By Rachel Wait

With energy bills on the up, households are coming up with more inventive ways of saving money. One of them is to generate their own electricity and according to Good Energy, this could save the average family household up to £150 per year on their bills.

The government's Feed-in Tariff scheme was introduced in April 2010. In a nutshell, it means that if you install an electricity-generating technology from a renewable or low-carbon source such as wind turbines or solar photovoltaics (PV)*, you could receive money from your energy supplier.

If you register, you'll be entitled to a sum of money for every unit of electricity you generate – both for electricity you use yourself and for any surplus electricity you export to the grid. How much you receive will depend on the size and type of the system you're using to generate electricity.

How am I paid?

The big six energy suppliers are required by law to provide payments for this scheme. However, it is not compulsory for smaller suppliers to offer the payments and some have chosen to opt out. You can find the full list of suppliers on the Ofgem website.

If you sign up to the scheme, your supplier will pay you a set rate for each unit of electricity you generate. This rate is guaranteed for 20 to 25 years, depending on the technology used (solar will guarantee payments for the 25-year period). The payments, which are typically made once a quarter, are tax-free and are index-linked to the Retail Price Index (RPI).

However, the bad news is that from 12 December this year, the government is halving payment rates. At present, a rate of 43.3p for each kilowatt hour (kWh) generated is paid, plus a further 3.1p for each kWh that's exported back to the National Grid.

But from 12 December, this rate will be lowered to 21p for each kWh generated. Originally this reduction was going to be brought in at the start of April 2012 but this has now changed.

In theory, those installations completed before this period won't be affected. However, given it can take a couple of months to install your solar panels,  it's fairly unlikely that anyone applying now will still be able to benefit from the current high rates. That said, it could still be worth trying anyway, providing you act fast.

How do I qualify?

To qualify, applicants must have one or more of the following: solar panels, wind turbines, hydroelectricity, anaerobic digesters (generating electricity from food waste) and micro combined heat and power (from using new types of boilers).

Any home generation technology must be installed by a company approved under the Microgeneration Certification Scheme. The output for your system must be less than five megawatts of power – although this means that most people are eligible.

How much could I save?

Good Energy reckons an average family household (three-bedroom domestic property) could save up to £150 a year in electricity bills by generating electricity with a 2.5 kilowatts peak (kWp) solar PV. On top of this, on the current rates, they would earn an annual income of almost £1,000 from the Feed-in Tariff. However, on the new rates, it'll be around half of this.

Of course, exactly how much you save on your energy bills depends on a number of factors including how many solar panels you have installed, how much sun the panels receive, where you live and how much electricity your household uses.

But even if you have to pay your energy supplier for additional electricity (if the amount you're generating isn't sufficient), you should still make some great savings overall.

Potential drawbacks

The main problem with the scheme is that you'll need to pay for the initial costs of installing your energy-generating equipment up-front – this can be as much as £10,000 for a 2.5kWp solar PV system.

On the plus side, it should pay for itself in a few years. Exactly how long depends on your energy use, but some estimate the average pay-back time as nine years. Or, you could consider a applying for free solar panels through a 'rent-a-roof' scheme which many organisations offer.

The schemes vary but most offer you free solar panels in return for your full Feed-in Tariff payments for 25 years. You can find out which companies offer this on the Energy Saving Trust website.

However, if you do decide to go down this route, be warned the company will maintain ownership of the solar panels for the 25-year period and you will be leasing out your roof for the same amount of time. This means if you're planning to move home before the 25 years is up, you will need to find a buyer who is happy to continue with the lease.

Although you may be able to buy your way out of the deal, you'll probably have to pay the remainder of the cost of installation as well as a termination fee which can be as high as £1,000. So again, check the small print.

Ask whether the organisation will pay for everything for the installation as well as repairs and maintenance and to insure the equipment too. And don't forget to inform your mortgage lender if you are planning to have solar panels installed.

Final tips

If you are thinking of generating your own electricity, here are some quick tips from Good Energy:

1. Choose the technology

Firstly, you need to ensure you choose the right renewable energy technology for your home.  Good Energy has an assessment survey on its site which may help you decide which technology is best for you.

2. Check about planning

It's also important to check local planning rules. Many schemes now come under 'permitted development rights' meaning permission to install these technologies should be granted automatically providing you meet certain criteria.

3. Get the right installer

Ensure you choose a certified system and a certified installer. The Microgeneration Certification website has a list of certified installers so this is definitely worth a browse. A good installer will be able to advise you on planning restrictions as well as help you decide on the right equipment. It's a good idea to get at least three written quotes before you decide who to go with.

4. Think about finance

Think about your financial options carefully. If you can, use your savings to pay for the upfront costs. If you don't have sufficient savings, you could consider taking out a personal loan. But as always, shop around and compare deals if you're planning to do this. Alternatively, you could apply for a scheme for free solar panels. But don't forget to check the terms and conditions carefully.

5. Choose the right licensee

You don't have to choose your current energy supplier if you want to register for a Feed-in Tariff, so make sure you shop around before deciding who to go with and compare their expertise.

*Solar panels fixed to your roof.