The price of the average household energy bill will reduce by around £400 a year from July thanks to a drop in the price cap set by regulator Ofgem.

But with government help now scaled back for the majority of homes what difference, in reality, will the change make to the bills you pay?

What is the energy price cap?

The price cap was introduced at the start of 2019 by regulator Ofgem, with the aim of preventing households on traditionally more expensive standard tariffs from being over charged for the energy they were using.

The energy price cap, which is overseen and set by Ofgem, now controls the amount suppliers can charge customers for their energy by placing a maximum limit on gas and electric charges per unit of energy. It applies to people either on a default standard variable energy tariff or those using pre-pay metres, which is estimated to be around three fifths of all households combined.

The price cap is assessed every three months throughout the year which can lead to bills coming up or down. However since the global gas crisis, caused in part by the conflict in Ukraine, prices have only been rising.

At its peak, the price cap reached £4,279 for a typical use customer.

Households though have been partly shielded from the most recent rises in price by the Government’s Energy Price Guarantee (EPG), which limited annual energy costs to £2,500 for the average household – subsidising Ofgem’s price cap and freezing unit costs for householders.

What is happening now?

Thanks to a sustained fall in wholesale prices, Ofgem has announced it is dropping the price cap from July 1.

This will take the typical use bill from £3,280 to £2,074 a year – or at least until September when the price cap will be reviewed again.

Homes using more energy than what is deemed typical, will pay more, those using less, will have lower bills but the typical use price serves as a helpful guide.

The impending change to the price cap will make the average annual bill for the average sized home – using an average amount of gas and electric – £426 less each year.

More than 23 million households are estimated to have their bills controlled by the price cap since rising prices affected the number of fixed-rate tariffs available that would let families lock-into a deal for a set amount of time.

However, between the start of last autumn and March this year, every household in the country was given an extra £400 in help to cover the cost of their energy bills. The money was spread across six monthly payments to help bill payers get through the winter, which is traditionally more costly.

But with that short-term cash help no longer available – and the £426 reduction in the average bill closely reflecting the £400 in extra help all customers were receiving from the government – it is likely the money most people will need to find to cover the cost of gas and electric after July won’t change much at all.

Ofgem chief executive Jonathan Brearley said more focus will be needed for the government, the regulator and the industry to support the most vulnerable groups this winter.

Mr Brearley said: “After a difficult winter for consumers it is encouraging to see signs that the market is stabilising and prices are moving in the right direction. People should start seeing cheaper energy bills from the start of July, and that is a welcome step towards lower costs.

“However, we know people are still finding it hard, the cost-of-living crisis continues and these bills will still be troubling many people up and down the country. Where people are struggling, we urge them to contact their supplier who will be able to offer a range of support, such as payment plans or access to hardship funds.”

Will there be a return of fixed-rate deals?

It has been many months since customers could shop around for a good energy deal and switch to either a cheaper company or tariff.

However the reduction in the price cap by Ofgem does raise the possibility that energy companies will return fixed-rate tariffs to the market, giving customers more choice and increasing competition for the best and cheapest prices.

Consultancy firm Cornwall Insight said it hopes to see the reappearance of more competitive fixed-rate energy tariffs as prices begin to stabilise, providing consumers with additional options to manage their energy costs.

While comparison and switching site Uswitch said it sees no reason why suppliers cannot offer competitive fixed deals around the £2,000 mark for the average bill.

Which? Energy editor Emily Seymour said: “If prices start to stabilise, we may see some providers offering competitive fixed-price energy deals for the first time in well over a year, so it will be worth doing a bit of research to see if there’s a deal that could be cost-effective while also offering good customer service and low exit fees.”

What help is still available?

The government has already made it clear that there won’t be a repeat of the universal £400 grant that each home was given last winter to help cover the cost of high gas and electric bills.

Instead, any cost of living help this year and going into 2024 will focus on supporting the most cash-strapped and vulnerable households.

This includes extra cost of living support payments over the next 12 months for those on certain means-tested benefits including Universal Credit – the first of which arrived earlier this month and was worth £301.

Extra money is also being allocated to the disabled and to pensioners claiming pension credit to help them manage the demands of their outgoings.

Poverty charity Turn2us says it also remains concerned about the levels of debt people may have incurred trying to meet the cost of their bills over the last two years.

Anna Stevenson, senior welfare benefits specialist, said “Any decrease in the punitive cost of energy is clearly welcome but the debt people have already incurred through no fault of their own will carry with them into next winter. For lowest income households this decrease won’t help enough.

“Bills will settle to being around almost double the cost before the pandemic and fuel poverty was unacceptably high even then. Government schemes are also coming to an end, but the crisis is not.”