Mergers of big players “rarely a good thing” for consumers

The merger of SSE’s domestic supply arm with Npower could have a “dramatic impact” on competition in the energy market, consumer group Citizens Advice has warned.

The group’s director of energy Victoria McGregor told Utility Week the energy market has “long failed many people”, so it is vital any new company resulting from the merger of SSE and Npower is “clear on the value it will offer customers, not just shareholders”.

“While there should be no immediate impact on customers, the merger of SSE and Npower could have a dramatic impact on competition in the energy market,” she said. “Given existing issues around a lack of competition and the size of the two companies’ market share, it’s crucial the case for merger is referred to the Competition and Markets Authority for review, to make sure it doesn’t lead to consumers losing out.”

Fellow consumer group Which? has urged the competition authorities to take a “hard look” at the venture before allowing it to go ahead. Managing director of home products and services Alex Neill said: “Mergers of such big players in essential markets, such as energy, are rarely a good thing for consumers, especially given the low levels of competition.”

Other market players are less concerned about negative impact on competition. Former Npower chief executive Paul Massara suggested a single merger of this kind cannot do much harm. He did, however, suggest that if more mergers were to follow – an event he considers unlikely – this may jeopardise the competitive dynamic of the market.

The company created by the merger will still be smaller than British Gas – which will remain by far the UK’s largest supplier with a 33 per cent of the market share of domestic gas customers and 22 per cent of domestic electricity customers.

Based on Ofgem figures on the market shares of companies, the new firm would have a market share of around 24 per cent in the domestic electricity sector, bigger than that of British Gas. However, its share of the domestic gas market would be around half that of British Gas’s, at 19 per cent.

Earlier this week, SSE and Innogy announced that they had 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 new company will not be controlled by either Innogy or SSE. Innogy will hold a minority stake of 34.4 per cent in the business, while SSE plans to demerge its 65.6 per cent stake to its shareholders upon completion of the transaction.

Labour has urged the government’s competition watchdog to ensure the planned merger between the retail energy arms of SSE and Innogy does not hurt customer choice.

Read Utility Week’s analysis on the SSE-Innogy tie-up here and a column by analyst Nigel Hawkins here