Personal Finance - Power cuts generate savings.

Imagine an investment that gives you a guaranteed return of 200% a year. There are no risks of stock market volatility. It is immune to fluctuating interest rates. Your gains with this investment are not taxed. And best of all, someone else may chip in and bear some or even all of the cost of your investment – but let you keep all the rewards.

If you saw a newspaper advert for an investment like this you would not believe it. With base interest rates at 5.5%, inflation rumbling around 2% and the stock market wobbling who knows where, it sounds too good to be true. In fact, so good that it has to be a con. Could there really be such an investment?

Yes there is, and you’ll find it lies close to home. Investing in energy efficiency measures can produce phenomenal returns in reduced power bills.

One of the latest generation of energy-efficient light bulbs costs around #5. But, fitted in a frequently-used light such as living room or hall, the bulb can reduce the annual household electricity bill by #10 a year – a 200% return.

Other investments in energy saving produce smaller returns (see table below), but still comfortably beat what you might get by investing the same sum in a bank account or even in a stock-market fund.

Energy efficiency has come a long way since the tired public information films of the 1970s that urged us to insulate lofts or lag hot water tanks.

Then, the power saving message was driven by successive oil price shocks. Today, conserving energy has become a way of conserving the environment by reducing CO2 emissions.

Basics like getting the right insulation are still important. But as many homes have passed this first stage, the techniques of trimming power bills have advanced. The cutting edge of power saving is now choosing energy-efficient fridges, washing machines and light bulbs, or fitting condensing boilers.

While top earners may consider energy saving small change, the average family can easily trim up to #300 a year from their total power bills – the equivalent to the interest after tax you would earn from #6,500 in a top rate building society savings account.

Energy saving may seem the furthest thing from your mind, as the chills of winter are forgotten and the summer sun struggles through. But, the summer months are often the best time to act.

Margot Marshall of educational charity The Energy Saving Trust, says: ‘Now is a great time to focus on home energy saving. The specialist installers you need for measures like cavity wall insulation or new heating systems are less busy, and you can make sure everything is put right ahead of winter.’

And some energy saving tactics work all year round, such as buying a low energy fridge.

Energy saving is politically fashionable, so there are a surprising range of grants and subsidies available. Central government, local authorities and power suppliers all run schemes. Total subsidies run to a staggering #150m a year.

National grant schemes operate in England, Scotland, Wales and Northern Ireland, funded by central government cash. These offer generous help; up to #2,700 per household in Wales for example. But only those on benefits and/or over 60 qualify for assistance.

Local authority schemes vary. Some restrict help to those on low incomes, but others are open to all. Grants are available for a wide range of home improvements; from fitting insulation to installing solar panels.

Perverse as it may seem, the most generous help may come from the power suppliers themselves. As part of their licence conditions, they have to devote a set sum each year towards helping customers with energy efficiency measures.

Some suppliers, such as Powergen, offer cut price energy-saving light bulbs to thousands of customers. Others target their help more narrowly.

British Gas, for example, is subsidising new condensing boilers for its customers, in some cases saving individuals #200-300.

Another effective way to become energy efficient is to modify your behaviour slightly. Turning a television off overnight, rather than leaving it on stand by can save #15 a year. Closing curtains at dusk to help retain the sun’s heat in a room might save another #15 annually in a typical three-bedroom home. Turning down the central heating by only one degree celsius knocks around 10% off the energy bill.

Modest savings perhaps, but every pound less spent on power translates into less energy generated in the first place and less CO2 pumped into the atmosphere. And that might well be priceless.

Tap into www.est.org.uk, look up the grants section and then enter your postcode and power supplier to see what money, if any, is available.

Powergen is at www.powergen.co.uk

IS SAVING ENERGY A GOOD INVESTMENT?

Comparative returns between energy efficiency and conventional no-risk investments

INVESTMENT COST/ESTIMATED ANNUAL SAVING/INCOME/ANNUAL RETURN*

Fit energy efficient light bulb/#5.00/#10.00/200%

Lag hot water tank/#20.00/#10.00/50%

Cavity wall insulation/#450.00/#125.00/28%

Double glaze one room/#170.00/#25.00/14.7%

Buy energy efficient fridge freezer/#450.00/#45.00/10%

Fit condensing boiler/#1500.00/#100.00/6.6%

A Lloyds TSB mini cash Isa/#3000.00/#187.50/6.25%

National Savings Investment Account/#1000.00/#33.20/3.32%

*Net of basic rate tax where applicable

SOURCE: The Energy Saving Trust

Stephen Womack is a reporter with Financial Mail on Sunday.