Perth-based energy supplier SSE and the owner of Npower are in talks about combining their operations to create a new company in the UK, it emerged today.
The talks between SSE, owner of Scottish Hydro, and Npower’s parent company, Germany’s Innogy, “are well-advanced but no final decisions have been taken”, the Scottish group said.
The central plank of the proposals is that the combined business would contain SSE’s and Innogy’s household energy supply and services business in Britain.
SSE’s shares closed up 2.6 per cent, or 36p, at 1,410p, making it the biggest riser on the FTSE 100 Index. The company said the new entity would be listed and it would “demerge its shares to its shareholders”.
SSE said in its announcement: “In line with its stated commitment to embrace change in each of its businesses, adapting them to the political, economic, social and technological requirements of customers and of society as a whole, the board of SSE has been in discussions with Innogy about creating a new independent energy supply company.
“In discussions, SSE is mindful of the requirements of customers and the concerns of employees. It will disclose the outcome of the discussions as soon as they are concluded.”
The announcement comes as Britain’s “big six” energy businesses brace for a raft of regulatory changes after the UK government announced last month that a price cap will be imposed on poor-value energy tariffs – a move attacked by ScottishPower today.
SSE, formerly known as Scottish and Southern Energy, is Britain’s second biggest energy supplier serving 7.77 million households, while Npower caters to 4.8 million.
Centrica, Iberdrola-owned ScottishPower, E.On and EDF make up the remainder of the major players. All have also come under recent pressure from smaller rivals who have been taking customers and market share.
Neil Wilson, senior market analyst at ETX Capital, commented: “At first glance it’s hard to see how the regulator would let this one through.
“Cutting the big six down to a big five would hardly help competition, which is exactly what the government wants.
“A merger would create the UK’s largest household energy supplier with a 24 per cent market share, ahead of British Gas’s 22 per cent. The problem and arguably the rationale is that the big six are losing customers at a record pace to smaller suppliers. Smaller suppliers now account for more than 8 per cent of market share, up from 1 per cent just three years ago.
“The big six also face a hit from price caps – consolidation has its appeal in this kind of environment – just look at the gambling industry’s raft of deals.”