It looks the ‘Big Six’ energy suppliers could be reduced to a ‘Big Five’, as SSE and Npower have announced merger plans that would see them form the UK’s second-largest energy supplier.
The new company would have an estimated 12.8 million customers, making it bigger than all but British Gas, which has 13.7 million.
So, what's the latest on the proposed merger? Why have the two rivals agreed to pool resources? And what impact, if any, will this have on the domestic energy market?
After announcing plans to merge back in November 2017, the SSE and Npower merger came a step closer today (August 30, 2018) when the Competition and Markets Authority (CMA) provisionally gave the merger the go-ahead after finding it won't raise any competition concerns.
The UK's competition watchdog, which recently blocked 21st Century Fox's planned buyout of Sky, citing that it would be against the public interest, said its review has found SSE and Npower don't compete closely on their default, standard variable rate tariffs (SVTs), and so any deal between the two won't affect how prices are set.
It was feared that a merger of this scale could reduce competition in the energy market and lead to higher prices, particualrly for those customers on SVTs, which usually come with the most expensive rates.
But Anne Lambert, chair of this merger's enquiry group, put these fears to rest, saying: “We carefully scrutinised this deal, in particular how it would impact people who pay the more expensive standard variable prices. Our analysis shows that the merger will not impact how SSE and Npower set their SVT prices because they are not close rivals for these customers."
It seems the main driver behind the merger is the desire of Innogy, Npower’s German parent company, to pull out of the UK domestic energy market, which it sees as overly-competitive and unpredictable, given the government’s recent interventions, and the ongoing uncertainty surrounding the plans to leave the EU.
Peter Terium, chief executive of Innogy, 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.”
It seems SSE and Npower are also in desperate need of a rebrand, as both have been haemorrhaging customers over the last 12 months - Npower has lost £90 million in revenue and almost 80,000 customers in the last 12 months, while SSE has had a terrible time since it put prices up by 6.9% in April this year, losing nearly a quarter of a million customers in the three months to June.
The merger will also allow both suppliers to focus separately on business and domestic energy.
Alistair Davies, chief executive of SSE, said: "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.”
Ed Kamm, chief commercial officer at First Utility, the UK’s largest supplier outside of the Big Six, pulled no punches when giving his verdict on the merger: “This smacks of two dinosaurs coming together to survive. It’s perhaps not surprising that the company with the highest price default tariff, and the one with the highest proportion of customers on its SVT, would seek solace with one another as they are most at risk from the impending price cap.”
The merger will obviously be to the advantage of SSE and Npower, both of which will benefit from pooling resources and exposure to a greater customer base, but what will it mean for energy customers, and the UK energy market as a whole?
What's the latest on te
We took to Twitter, to gauge reaction to the merger, and almost half (45%) thought the merger won’t make any difference to the UK energy market, while a third (33%) reckoned it will turn out to be a bad thing.
The truth is though, it’s difficult to say what type of impact the merger will have on an ever-changing energy market, in which the Big Six providers are seeing their market share eroded by a combination of smaller suppliers and consumer-generated energy.
Last year was a record year for energy switching, with data from Ofgem showing that 7.7 million gas or electricity switches took place in 2016 - 1.7 million more switches than the previous year, a surge of 28%.
And developments in renewable energy generation and storage technology is enabling a growing number of communities to take control of energy production, which they can both use to power homes and business, then sell any surplus back to the grid.
Ed Varley, Energy Director at UK Power, said: “Legacy brands are struggling to cope with the pace of change in the energy market. The level of competition from lean, new entrants is hurting them and they need to take action. We welcome ongoing, positive change in retail energy and we hope that this merger will ultimately be good news for customers and competition.”
As things stand, the merger is a nascent corporate story, so it’s too early to say what impact it will have on domestic and business energy supply, but it does offer an intriguing insight into how increased customer choice and renewables are affecting the big players in the UK energy market.
And anything that can shake up an industry that is constantly dogged by plummeting consumer confidence, surely has to be a good thing?
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