Households keen to cut their energy bills and save the planet are taking matters into their own hands and finding innovative ways to generate their own electricity.

Giant leaps in technology and a growing range of grants, from governments and other sources, mean that it has never been easier to produce electricity through wind, solar or water power. The use of ground source pumps, which transfer heat from the ground into homes and buildings, is also spreading fast.

Generating your own energy, however, is not a decision to be made lightly as it is frequently expensive and it could take years for you to recoup the costs.

For some people, though, it is definitely worth the effort. A group of residents in Oxford, centred around the picturesque Osney Island, is raising funds to put in place solar, water and wind projects to generate 750,000 kilowatt-hours (kWh) of electricity for the community. The group estimates that this is enough to provide power for 140 homes.

Barbara Hammond, who heads the project, says: “We formed the group last year in response to the summer floods that left roads in the area under water and houses damaged. People have started to realise that things need to change and this project will allow us to raise money and recycle it back into the community.”

The River Thames runs through west Oxford and the group hopes to set up a micro-hydro project at Osney Lock and a wind turbine in nearby hills. The area is also surrounded by industrial warehouses on which they hope to install photovoltaic solar panels, which they have already put in place on the local community centre (see opposite).

Mrs Hammond says: “There are many large buildings with big roofs in west Oxford and we want to lease them free and use them as areas for solar panels.”

The plan is to send the electricity back to the grid. Energy firms would pay for this and the group reckons that it can produce enough power to make a profit of £100,000 each year. This money will be used to help 6,000 residents to improve the energy efficiency of their homes and set up their own micro-generation schemes.

Further north, in Nottingham, the Meadows Ozone Community Energy Company, another community group, is planning to install a 330 kW wind turbine, which is expected to generate a clear profit of £60,000 each year. Many of the residents in the Meadows district are defined as being in, or close to, fuel poverty, meaning that they spend 10 per cent or more of their household income on gas and electricity bills. The scheme's organisers believe that micro-generation will help many to escape the poverty trap. Jerome Baddley, the project manager, says: “The money generated from the grid will be used to reduce people's fuel bills.”

Both groups benefited from financial grants available to community groups setting up local power generation schemes. The west Oxford group received help from the South East of England Development Agency, while the Meadows Ozone company received £20,000 from a scheme backed by Nottingham City Council.

Competitions set up to encourage local communities to become more energy efficient can be another source of finance. Both of the above schemes have made it to the final round of the Big Green Challenge, a competition with a prize of £1 million that is organised by Nesta, an independent financing body.

There is financial help for individuals, too. Each household can claim up to £2,500 from the Department for Business, Enterprise & Regulatory

Reform (BERR). Nearly £10 million has been allocated to households. That means there is about £8 million left of the £18 million that the Government put aside to fund the scheme. To apply call 0800 9150990, or go to www.lowcarbonbuildings.org.uk.

Angela Gallacher, of the Renewable Energy Centre, says: “You are required to have basic energy-saving measures in place before your application will be accepted. That means energy-saving lightbulbs, insulated roofs and cavity walls, and a thermostat and timer for your heating.”

If you get through the application process you will be sent a grant offer of up to £2,500, although it could be significantly less. The average payment is about £1,350.

You still need to pay for the equipment and installation yourself upfront. You are given a deadline to complete the installation, which you have to meet or the offer will be withdrawn. Provided that you meet the deadline, you can claim the promised money when the work has been completed.

Is it worth it? The savings on energy bills can be significant. Installing a ground-source heating system, which involves burying pipes in the ground, could save up to £1,000 a year on gas and electricity bills, according to the Energy Saving Trust. Solar photovoltaic panels, which use energy from the sun to create electricity, save on average £250 a year. Importantly, in cloudy Britain, they require only daylight to generate electricity, not full sun.

Even so, it could be decades before you gain an overall saving because of the costs of going green. Ms Gallacher says: “Solar panels cost between £5,000 and £7,000 to buy and install, while photovoltaic panels cost between £7,000 and £10,000. It could be 15 or 20 years before you recoup the costs.”

Installing ground-source heating is even more expensive, costing up to £12,000. If you generate more electricity than you need you can sell it back to the National Grid. How much you receive will depend on the supplier.You will need an export meter to record the energy used and how much is sent to the grid. Npower charges £60 for a meter while EDF charges up to £250.

There is usually no need for planning permission to install devices such as solar panels and ground-source heating, but you should still check with your local authority planning department before going ahead.

Step-by-step guide to going green

Start with the basics

Before you even think about generating your own power make sure that your home is properly insulated and install energy-saving lightbulbs. This alone could save you more than £200 a year on your gas and electricity bills, according to the Energy Saving Trust (EST). The EST can provide a free energy audit, visit www.energysavingtrust.org.uk to complete an online home energy check, or call 0800 512012.

Consider all the renewable options

Ideally, you would install photovoltaic solar panels, wind turbines and hydrogenerators to generate electricity. That way you avoid problems when the sun goes in or the wind and rainfall levels drop.

Photovoltaic panels cost between £7,000 and £10,000 to install. Costs to install a roof-top wind turbine start at £1,500, although larger systems can cost almost £20,000. A typical five-kilowatt hydro system to create energy from river power would set you back about £20,000.

The EST website has a useful guide to renewable energy technologies, as does the Renewable Energy Centre at www.renewablenergycentre.co.uk.

Planning consent

Check with your local authority whether you will need planning permission and, if you do, make sure that you have it before moving to the next step.

Get financial help

Each household can claim up to £2,500 from the Government through the Low Carbon Buildings Programme. You can apply for more than one technology but the funding limit is set in stone. For an application pack go to www.lowcarbonbuildings. org.uk or call 0800 9150990.

Move fast

Once you have received your grant offer by e-mail, your renewable technology must be installed by a government-certified firm within certain deadlines.

If you are installing a wind or photovoltaic scheme you have four months after the grant offer is made to complete it. For hydropower you get 12 months. A list of certified installers and the deadlines can be found at www.lowcarbonbuildings.org.uk.

Reclaim your money

After you have completed the installation and paid the installer, you submit the claim documents to the EST. The grant claim is checked and, if in order, the grant will be issued within 25 working days of receipt of all the documentation.