal can help you stay in the black

There's good news for people who lack the money to install renewable energy systems

In households all over the UK the heating has been cranked up to full as we brace ourselves against the cold snap. Keeping warm is a costly business and energy bills are through the – poorly insulated – roof, so it is welcome news that tomorrow sees the timely launch of Green Deal, the Government's flagship energy-efficiency scheme.

Many people who want to install renewable-energy systems simply don't have the capital to do so, but under the scheme households can borrow money for energy-efficient home improvements and pay it back through their electricity bills.

If you're interested, you need an assessment first, which could be undertaken by an energy company, DIY store, local tradesperson, or an independent assessor such as One Green Place (thegreendeal.co.uk), who will produce a report with recommendations for your property.

The assessments aren't always free (British Gas is charging £99) which may prove enough of a deterrent, but companies are likely to offer freebies and reimbursements to attract custom. You can then get as many quotes as you like for the recommended improvements, and once you're enjoying a more-efficient home, your Green Deal repayments will automatically be added to your electricity bill. The interest will be below 7 per cent – cheaper than most personal loans – and no higher than what a typical household can save in energy costs.

"The Green Deal loan scheme allows people to invest in renewable systems, with the added benefit that it guarantees they will get their money back in energy saved. Furthermore, because a seller can pass on the outstanding loan amount to a new buyer, they are not tied into a home or business if they do need to move on," says Richard Jardine, the managing director of Pro Renewables.

Before you even think about renewable systems, however, it is important to get the little things right, and fortunately, there are lots of low-cost changes you can make immediately.

Draught-proofing, for example, to seal up the gaps around doors and windows, loft hatches, fittings and pipework, will stop all that expensive heat from escaping. A quarter of your heat is lost through the loft or attic, so insulate this too, saving yourself up to £175 a year, according to the Energy Saving Trust (EST).

"In the short term, draught-proofing is the most effective thing you can do," says Tim Pullen, an eco expert at the National Homebuilding and Renovating Show (which runs 21-24 March at the NEC, Birmingham; homebuildingshow.co.uk).

"The next best thing, from a financial point of view, is to turn your heating down. If you turn it down one degree you won't notice the difference and you could save about 10 per cent on heating bills."

Other small-scale changes include lining the backs of curtains with thermal material and installing energy-saving lightbulbs, or even better, light-emitting diode (LED) bulbs which use up to 89 per cent less energy and last up to 25 years (25 times longer than the halogen equivalent). You should also bleed radiators, remove furniture that might be blocking the heat, and look into fitting radiator reflection products. Other tips include only filling the kettle with water you need, which will be quicker to boil and use less energy, take showers rather than baths, and turn your washing down to 30°C.

If you can't afford double-glazed windows try plastic wrap and sellotape to cut out draughts. Eventually though, fitting double glazing with a thermal efficiency rating A-C is the best option, saving you around £165 a year, as well as cutting out noise.

It's also a good idea to service your boiler to make sure it's running efficiently and catch potentially expensive repairs early. Ideally, you should install a condensing gas boiler which extracts heat lost through the flue of a conventional boiler. It costs from £2,500 but will save you around a third on your heating bills.

Older homes usually have solid walls, so installing insulation on the inside or outside can have a huge impact, saving you up to £135 per year for an outlay of only £100 to £350.

Don't forget about elderly relatives or neighbours, who are particularly vulnerable in the winter. Help them switch to a better deal, and make sure their home is well insulated too.

"If it isn't, anyone over the age of 70 will definitely qualify for free loft and cavity-wall insulation. Help them get this installed by contacting their energy supplier before the winter chill bites hard," says Clare Francis, a consumer finance expert at MoneySupermarket.com.

Once your home is well insulated and running efficiently, you can look into making bigger improvements.

Air-source heat pumps, for example, work by extracting heat from outside air to heat radiators and provide hot water. You need planning permission to install one, and they cost from £6,000, but require minimal maintenance, and could save you £380 a year if you replaced electric-storage heating. Alternatively, ground-source heat pumps use pipes buried in your garden to extract heat from the ground. These are more of a chore to install, and cost from £9,000, but they are more efficient, and could save you from £480 (if replacing electric heating).

One of the greenest improvements you can make is fitting solar photovoltaics (PV), which use the sun's energy to generate electricity without releasing carbon dioxide. The EST calculates that a typical home solar PV system could save over a tonne of C02 per year, and you could even get paid for the energy you generate through the Government's feed-in tariffs and by selling any surplus energy back to the grid. You do need a south-facing roof, and you pay around £7,600 for a 3.5kWp domestic system. However, if you want to use solar thermal panels instead (to heat water) it is less critical that you are south-facing and costs fall to £4,800, but savings are moderate.

Wood-fuelled heating systems burn wood pellets, chips or logs to provide warmth for a single room, or even to power central heating and hot water. The initial cost can be steep, at around £4,300 (including installation), but a wood-fuelled boiler could save you nearly £600 a year compared with electric heating.

Case study: 'It's the best money we've ever spent – electricity is £45 a month'

When accountant Lee Manning, 34, and his partner Mike Ellis, 30, a specialist nurse, built their oak-frame house in Devon, they used eco-friendly features including triple glazing, a heat recovery system and solar panels

"As the property is so well insulated and airtight, we could opt for a heat recovery system which has been fantastic, says Lee. "It keeps out stale air and brings in fresh, transferring it into heat. It cost £18,327 and is the best money we've ever spent – our electric bills are only about £45 a month".

The couple are also earning approximately £1,300 a year from the old feed-in tariffs, and Lee explains that they have fully embraced the greener lifestyle. "The house has changed the way we now live."