The default price cap, which protects around 11 million households, is set to fall from £1,179 to £1,162 for the summer period (April – September).
The pre-payment meter cap, which protects a further four million households, will fall from £1,217 to £1,200 per year for the same six month period.
As a result, energy bills will fall for around 15 million households who are protected by the price caps.
Jonathan Brearley, chief executive at Ofgem, commented on the cap: “The default price cap is designed to protect consumers who do not switch from overpaying for their energy, while 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.”
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.
During 2019, households protected by the default price cap are estimated to have saved £1 billion on their energy bills.
More savings were unlocked by households since the default cap was introduced on 1 January 2019 as switching rates reached an all-time high in April 2019.
Currently, switching away from a default tariff to a cheaper deal could save a typical household up to £305.
Ofgem closely monitors all suppliers’ approaches to complying with the cap and has taken action when they have not met their obligations.
This summer, Ofgem will carry out a review for the Secretary of State on whether the market conditions exist for the default price cap to be lifted or be extended past 2020.