Energy bills will fall by around 7 per cent from April for a typical household after the Government promised households would receive an average £150 cut.
Ofgem will reduce the energy price cap by £117 to £1,641 a year for a typical dual fuel household from April 1.
The energy regulator said the change to the energy price cap amounted to a reduction of around £10 a month for the average household using both electricity and gas.
Today’s level means the cap is more than £200 lower than a year ago, reflecting the Government’s decision to take £150 in policy costs off energy bills, the regulator said.
The 7 per cent fall is largely driven by policy measures announced in November’s Autumn Budget.
These included shifting 75 per cent of the Renewables Obligation costs from household energy bills into general taxation, and the decision not to extend the Energy Company Obligation (ECO) beyond March 2026.
Customers have been warned not to expect a straight £150 discount on their bills, and that the cut will depend on the size and type of household and how much energy it uses.
The reduction is expected to be primarily applied through a lower price per unit of electricity used, with households advised to look out for information from their supplier explaining this after the price cap announcement.
Lower bills: Millions of households are on track to see their energy bills fall in April
Energy experts, Cornwall Insight said the changes will reduce the cap by about £145 a year once VAT and pricing allowances within the cap methodology are taken into account.
It added that increases in charges associated with the operation and maintenance of Britain’s energy networks have offset part of the savings.
Wholesale prices had also risen slightly since the last forecast in December, with the cost of gas particularly volatile due to ‘geopolitical factors’.
Rachel Reeves will next month end the ECO scheme, which requires energy suppliers to pay for insulation and heating upgrades in the homes of people deemed to be living in fuel poverty.
Meanwhile, the cost of the Renewables Obligation scheme, which was created to bolster renewable electricity generation in Britain, will be shifted towards general taxation.
The costs incurred by electricity businesses in investing in renewable electricity generation were previously 100 per cent funded via consumers through policy costs included energy bills.
After two consecutive quarter-on-quarter increases in the cap, the decline will be welcome news for millions of households.
Tim Jarvis, director general of markets at Ofgem, said: ‘Today’s announcement will be welcome news for many households.
‘Wholesale energy prices have fallen in recent months, and we’re investing in our network to safeguard the future energy system.
‘The main driver of today’s reduction is the change to policy costs announced by the Chancellor in the budget.
‘Our focus at Ofgem remains on bearing down on the costs within our control and unlocking the investment needed to support the transition to a more stable energy system over the longer term.
‘We’re also seeing encouraging signs of greater engagement and competition, with switching increasing by almost 20% year on year. More households are choosing time-of-use tariffs that offer cheaper off-peak rates, and suppliers are offering a wider range of products, including deals with savings at evenings or weekends.
‘The price cap protects households from overpaying for energy, but it’s a safety net.
‘Last year, consumers on fixed deals paid around £115 less than the cap on average, so we’d encourage people to speak to their supplier about the options available and consider whether a different tariff or payment method could help bring their bills down further.’
Looking further ahead, Cornwall Insight said wholesale costs were still lower than when Ofgem set the January cap level and it expected the cap to remain ‘relatively steady’ throughout 2026, ‘with only a small rise forecast in July’.
Ned Hammond, deputy director of customer policy at Energy UK, which represents firms, said: ‘At a time when many households are struggling with their bills, action taken by the Government to provide a considerable discount on energy bills is hugely welcome.
‘While the saving will be £150 for the average household, it is important to note that the discount is applied to the unit rate.
‘Therefore, households will experience significantly different savings depending on their energy consumption, some much higher and others substantially lower than £150.
‘In addition, other moving parts, such as network charges and wholesale costs, mean energy bills will not necessarily fall in line with the saving provided.
‘Indeed, the price cap is projected to drop by around £115 from April 1.’
Which? energy editor Emily Seymour said: ‘Households can expect a significant cut to their energy bills in April, which will come as a relief to millions of people struggling with cost-of-living pressures.
‘The bulk of this change is expected to be applied to your electricity price per unit, so your exact savings will depend on your usage; look out for communications from your energy provider in the coming weeks to see how it will affect your bills.’
Simon Francis, co-ordinator of the End Fuel Poverty Coalition, urged households to note the changes in unit costs and standing charges, rather than focus on the headline ‘average energy bill’.
He said: ‘We know that energy bills can be confusing and trying to decide when to switch tariffs or change supplier is a big decision which can overwhelm people.
‘As well as setting the price cap, Ofgem should play a greater role in ensuring that the tariffs reaching the market are fair and don’t discriminate against specific customer groups.
‘Sadly the responsibility currently falls to households to pay careful attention to any changes in their unit costs and standing charges.’
