UK-listed energy supply business SSE (SSE) has confirmed that it is in talks over a possible merger with the UK arm of German utility group Innogy.

In a statement to the market issued at 2.02pm on Tuesday, SSE said the new company would see SSE’s domestic UK supply and services business join forces with Npower, the household and business energy supply division of Innogy.

‘The discussions between SSE and Innogy are continuing and are well-advanced but no final decisions have been taken and no binding agreements regarding the terms of any combination have been entered into,’ the statement said.

The news sent shares in SSE to the top of the FTSE 100 leader board, rallying 3% to £14.15, and added more than £400m to the group’s market value.

WATCHDOG WILL TAKE SOME CONVINCING

SSE and Npower are two of the UK’s so-called ‘big six’ energy suppliers, and as such any deal between the pair would face intense scrutiny from UK regulators.

‘Cutting the big six down to a big five would hardly help competition, which is exactly what the government wants,’ says Neil Wilson, senior market analyst at ETX Capital.

Britain’s energy market is dominated by the big six, including Centrica’s (CNA) British Gas, Scottish Power, owned by Spanish utility Iberdrola, Germany’s E.ON and EDF Energy of France. The big six account for about 85% of the retail electricity market in the UK.

SSE is Britain’s second largest energy supplier after British Gas, with around 8m energy customer accounts. Npower has another 4.7mllion customers.

‘A merger would create the UK’s largest household energy supplier with a 24% market share, ahead of British Gas’s 22%,’ says ETX’s Wilson.

GROWTH OF INDEPENDENTS

The big six have been losing customers to smaller, independent suppliers for the past couple of years. Smaller suppliers now account for more than 8% of market share, up from 1% just three years ago, according to Ofgem data.

But whatever supportive arguments SSE and Npower might put forward, agreeing such a merger risks the UK energy regulator sending the wrong message to consumers.

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Issue Date: 07 Nov 2017