Labor will pledge up to $1 billion to install solar panels at thousands of schools in an ambitious scheme to create "virtual power plants" that put energy back into the electricity grid.

Opposition Leader Bill Shorten will outline the plan on Tuesday with a claim it could "drive down electricity bills for households and businesses" as well as help schools cut their energy bills.

Labor has pledged up to $1 billion in funding to install solar panels on schools, creating 'virtual power plants'. Credit:Glenn Hunt

The plan seeks to use the existing Clean Energy Finance Corporation, a government fund set up a decade ago, to offer concessional loans to energy companies to use the public and private schools to generate power.

Behind the idea is the assumption that "virtual power plant" developers will come up with commercial projects using the school rooftops to generate electricity not only for the school but for the grid.