Ofgem has today confirmed the government's long-awaited energy price cap will come into effect from January 1st, saving 11 million customers an average of around £76 a year on their bills.

However, the energy industry has responded with renewed calls for the government to revamp its domestic energy efficiency programmes, warning that rising wholesale power prices mean the cap could prove little more than a temporary fix.

Ofgem said the price cap would cover those customers on default tariffs and would save some households on the most expensive tariffs up to £120 a year. Overall, the price cap is expected to remove around £1bn of overcharging from consumers' bills.

Following a consultation earlier this year the price cap has been set at £1,137 per year for a typical dual fuel customer paying by direct debit. Suppliers will have to cut the price of their default tariffs, including standard variable tariffs, to the level of or below the cap. 

Ofgem has said the cap will apply to all suppliers' default tariffs. However, suppliers offering green tariffs or other forms of innovative tariffs such as time-of-use tariffs as standard could apply for an exemption.

The price cap level will be updated in April and October each year to reflect the latest estimated costs of supplying electricity and gas, including wholesale energy costs. Ofgem acknowledged that with wholesale prices rising currently it is "likely" that it will announce an increase in the cap in February. "Customers can be confident that any increase in the cap would only reflect changes in the actual costs of providing the gas and electricity they use rather than supplier profiteering so that they will always pay a fair price for their energy," it said.

However, Lawrence Slade, chief executive of trade body Energy UK, said that if the government was serious about tackling energy bills the best long term solution was to strengthen energy efficiency policies.

"The price cap will present a significant challenge for many of the 70+ suppliers in the retail market, who are already facing steeply rising costs - the vast majority of which are out of their direct control, at a time when the market is more competitive than ever," he warned. "It is crucial that the cap doesn't halt this growth of competition and choice and still enables energy companies to both invest and attract investment.

"Wholesale costs have risen by well in excess of 30 per cent in the last year affecting energy companies large and small and, if this continues as current forecasts suggest, the cap will have to increase to reflect this… We must also look at ways to keep bills down on a lasting basis. Energy efficiency is by far the most effective way to do this over the long term, saving the typical customer hundreds of pounds a year through reducing their energy use."

He added that Energy UK has "long been calling for a national energy efficiency programme", a proposal that is backed by environmental campaigners and was recently endorsed by the National Infrastructure Commission.

However, the government has cut domestic energy efficiency funding from a peak earlier this decade and has repeatedly rejected calls to fund efficiency upgrades from tax revenues.

Energy and Clean Growth Minister Claire Perry insisted the price cap was a fair response to "loyal energy customers [who] 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 11 million households from poor value deals this winter," she said. "Today's final cap level brings greater fairness to energy prices and puts consumers at the heart of the energy market."