One of the remedies resulting from the Competition and Market Authority’s (CMA) two year investigation of the energy market, the cap will initially apply to over four million households who prepay for their energy, mostly with traditional prepayment meters, and are amongst those least able to benefit from competition.

The levels of the cap vary for electricity and gas, by meter type and region.

Ofgem estimates that many prepayment customers are likely to see reductions in their gas bill of around 10-15% from 1 April 2017 or around £80 a year based on a typical household’s consumption.

Many prepayment customers who use electricity to heat their home such as those on Economy 7 meters will see their electricity bill fall, with reductions of around £80 a year based on a typical household’s consumption.

The CMA found that prepayment meter customers face particularly high levels of detriment.

Competition among suppliers for prepayment customers is less developed than for those who pay by direct debit, cash or cheque. This means that there are fewer tariffs available to these customers and the tariffs that are available are generally more expensive.

Customers with prepayment meters are also more likely to be in vulnerable circumstances than those paying by other means.

The cap is due to expire at the end of 2020 when the roll out of smart meters is set to be completed, which will help prepayment meter customers in particular access better deals.

Dermot Nolan, chief executive of Ofgem, said: “We want all consumers to enjoy the benefits of a more competitive energy market, regardless of their circumstances. Customers who prepay for their energy are denied the best deals on the market available to those using other payment methods. They are also more likely to be in vulnerable circumstances, including fuel poverty. This temporary cap will protect these households as we work to deliver a more competitive, fairer and smarter market for all consumers.”

Welcoming the news, Citizens Advice Scotland energy spokesman, Craig Salter, said: “This is a welcome step which will help some of the most vulnerable consumers in Scotland to make much-needed savings in their bills.

“Evidence shows that PPM customers are generally more likely to be disengaged from the market, have less access to lower cost tariffs, and are more likely to be fuel poor and financially vulnerable.

“We are concerned however that this cap is set at a significantly higher in the north of Scotland than elsewhere, as this area has high levels of fuel poverty, and PPM consumers in the North of Scotland already pay 7.7% more for their electricity than the UK average.

“Even with the benefit of the Hydro Benefit Replacement Scheme, PPM consumers in the North of Scotland are likely to continue to pay more than other areas. We would be keen to meet with Ofgem to discuss ways of resolving this issue.”