SSE has agreed to de-merge its retail business and combine it with Innogy's npower business.
SSE also booked an expected fall in first-half profit but raised its dividend.
The shares of the merged company will be admitted to the London Stock Exchange, though the deal remains subject to regulatory approval.
SSE expects the transaction to be completed by the last quarter of 2018 or the first quarter of 2019.
"The scale of change in the energy market means we believe a separation of our household energy and services business and the proposed merger with npower will enable both entities to focus more acutely on pursuing their own dedicated strategies, and will ultimately better serve customers, employees and other stakeholders," chief executive Alistair Phillips-Davies said.
Meanwhile, SSE's adjusted profit before tax fell 13.9% to £409.6m, while reported pre-tax profits slipped 40.4% to £402.2m.
The utility declared an interim dividend of 28.4p, up 3.6% on the previous year.
Adjusted earnings per share fell 8.8 % to 31.2p, in line with the company's guidance of between 30p and 32p.
For the full year, SSE said it expected earnings per share at a level which is at least in line with the current consensus of sector analysts' forecasts of 116p.
The company is still targeting an annual increase in the full-year dividend that is at least equal to RPI inflation.