The industry regulator said the cap would collectively remove about £1bn from the bills of customers who were being overcharged for their gas and electricity.
Ofgem said the cap, first announced in September, was to be initially set at £1,137 per year for a typical dual fuel customer paying by direct debit.
“When the price cap comes into force suppliers will have to cut the price of their default tariffs, including standard variable tariffs, to the level of or below the cap, forcing them to scrap excess charges.
“The cap will save customers who use a typical amount of gas and electricity around £76 per year on average, with a typical customer on the most expensive tariffs saving £120.”
Its statement also warned customers that the savings they accrued would depend on how much energy they use and that they would be able to save even more by shopping around for a better deal.
Default tariffs are the controversial price plans – described as a “rip-off” by the Prime Minister – which energy customers are rolled on to when their fixed price deals come to an end.
More than half of UK homes still remain on so-called standard variable tariffs (SVTs) through a failure to switch to a better deal or supplier despite a pick-up in households shopping around.
Ofgem said the cap would be reviewed every April and October to account for shifts in wholesale and other costs to maintain fairness.
Dermot Nolan, Ofgem’s chief executive, said: “The price cap will ensure that whether energy costs rise or fall suppliers are not feathering their nest and changes in energy prices will reflect the underlying costs to heat and light our homes.”
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