Monday, 10 December, 2018

SSE merger with Npower hangs in the balance as parties renegotiate terms

A gas ring Ongoing uncertainty over the energy price cap has contributed to the situation analysts said
Priscilla Morrison | 11 November, 2018, 00:53

The UK's competition watchdog cleared the creation of a new energy giant in August, but it now appears the business rationale for the merger may be its biggest threat.

The merger of two of the UK's biggest energy firms is hanging in the balance after npower and SSE said they would have to reconsider the terms of the deal because of the government's price cap and tough market conditions.

Alistair Phillips-Davies, chief executive of SSE plc, said: "We continue to believe that creating a new, independent energy supplier has the potential to deliver real benefits for customers and the market as a whole, and that remains our objective". After recovering slightly, it fell again to a low of £11.28 - a drop of 4.6 per cent - before rallying to close at £11.52, down 2.5 per cent on the day.

Martin Herrmann, retail COO at innogy, meanwhile pointed to the complex nature of the transaction.

They said: "While price caps are a major headwind for United Kingdom energy suppliers, this issue is well-known in the market and the level at which the cap has been fixed was widely anticipated across the sector".

Any changes to the combination terms would be created to mitigate the impact of these developments.

It said the negotiations would include talks about "potential additional direct or indirect financial contributions by each party".

More news: Google Chrome update will warn about mobile subscription scams

A planned asset swap between Innogy's German parent RWE and peer E.ON EONGn.DE would see Innogy's assets, likely including npower, divided between the two companies.

SSE announced after the market had closed on Thursday that SSE and Innogy SE, the owner of npower, are working together regarding potential changes to the commercial terms of the proposed combination of SSE Energy Services and npower Limited.

As of yet no details of what is being renegotiated have emerged.

The price cap aimed at saving consumers around £120 a year for their "typical usage" will be set at £1,137, but it will also mean suppliers have to cut the price of their default tariffs to at least the level of the cap. It is due to come into effect on 1 January.

Following a thorough review, the panel investigated how the merger would affect householders.

Households in England, Scotland and Wales on default tariffs - such as standard variable tariffs - stand to benefit.

The new company, which is yet to be named, already has several board members in place.

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