Energy market disarray: Big Six energy firms SSE and Npower abandon plans to merge

Published by Edmund Greaves on 17 December 2018.
Last updated on 17 December 2018

Consumers will not face reduced choice from the biggest energy firms as SSE and Npower abandon their proposed mega-merger.

As recently as 10 October the competition watchdog the Competition and Markets Authority (CMA) gave its final assent to the merger going ahead.

However, SSE has now announced it is abandoning the merger saying it is “not in the best interest of customers, employees or shareholders”.

In its statement SSE cites the government’s energy price cap and “challenging market conditions” among the reasons why the merger is not going ahead.

Alistair Phillips-Davies, chief executive of SSE, says: "This was a complex transaction with many moving parts. 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 was not an easy decision to make, but we believe it is the right one.

"SSE Energy Services remains a profitable business with a strong track record, a customer-centric culture and an excellent team that has enabled it to be a market-leader for many years.  We will build on this while continuing with separation activity in preparation for its long-term future outside the SSE group.

The board of SSE now says it plans to consider other options for the firm.

Energy market disarray

The announcement that SSE and Npower will not merge bookends a tough year for the UK energy market.

2018 has seen the collapse of many smaller providers due to rising wholesale prices, and extraordinary market intervention from the government in the form of a price cap on tariffs.

Ofgem has announced it was tightening licensing rules for new energy suppliers that join the market.

Under the new rules, companies will have to demonstrate they have adequate financial resources and can meet their customer service obligations before they are allowed to supply energy.

Martin Herrmann, chief operating officer retail of Innogy SE (Npower’s parent company), says: “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.

“We negotiated intensively with SSE on adjustments to the transaction as announced in November 2017. Unfortunately, we could not reach an agreement that was acceptable for both sides. We are now assessing the different options for our British retail business.”

But commenting on the collapse of the SSE-Npower merger, Peter Earl, head of energy at Comparethemarket says: “In a market that has historically suffered from a lack of competition, the collapse of a merger between two of the largest providers in the country may well be a positive thing for consumers.

"SSE and Npower are two companies who regularly increase prices and, as a result, have been hit with many customer departures, in favour of smaller companies.

"The merger would have been a helpful defensive move following these losses so that the combined company could increase profits but, despite the deal being cleared by the regulator, it was unlikely to benefit average consumers.

“However, sadly, I think that many customers will continue to remain on uncompetitive tariffs, which will be priced just below Ofgem’s cap which comes into effect on 1 January.

"I am concerned that the price cap will play into the likes of SSE-Npower’s hands, lulling people into thinking that they won’t need to switch change provider to get the best deal. In the vast majority of cases though, people will still need to switch to get the best and most competitively priced tariffs.”

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