SSE/NPower merger highlights failing energy market
Will the planned merger of SSE and NPower retail businesses do anything for the failing energy market?
SSE and Innogy have agreed to merge Innogy’s British retail business Npower with SSE’s household energy and energy services business to form a new independent retail energy company. The merger will turn the Big 6 into the Big 5, reducing competition in the sector.
Details on the merger are in short supply with even the staff being given some pretty bland information. The main trade union, UNISON, said:
“This bolt from the blue will have left many of the companies’ employees feeling decidedly anxious. With the merger only just announced, there’s no detail yet as to the number of jobs that may go, the posts most affected, or the sites at risk. But staff at SSE and NPower, although feeling understandably nervous as to what the future holds, should rest assured that UNISON will leave no stone unturned as it works to protect jobs across the two companies.”
We do know that the new company will not be controlled by either Innogy or SSE. Innogy will hold a minority stake of 34.4% n the business, while SSE plans to demerge its 65.6% stake to its shareholders upon completion of the transaction. SSE’s business retail division won’t be included in the deal.
The companies deny that the proposed price cap was the driver, but accept that it might have quickened the pace. This doesn’t quite match with media briefings. A source quoted by Reuters said the management at Innogy are “no longer willing to accept the losses” from its retail arm Npower. The Telegraph was told that, with the government proposing a cap on energy bills, SSE executives viewed their supply business as “more trouble than it’s worth”.
Some argue that given the growing share of the market going to smaller providers this merger isn’t very important. Ed Kamm of First Utility put his view rather bluntly:
“This smacks of two dinosaurs coming together to survive…It can’t be a good thing that the company with the highest percentage of SVT customers and the company with the highest SVT rate, are coming together.”
Rebecca Long Bailey, shadow secretary of state for business, energy and industrial strategy is concerned over the impact, she said:
“The energy market is broken in the UK. A merger of two of the biggest players which may diminish competition should, therefore, be subject to proper scrutiny. If the relevant legislative thresholds are met, then the Competition and Markets Authority should seek to satisfy themselves that there will not be a substantial lessening of competition through this transaction. This is why Labour want to set up local publicly owned companies to rival the big six and increase competition.”
It is certainly the case that profit margins in the energy retail sector are tight and therefore companies might wish to focus on more profitable parts of the business. Although the regulator has their eyes on some of these as well, networks in particular. However, given the dominance of the big suppliers and the weakness of the market, it is right that the competition elements are addressed by the CMA.
- Posted in: energy prices