Around 15 million households will see their gas and electricity bills reduced by up to £95 after the energy regulator reduced its price cap.
Ofgem said the new cap will mean suppliers pass on savings from lower wholesale energy prices to customers.
An average household will pay £1,042 per year for gas and electricity after the change comes into force on 1 October, Ofgem said.
Prepayment meter customers will see bills come down by up to £95 while those on standard tariffs will enjoy a reduction of as much as £84.
The price cap is to be reviewed again in six months. Ofgem also said it would recommend that Alok Sharma, the buiness secretary, should extend the price cap into next year.
“Millions of households, many of whom face financial hardship due to the Covid-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced,” said Ofgem chief executive Jonathan Brearley.
“They can also reduce their energy bills further by shopping around for a better deal. Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market.”
Energy prices tumbled earlier this year as demand slumped during lockdown. However, they have since begun to rise again, meaning consumers may see bills go up again when the cap is reviewed.
Ofgem’s limit applies to standard tariffs, which are often among the most expensive deals that suppliers offer.
Customers can make savings of hundreds of pounds a year by switching regularly to the cheapest tariffs available.
Ed Dodman, director of regulatory affairs at the Energy Ombudsman, said: “This reduction in the price cap represents a much-needed financial boost for millions of households, at a time when many people are struggling due to the economic impact of Covid-19 and lockdown.
“Shopping around for a cheaper energy deal is still the best way to save money, particularly for customers on standard variable tariffs, but before switching to a new supplier it’s a good idea to check out its customer service credentials.”
Emma Pinchbeck, chief executive of supplier trade body Energy UK, said: “Today’s announcement reflects another significant fall in wholesale costs since Ofgem set the current price cap. Most of the average bill is made up of costs outside suppliers’ direct control and buying energy accounts for the biggest share of these.
“Lower wholesale prices are only part of the story – because of Covid-19 energy suppliers are facing likely increases in debt and other rising system costs, in an industry which already operates on small margins.”