The planned merger between SSE and Innogy’s retail arm Npower, which would have created the UK’s second largest energy supplier, has been called off.

“Adverse developments” in the retail market and “regulatory interventions” such as the price cap have been cited as reasons behind the decision.

The two companies had been in discussions to negotiate the terms of the deal since last month but were unable to reach an agreement.

SSE’s chief executive described the proposed merger as a “complex transaction”, while Innogy is assessing options for its British retail business.

A statement from Npower’s parent company said that Innogy SE and SSE plc have “stopped the negotiations on commercial adjustments for combining their retail businesses in Great Britain as announced in November 2017.

“The reason for this is that the two parties could not agree on a joint solution for the necessary direct and indirect financial contributions.”

Martin Herrmann, chief operating officer retail of Innogy SE, said: “Adverse developments in the UK retail market and regulatory interventions such as the price cap have had a significant impact on the outlook for the planned retail company.

“We negotiated intensively with SSE on adjustments to the transaction as announced in November 2017. Unfortunately, we could not reach an agreement that was acceptable for both sides. We are now assessing the different options for our British retail business.”

Alistair Phillips-Davies, chief executive of SSE plc, added: “This was a complex transaction with many moving parts. We closely monitored the impact of all developments and continually reviewed whether this remained the right deal to do for our customers, our employees and our shareholders. Ultimately, we have now concluded that it is not.  This was not an easy decision to make, but we believe it is the right one.

“SSE Energy Services remains a profitable business with a strong track record, a customer-centric culture and an excellent team that has enabled it to be a market-leader for many years.  We will build on this while continuing with separation activity in preparation for its long-term future outside the SSE group.

“We are now exploring all the available options with a view to delivering this future in the best possible way. In this, the interests of our customers, employees and shareholders remain paramount.  In the meantime, we remain strongly committed to high standards of service for customers and delivery of our five-year dividend plan for shareholders.”

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