Energy bills will fall for 15 million UK households as the regulator Office for Gas and Electricity Markets (OFGEM) reduces the default price cap and pre-payment meter cap from April.
The default price cap, which protects around 11 million households, is set to fall from £1,179 to £1,162 for the summer period, from April to September. The pre-payment meter cap, which protects a further 4 million households, will fall from £1,217 to £1,200 per year for the same six month period.
OFGEM chief executive Jonathan Brearley said households could get even lower bills by switching suppliers.
“The default price cap is designed to protect consumers who do not switch from overpaying for their energy, whilst encouraging competition in the retail market.
“Suppliers have been required to become more efficient and pass on savings to consumers. In its first year, the cap is estimated to have saved consumers £1bn on average on their energy bills and switching rates have hit record levels,” Brearley said in a statement on Friday.
A large part of the reduction in the caps is due to wholesale energy prices continuing to fall between August 2019 and January 2020. A strong supply of gas, such as record amounts of liquefied natural gas and healthy gas stock inventories, has been the main factor pushing down wholesale prices.
As a result, the wholesale energy cost element of the default tariff cap fell from £446 to £408.
“These reductions offset cost increases totalling £22 of other elements such as operating costs, network charges, smart meter costs and environmental schemes, resulting in an overall reduction of £17 in the level of the default tariff cap,” said OFGEM.
The regulator is encouraging households to reduce their energy bills further by shopping around for a better deal.
Currently, switching away from a default tariff to a cheaper deal could save a typical household up to £305.
OFGEM will also carry out a review on whether the market conditions exist for the default price cap to be lifted or extended past 2020.
Earlier this week, consumer group Which? released data showing that companies have been lowering their prices ahead of the new price cap. The number of deals which cost below £1,000 for the average household have increased from 12 before the cap was introduced in January last year, to 78 today.
It means that customers can still find much cheaper deals if they do not rely on OFGEM’s price cap to protect them from higher bills.
The abundance of cheaper deals also helps explain why switching hit a record high in 2019, with 6.4 million households changing suppliers over the period, according to trade body Energy UK.