Ofgem's energy price cap is set to come into force from 1 January, the regulator said today.
But consumer groups have warned it is a “temporary fix” that could put customers off switching between providers to find the cheapest deals.
Ofgem said the cap, announced in September, will reduce £1bn in overcharging on gas and electricity bills and will save 11m customers an average of £76 per year, or £120 for the most expensive tariffs.
The regulator set the final level of the cap at £1,137 per year for a typical dual fuel customer paying by direct debit.
“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,” said Dermot Nolan, Ofgem chief executive.
When the cap comes into effect suppliers will be forced to cut the price of default tariffs, which vary according to wholesale costs. Ofgem says customers on the most expensive tariffs could save as much as £120 per year.
But consumer groups have warned that the cap is not a permanent solution and switching providers is the best way to save money on energy bills.
Alex Neill of consumer group Which? said the magazine's own research found that the cap won't cut bills for three in 10 dual-fuel households.
"While the price cap will ease the financial burden for some households, people shouldn’t be lulled into a false sense of security that it will mean they are getting the best deal,” he added.
“The price cap can only be a temporary fix, what is really needed is more competition between suppliers to help drive the innovation that is so desperately required.”
Ofgem admitted it is likely to announce an increase to the cap in February to meet rising wholesale costs.
Stephen Murray, energy expert at price comparison website Money Super Market, also criticised the cap. “Unfortunately, any joy that long-suffering households feel today is likely to be short-lived,” he said.
“Ofgem is attempting to protect consumers by launching this cap with a £76 savings message, but it's simply not sustainable. The cap will be reviewed again in February, when market forces look likely to dictate it will rise significantly.”
Murray added: “That means we could be looking at three months’ gain and then 12-18 months of long term pain for people who do nothing and let the regulator control their bills.”
Prime Minister Theresa May announced plans to introduce the cap in October last year, saying it was needed to ensure customers pay fairer prices on their energy bills.
Energy and clean growth minister Claire Perry said: “In the past few months loyal energy customers have continued to be hit by unjustified price rises on their already rip-off tariffs.
“This government has delivered on time its promise to protect 11m households from poor value deals this winter. Today’s final cap level brings greater fairness to energy prices and puts consumers at the heart of the energy market.”
Rachel Reeves, chair of the Business, Energy and Industrial Strategy (Beis) select committee, welcomed the cap but called on energy minister Greg Clark to outline how it will protect vulnerable people from finding themselves worse off.
"If the government are unable to provide this guarantee, then the Beis committee will need to revisit this issue and ensure the price cap delivers as intended,” she added.