Move follows rapid drops in wholesale gas prices since original scheme was announced in September
The government has downgraded its energy bills support for businesses after warning the current scheme was costing taxpayers too much.
From April, firms will get a discount on wholesale prices rather than a cap on costs as under the current support scheme.
It follows rapid drops in wholesale gas prices over the past four months, with gas now costing half the amount it did when the initial scheme was announced under former prime minister Liz Truss in September.
Prices are now lower than they were before Russia’s invasion of Ukraine, although they are still nearly four times higher than their long-term average.
While the existing scheme is forecast to cost around £18.4bn for the six months to the end of March 2023, the new scheme, which will run to the end of March 2024, has been capped at £5.5bn for 12 months.
It will give firms a discount to their gas bill of £6.97 per mwh if wholesale prices rise above a threshold of £107 per mwh, and £19.61 per mwh to their electricity bill if prices rise above a threshold of £302 per mwh.
But energy intensive businesses, which include steel makers and manufacturers of other construction products will receive greater support.
These firms will get a discount to their gas bill of £40 per mwh if prices rise above £99 per mwh and £89 per mwh to their electricity bill if prices rise above £185 per mwh.
Chancellor Jeremy Hunt said: “My top priority is tackling the rising cost of living – something that both families and businesses are struggling with.
“That means taking difficult decisions to bring down inflation while giving as much support to families and business as we are able.
“Wholesale energy prices are falling and have now gone back to levels just before Putin’s invasion of Ukraine.
“But to provide reassurance against the risk of prices rising again we are launching the new Energy Bills Discount Scheme, giving businesses the certainty they need to plan ahead.”
The Treasury described the current scheme as “unprecedented in its nature and huge scale” and said its cost was equivalent to around three pence on people’s income tax.
“The government has been clear that such levels of this support, unprecedented in its nature and huge scale, were time-limited and intended as a bridge to allow businesses to adapt,” it said.
But industry group UK Steel, which has called for an extension to the current support, said the new scheme was betting on a “calm and stable 2023 energy market in a climate of unstable global markets”.
It added that it offered less than other countries including Germany, which last month legislated for a scheme worth an estimated 100 billion euros (£88bn) which will start in March.
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