The cap on the amount households pay on electricity and gas bills will be lowered by £1,000 from 1 April.
Ofgem today reduced the average amount suppliers can charge to £3,280, a notable drop from the current £4,279 a year.
Customers who use a lot of energy will still have higher bills, but this reflects typical usage levels.
The regulator said the new cap is a result of recent declines in wholesale energy prices.
Those hardest hit by the cost of living crisis may be hoping this is a light at the end of the tunnel.
But household energy bills are still expected to rise by an average of £500 a year despite the reduction.
As the government is becoming less generous with support since early April, bills will rise by around 20%.
This will likely lead to annual energy bills of no less than £3,000.
The £3,280 figure indicates how much their energy suppliers’ base rates would pay if the Energy Price Guarantee (EPG) were not in place.
When the next end of the scheme – paid in six installments of £66 and £67 a month – is factored in, the cost of energy for homes will rise even further.
Unite Secretary General Sharon Graham said Ofgem’s latest moves “do next to nothing” to ease the pressure on people already haunted by the arrival of their fuel bills.
She said: ‘This out-of-reach government is clearly preparing to turn off consumer protections and is fully abdicating any responsibility for dealing with the rampant profiteering of energy companies.
‘A question of days ago, Centrica/British Gas has announced that its 2022 profits have tripled to over £3 billion.
‘This year it is planning a £500m share buyback for a bonanza payment to its shareholders.
‘The British economy is broken for workers – different choices need to be made.’
Ofgem chief executive Jonathan Brearley acknowledged this was “deeply concerning” for some families.
“While wholesale prices have fallen, the price cap has not yet dropped below the planned Energy Price Guarantee level,” he says.
‘ This means that current policy bills will increase again in April.
‘But today’s announcement reflects the fundamental change in the wholesale cost of energy for the first time since the start of the gas crisis.
“While it doesn’t make an immediate difference to consumers, it is a sign that some of the immense pressure we’ve seen in energy markets over the past year and a half may be starting to ease.
“If the reduction in wholesale prices that we are seeing continues, the signs are positive that the price cap will come down again in the summer, potentially bringing in significantly lower bills.”
Mr. Brearley emphasized that prices are “unlikely” to fall back to where they were before the energy crisis.
He adds: ‘With bills continuing to be so high, it is justifiable to urgently analyze the feasibility of a social tariff for customers in a more vulnerable situation.’
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