Energy bills for the vast majority of British households will be cut by nearly 6 per cent from October to reflect a fall in wholesale prices, Ofgem said on Wednesday.
The change will mean 11m households will save on average £75 over the winter months when demand for energy rises sharply.
Ofgem, the UK’s energy market regulator, announced on Wednesday a reduction in a cap on bills for households on so-called default tariffs, the most common pricing package in the market. The cap will fall from £1,254 to £1,179 from October.
Ofgem also said a second cap, for 4m households that use pre-payment meters to pay for their electricity and gas, will also fall by £25 to £1,217.
Wholesale prices have dropped significant between February and June, the regulator said, due to a combination of factors including low demand during the previous winter and strong gas supply.
A cap on default tariffs was enforced in January as part of efforts by former prime minister Theresa May’s government to crack down on what it saw as “rip off” energy prices, particularly from the six biggest suppliers, which include British Gas, EDF Energy, Eon, Npower, ScottishPower and SSE.
The cap is reviewed every six months by the regulator. The next review will take place in February and will come into effect in April.
The introduction of the cap was one of the reasons cited last week by Iain Conn, the outgoing boss of Centrica, which owns British Gas, for its recent poor performance. Mr Conn last week urged the new government to take a “fresh look” at the cap.
The reduction in the default cap could, however, put pressure on smaller energy companies, following a spate of newer entrants going bust in the past two years.
Smaller suppliers have frequently been accused of offering unsustainably low prices to customers to attract them away from the “Big Six”.
Dermot Nolan, chief executive of Ofgem, said on Wednesday: “The price caps require suppliers to pass on any savings to customers when their cost to supply electricity and gas falls.
“This means the energy bills of around 15m customers on default deals or pre-payment meters will fall this winter to reflect the reduction in cost of the wholesale energy.”