Two of the UK’s ‘Big Six’ energy firms have cancelled their planned merger due to ‘challenging market conditions’.
SSE and Npower, two of the largest energy suppliers in the country, announced last year that they would be merging their retail divisions. The deal would have turned the ‘big six’ energy firms – the major companies that dominate the UK energy market – into the ‘big five’.
However, there were suggestions that the deal would collapse in November when they claimed they would have to renegotiate terms due to the government’s energy price cap that will be introduced next year.
The new energy price cap will ensure customers pay no more than £1,137 a year for ‘typical usage’ of gas and electricity. Up to 11 million customers will save on average £76 on their annual energy bills once the cap is introduced, according to energy regulator Ofgem.
The deal to merge SSE’s household energy division and Npower’s retail operations failed due to a number of other reasons too, such as increased competition in the UK energy market and the faltering performances of both companies. Npower currently has 4.06 million customers across the country, despite losing half a million customers in the last year. There are currently 7.35 million SSE customers.
“This was a complex transaction with many moving parts,” said Alistair Phillips-Davies, chief executive of SSE. “We closely monitored the impact of all developments and continually reviewed whether this remained the right deal to do for our customers, our employees and our shareholders. Ultimately, we have now concluded that it is not. This is not an easy decision to make, but we believe it is the right one.”
SSE said they were now considering what to do next with its SSE Energy Services business. It has been suggested that another major energy supplier could buy the company, or it could even demerge and be listed as a separate company, although industry experts believe SSE’s retail unit would be too small to do so. SSE will now be faced with costs of up to £67m due to the failed merger. They will also have to pay the £650,000 salary of Katie Bickerstaffe, the designated chief executive of the new company.
Npower’s customers could end up being supplied by another of the ‘big six’ energy firms, E.ON. This is because of an asset swap between E.ON and RWE, owner of Npower’s German parent company, Innogy SE. After the collapse of the merger, Innogy SE have cut their future outlook, claiming keeping Npower will cut their retail profits by £45m this year and by up to £225m in 2019.
“Adverse developments in the UK retail market and regulatory interventions such as the price cap have had a significant impact on the outlook for the planned retail company,” said Martin Hermann, chief operating officer of Innogy SE. “We are now assessing the different options for our British retail business.”
