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The pilot project, which is being funded by the Heads of the Valleys (HoV) regeneration programme, is being undertaken on six houses in Penrhiwceiber, owned by Cynon Tâf Community Housing Group.
The aim is to create a showcase of what can be achieved and a model that could be adopted and adapted anywhere in Wales.
The interior of the homes will be completely gutted, re-designed and re-configured to make the maximise use of space and light while the Building Research Establishment (BRE) has advised on energy and sustainability issues to ensure they reach the Eco Home Excellent standards.
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Leighton Andrews, Deputy Minister for Regeneration said the HoV programme was providing £400,000 to create an exemplar project that could be replicated elsewhere.
He said: "We hope that home owners, developers and other social housing landlords will be inspired by this project. It is a model that could be rolled out across the Heads of the Valleys where there are thousands of terraced homes that could benefit from this make over.
"The energy efficiency measures will help reduce carbon and fuel poverty. The project offers a sustainable solution for housing needs, providing modern energy efficient homes that are fit for purpose.
"The scheme offers an attractive cost effective alternative to building or buying new homes. It has the potential to attract people back to the Valleys. It is another example of how the Heads of the Valleys programme is promoting and pioneering examples of innovative sustainable housing."
The houses are built on a hillside and the designs by RIO Architects of Cardiff will make the most of the superb views over the valley and may incorporate balconies and open plan extensions.
The houses will meet the energy performance standards of new homes which will result in an immediate 60% improvement. The internal fabric of the houses will be insulated to improve energy performance and other features will reduce water demand.
(CD/JM)
