The news that 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 has taken the industry by surprise.
The merger will effectively turn the Big Six into the “Big Five”, and calls have come from concerned parties urging the competition authorities to take a “critical look” at the merger.
The announcement ties in conveniently with news of government’s publication of a draft bill to implement a market-wide cap on default energy tariffs. However, Innogy chief executive Peter Terium has insisted the price cap was not the reason for the merger, although he admitted it “might have pushed it a bit quicker”.
During a press conference call, Terium told journalists the timing is “irrespective of the price cap interference”.
Some industry participants say this deal could have a dramatic impact on the competitiveness of the energy sector, while others suggest its implications will be less severe.
Here Utility Week rounds up some of the reaction to the news:
Paul Massara, former chief executive, Npower
“I don’t think [this merger] is a massive issue for the competition authorities. You already have two sets of markets – one which is the SVT market, and the big six are in that marketplace, and then you have the small suppliers who are competing aggressively in the churning market.
“So yes, you’ll be merging two of the big players, but in terms of the number of competitors in the marketplace, and in terms of the price-setting which is done by the small suppliers anyway, I’m not sure that’s a big issue, especially if you’ve got a cap in place. I don’t see it as a competition issue, it’s more does it make sense for the shareholders, and I think it probably does.”
Doug Stewart, chief executive, Green Energy
“This proposed merger is an unintended consequence of government intervention. I think it’s a shot across the bows of government to be perfectly honest.”
Ed Kamm, managing director, First Utility
“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. I don’t see any benefit for the consumer in this at all – unless they switch away.”
Ian Cain, former managing director, Centrica’s credit energy business
“I see some commentators attaching significance to price caps as a driver in this scenario, though the drivers for me a much wider. The customer supply-side of the industry has become a very tough place to do business – both commercially and from the point of you of delivering brilliant customer outcomes.
“Both SSE and Npower have had challenges, with service levels in Npower holding them back for some time and subsequent restructures proving difficult to execute. SSE, known for a better level of service, has experienced challenges given the constraints of a cumbersome legacy systems infrastructure. Both, it is clear, need significant investment, focus and pointing towards the radically different energy market of the future.
“The context of increasing completion, multiple small suppliers, nimble suppliers, the aforementioned price caps, and the need to understand, deploy and deliver value from digital and smart technologies. These technologies are opening up opportunities right across the increasingly connected energy ecosystem and change is now faster than ever.”
Victoria MacGregor, director of energy, Citizens Advice
“The energy market has long failed many people so it’s 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. 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.”
Alex Neill, managing director of home products and services, Which?
“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. As both businesses struggle on customer service, coming in the bottom half of our satisfaction survey, the competition authorities must take a hard look before allowing any venture to go ahead. Any consumers unhappy with their current energy provider should consider switching to a better deal.”
Rebecca Long Bailey, shadow secretary of state for business, energy and industrial strategy
“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.”
Nigel Hawkins, director, Nigel Hawkins Associates
“Other members of the Big Six will assuredly review their energy supply operations – and how to improve their lacklustre returns.
And all, of course, will be very interested in how the market values the new business. The proposed deal will undoubtedly impact other energy market players, such as the quoted Good Energy, and unquoted suppliers including First Utility and Ovo Energy.”
David Elmes, professor, Warwick Business School
“Being an energy supply company in the UK has become a tough business to be in and so it’s not too surprising that some companies are taking the decision to exit the market. Despite an extensive review of energy markets by the Competition and Markets Authority, the Government has chosen to go further than the CMA recommended in requiring changes to how companies supply energy.
“Now Npower has certainly struggled in recent years. It lost over £100 million in 2015 and lost over 350,000 customers that year and ended up being fined £26 million by the regulator, Ofgem, because of slip-ups in implementing a new billing system which led to inaccurate bills and slow replies to complaints. With that history, it’s not surprising that Npower has looked at selling up and leaving the retail market. But it also needs to be a wake-up call on just how much pressure is being put on the sector.”
Kevin Coyne, national officer for energy, Unite
“This is a flagrant example of rampant capitalism designed to solely benefit the shareholders – the SSE share price rose on the merger news – with scant regard for the workforce and the hard-pressed consumer. We would urge the Competitions and Markets Authority to take a critical look at this merger as the ‘Big Six’ energy companies, with an estimated 80 per cent market share, would become the ‘Big Five’. Their stranglehold on the energy market will increase.”