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SSE and NPower merger delayed over price cap

11 November 2018

SSE, whose deal with Germany's Innogy - owner of NPower - would have created the second-biggest energy supplier behind Centrica-owned British Gas, said the "proposed combination would be delayed beyond Q1 of 2019".

It disappointed shareholders by cutting its profit outlook twice this year and analysts at Bernstein warned that the latest news was "another blow to SSE management's..."

In separate statements issued yesterday evening (8 November), both SSE and innogy, the parent company of United Kingdom supply firm npower, revealed that the two had entered into discussions to renegotiate the terms of the merger agreement first disclosed in November a year ago.

SSE cited recent market developments, which it said included: "The potential impact of the level of the default tariff cap on, amongst other things, the new company's requirements to post collateral against its credit exposure and its ability to obtain and retain an appropriate credit rating".

The cap on poor value standard variable tariffs (SVTs) has initially been set at £1,137 per year for a typical dual fuel customer paying by direct debit, but will be updated every six months.

The merger, a major shake-up of the United Kingdom power market that would cut the dominant big six firms to five, comes after the government ramped up scrutiny of Britain's big energy suppliers, which it has accused of ripping off customers.

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However Alistair Phillips-Davies, chief executive of SSE, maintained it continued 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 this remained the objective. Innogy said adjustments could include additional financial contributions by each party.

It comes after the energy watchdog Ofgem confirmed on Tuesday that the energy price cap will come into force on January 1, saving consumers up to £120 each.

Analysts at Jefferies said speculation suggested the deal was "in trouble", but added it was unlikely just to have been caused by the price cap.

As a result, SSE's share price fell to £11.85 on Friday.

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.

SSE and NPower merger delayed over price cap