Big six energy supplier SSE has agreed to sell its household energy business to Ovo Energy for £500m.

Ovo will acquire SSE’s household energy and related services business in the UK, which includes the customers, operations and employees for energy, telecoms and home services.

Ovo will pay £400m in cash and £100m in loan notes for SSE in a deal expected to complete late this year or early 2020. On completion, the net cash proceeds of this transaction will be used to reduce SSE’s net debt.

SSE is the third largest supplier in the UK energy market, and one of the “big six” alongside British Gas, nPower, EON, Scottish Power, and EDF Energy. Ovo is the UK’s largest independent energy supplier, with 1.5 million customers and about 2,000 employees.

The announcement comes nine months after a planned tie-up between SSE and Npower’s retail arms collapsed.

SSE said it “will do all it can to ensure a smooth transition for customers and employees”.

Alistair Phillips-Davies, chief executive of SSE, said: “We have long believed that a dedicated, focused and independent retailer will ultimately best serve customers, employees and other stakeholders – and this is an excellent opportunity to make that happen. Ovo shares our relentless focus on customer service and has a bold vision for how technology can reshape the future of the industry. I’m confident that this is the best outcome for the SSE Energy Services business.

“Following the transaction, SSE will be able to give an even greater focus to delivering the low carbon infrastructure needed to help the UK reach net zero emissions.”

Stephen Fitzpatrick, CEO and founder of OVO, said: “This transaction marks a significant moment for the energy industry. Advances in technology, the falling cost of renewable energy and battery storage, the explosion of data and the urgent need to decarbonise are completely transforming the global energy system.

“For the past three years OVO has been investing heavily in scalable operating platforms, smart data capabilities and connected home services, ensuring we’re well positioned to grow and take advantage of new opportunities in a changing market.”

Stephen Murray, energy expert at MoneySuperMarket, said SSE had been looking to offload its retail energy arm for a while, so the news comes as no surprise.

“Its planned merger with npower fell by the wayside at the end of last year and in Ovo it now seems to have found a potential solution,” he said, “The likes of Ovo, Shell, Bulb and Octopus mean there’s a base of emerging suppliers who are continuing to challenge the big six in the domestic energy market and can fill the void left by SSE deciding to focus on other parts of its business.

“Today’s announcement will enhance the ever-growing competition for customers, which means you’ll have more choice, more competitive tariffs and a switching market where hundreds of pounds worth of savings are readily available for who are open to moving supplier.”