Npower and SSE have confirmed reports of a merger and revealed proposed details of the combined business.

German Innogy SE, which is behind the British retail business of Npower, has agreed to merge with SSE’s household energy business. Together, the firms currently serve approximately 11.5 million customer accounts in Great Britain.

The move is subject to approval from the Innogy board, SSE shareholders, plus competition and regulatory bodies. If approved, it would take the UK’s ‘Big Six’ energy providers to the ‘Big Five’, along with British Gas, EDF, E.ON, and Scottish Power.

A Contribution Agreement entered into today revealed that Innogy and SSE have agreed the following businesses to a new combined company:

• SSE’s household energy supply and services business in Great Britain (‘SSE Retail’); and
• the Npower household and business energy supply and services business in Great Britain.

SSE’s business retail (B2B) and its Ireland businesses won’t be included in the combined retail company. Services offered by the merged business include electricity and gas to domestic and business customers.

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The suppliers further confirmed that there’s no change for customers until the merger of Npower and SSE’s domestic retail businesses become effective.

Peter Terium, CEO of innogy SE, said: “We have made great progress in restructuring Npower over the past two years and have improved our performance considerably. However, when we look at the competitive landscape and the uncertain political environment for energy retailers in Great Britain, it is clear that Npower would be better placed to offer value to our customers and our shareholders as part of a new company with the ability to succeed in the face of the challenges that lie ahead.

Alistair Phillips-Davies, chief executive of SSE, added: “We have been and remain committed to taking the right decisions in each of our businesses to secure the right outcomes for energy customers and other stakeholders.

“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.”

The combined retail company would be listed on the premium segment of the London Stock Exchange. It won’t be controlled by either Innogy or SSE. Innogy will hold a minority stake of 34.4% in the combined retail company. The UK incorporated company will be held by SSE shareholders – 65.6% – once the transaction’s completed and the demerger has gone ahead.

‘Deal needs to work in best interest of consumers’

Claire Osborne, energy expert at uSwitch.com, said the question for consumers will be whether this new supplier leads to improvements in pricing or customer service.

“The regulatory authorities will need to be satisfied that this deal works in best interest of consumers.  Whether it’s the Big Six or the Big Five, customers have plenty of choice in the energy market with over 60 energy companies actively competing on both price and service. And with the average tariff from the Big Six now £326 more expensive than the best deal on the market, there is no need for customers to wait to see how this plays out.”

However, Alex Neill, Which? managing director of home products and services, said mergers of such big players in essential markets, such as energy, are rarely a good thing for consumers, especially given the low levels of competition.

“As both businesses struggle on customer service, coming in the bottom half of our satisfaction survey, the competition authorities must take a hard look before allowing any venture to go ahead.

“Any consumers unhappy with their current energy provider should consider switching to a better deal.”