Three wind turbines can make £15,000 a year for a village
Households which contribute electricity to the National Grid are to receive payments under a new government scheme.
Communities will be encouraged to generate wind, water and solar power, and be paid for how much they produce.
Energy and Climate Change Secretary Ed Miliband said the project would "help create the clean energy of the future".
He denied reports the government's energy strategy would cost each UK family £230 a year but admitted there would be "upward pressures" on prices.
Mr Miliband also told BBC One's The Andrew Marr Show an agreement at the G8 summit that global temperatures should not rise more than 2C above 1900 levels was "very significant", because it meant governments will have to "put offers on the table to reduce their carbon dioxide emissions".
The Sunday Mirror newspaper reported that plans to cut carbon dioxide emissions in the government's Renewable Energy Strategy - due to be unveiled on Wednesday - would mean an average annual increase of £230 on household fuel bills.
Mr Miliband said he did not believe the figure was accurate, but acknowledged that "whatever route we go down", prices were likely to rise.
Individuals and communities can both play their part in the kind of clean energy revolution that we need
He said the "high-carbon route" would mean a greater dependence on imports and exposure to price fluctuations, while the alternative "low carbon future" - which he said was "the right way to go" - would mean "mean some costs to transition".
Mr Miliband added: "My job is to counter those effects as much as I possibly can - helping people with energy efficiency, and having tough regulation for example."
Ed Miliband tells Andrew Marr that energy plans will mean "big changes" to people's lives
Speaking earlier, Mr Miliband told the BBC that the plan to give payments to households for contibuting electricity to the National Grid from April 2010 will mean "we can harness people's enthusiasm for getting involved" in tackling climate change.
He added: "Individuals and communities can both play their part in the kind of clean energy revolution that we need."
At present, anyone in the UK who feeds electricity into the National Grid can get a reduction on their fuel bills through smart meters.
But ministers hope that the promise of cash in people's pockets will encourage them to seek new ways of generating their own power.
Similar "clean energy cash back" schemes already operate in 19 European countries including Germany.
Critics warn that small-scale production is expensive and projects may require government subsidy.
In Germany, whole towns have grouped together to buy wind turbines, build biomass plants and erect solar panels on all private houses.
They are then paid a guaranteed fixed price for every kilowatt hour of energy they produce - a higher sum than for electricity made from fossil fuels in traditional power stations.
Three wind turbines can make £15,000 a year for a single village.
Since so-called "feed-in tariffs" were introduced in Germany, some 400,000 homes, particularly in the sunnier south of the country, have installed solar panels.
But the government has had to subsidise such projects in order to keep them viable.
At present, only about 2% of Britain's energy comes from renewable sources, but the government has pledged to increase that to 15% within the next 12 years.
Mike Childs, campaigns director at Friends of the Earth, said such schemes could play a significant part in meeting the UK's climate change targets.
"But the payments have to be generous enough to reward people for investing in green power," he added.
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