SSE and Npower merger gets green light from competition watchdog

Competition and Markets Authority found the companies do not compete on standard variable tariffs

The merger will mean the UK's Big Six energy providers are reduced by one (Reuters)

The proposed merger of SSE’s household energy business with Npower has been provisionally approved by the competition watchdog.

The firms announced plans to merge their UK operations in November last year, with the aim of creating the country’s second biggest energy provider after British Gas.

The Competition and Markets Authority (CMA) launched an inquiry earlier this year into how the merger would affect UK households, focusing on concerns about the potential impact on standard variable tariffs (SVTs).

On Wednesday, the CMA said it had decided to clear the deal after finding that SSE and Npower do not compete closely on SVT prices.

Anne Lambert, chair of the inquiry group, said: “It is vital that householders have a range of energy suppliers to choose from so they can find the best deal for them. With more than 70 energy companies out there, we have found that there is plenty of choice when people shop around.

“But many people don’t shop around for their energy. So 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.”

Ms Lambert added that Ofgem’s price cap should also protect SVT customers.

Under new rules, Ofgem must cap prices on SVTs offered by the UK’s Big Six energy firms – which will become the Big Five if the SSE/Npower merger goes ahead.

SSE chief executive Alistair Phillips-Davies said he is “confident” that the deal will be completed by the end of the financial year.

“The scale and pace of change in the GB energy market continues to be significant and requires us to evolve to stay relevant, competitive and sustainable,” he said.

“The planned transaction presents a great opportunity to create a more agile, innovative and efficient company that really delivers for customers and the energy market as a whole.”

George Salmon, equity analyst at Hargreaves Lansdown, said: “SSE and Npower’s merger is, in many ways, a response to the challenges facing the sector. Pressure is mounting from politicians from all major parties, and increases in wholesale energy prices are starting to squeeze margins.

“All the while, the rise of price comparison websites mean customers are more likely to switch suppliers. In an industry where stability has been a key attraction for investors over the years, to say the cat is among the pigeons is something of an understatement.”

SSE is seeking safety in numbers with this deal, Mr Salmon said, as the merger will mean cost savings and will provide a boost in scale following years of declining customer numbers.

However, he added: “It’s not quite so straightforward. The government is due to announce a new cap on the maximum possible charge for standard variable tariffs soon. These tariffs are suppliers’ default offerings and often come with the highest bills. Npower’s charges are particularly punitive, and SSE has a huge percentage of customers on such deals.

“That means there’s plenty at stake for the new company. Should the cap be more severe than expected, the new business would face a fresh headwind from day one.”