Millions of households could see their energy bills fall from next year after the UK energy regulator confirmed today that the new price cap will come into force on 1 January.
Ofgem says the cap will be set at £1,137 per year for a typical dual fuel customer paying by direct debit.
This means suppliers will have to cut the price of their default tariffs to the level of or below the cap, forcing them to scrap excess charges.
How much could you save?
The regulator says that than 11 million households could see their energy bills fall by £76 on average a year and as much as £120 on the most expensive tariffs.
The price cap is expected to save consumers around £1 billion in total.
The cap is based on a typical dual fuel customer paying by direct debit and aims to force energy companies to scrap excess charges for people on poor value default deals.
British Gas customers could save around £69 a year in total, according to Ofgem’s calculations.
Meanwhile, someone on the most expensive tariff with Scottish Power would save £121.
The savings for individual customers will depend on how much energy they use, the price of their current tariff, whether they have both gas and electricity and how they pay for their energy.
Dermot Nolan, chief executive of Ofgem, says: “The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes."
He adds: “Consumers who want to cut their bills further should shop around for a better energy deal and while the cap is in place, we will continue our work to make this as easy as possible.”
Could the cap rise?
Ofgem says the price cap level will be updated in April and October every year to reflect the latest estimated costs of supplying electricity and gas, including wholesale energy costs.
The regulator adds that if wholesale costs keep rising it is likely that in February it will announce an increase in the level of the cap to take effect in April.
Stephen Murray, energy expert at MoneySupermarket, says: “That means we could be looking at three months’ gain and then 12 to 18 months of long term pain for people who do nothing and let the regulator control their bills.”
MoneySuperMarket says there are still 89 cheaper tariffs than the cap on the currently on the market.
Mr Murray adds: “Customers who switch to a competitive fixed rate tariff can save £200 or more on their annual bills right now as we head into winter.”
Richard Neudegg, head of regulation at Uswitch.com, says: “Consumers should not be lulled into a false sense of security - there is a very good chance that the price of standard tariffs will change three times over the next 12 months, and potentially for the worse rather than the better.
“Initial savings could be wiped out as early as April when rising wholesale costs may force the cap to increase, so standard tariff energy customers can only rely on three months of savings - averaging around £19 - before the cap potentially goes up.”