Millions of British households will see their energy prices fall by £75 this winter after the regulator reduced price caps to adjust for lower costs for energy companies.
The default energy price cap will fall from £1,254 to £1,179 from 1 October for the winter period until March, Ofgem said on Wednesday. The reduction was slightly less than the £80 predicted by some analysts.
About 11m homes will be affected by the default price cap reduction, while another four million will be affected by a £25 fall in the separate cap for pre-paid meters.
Pre-payment meter customers will pay a maximum of £1,217, down from £1,242.
The energy price cap was introduced on 1 January after sustained pressure on the government to prevent energy companies from taking advantage of loyal customers.
However, figures from Comparethemarket.com suggest that the lowered price cap remains £228 more expensive than the top 20 fixed-rate tariffs available on the market. Peter Earl, the price comparison site’s head of energy, said the difference showed that the cap is “not doing the job it was intended to do”.
Natalie Hitchins, head of home products and services at the consumer group Which?, urged customers to switch energy providers to gain the best rate.
“Lowering the price cap will provide some relief to hard-pressed households – but millions of energy customers on default tariffs will still be left paying hundreds of pounds more than they need to each year,” she said.
The £75 reduction in the default price cap almost entirely reflects a fall in wholesale costs paid by energy suppliers. Ofgem said low energy demand during the last winter, strong gas supply and relatively healthy storage levels all contributed to lower wholesale prices.
The changes to the pre-payment cap come after the Competition and Markets Authority adjusted the way in which it is calculated. Pre-paid customers, who are more likely to be vulnerable, still pay more than standard users, an extra cost the regulators claimed was justified by the higher costs associated with the keys and cards used in pre-payment meters.
Dermot Nolan, the chief executive of Ofgem, said: “The price caps require suppliers to pass on any savings to customers when their cost to supply electricity and gas falls.
“Households can cut their bills further in time for winter and we would encourage all customers to shop around to get themselves the best deal possible for their energy.”