Lower wholesale costs have prompted a £17 reduction in both the default and pre-payment meter (PPM) caps, Ofgem has announced today (7 February).
This means that from April the default cap, which covers 11 million households, will stand at £1,162 while the PPM cap, which covers a further 4 million households, will be £1,200.
Ofgem said a decrease in wholesale energy costs between August 2019 and January 2020 played a large part in the reduction of the caps.
The energy regulator added that 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.
Despite a reduction in wholesale costs, there were increases in other elements such as such as operating costs, network charges, smart meter costs and environmental schemes. The increases came to a total of £22.
The default price cap was introduced on 1 January 2019 and the law states it will remain in place until 2023. It is subject to a review from 2020 onwards, with the first scheduled for this summer.
As part of the review, Ofgem will make a recommendation to the secretary of state as to whether market conditions exist for the cap to be lifted or be extended past 2020.
Meanwhile the PPM cap is expected to end this year.
Jonathan Brearley, chief executive at Ofgem, said: “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 £1 billion on average on their energy bills and switching rates have hit record levels.
“Today’s announcement is further good news for the 15 million households covered by both price caps who will see their energy bills fall in April. Households can reduce their energy bills further by shopping around for a better deal.”