£38 billion power struggle

Energy giants in titanic takeover battle to snare millions of UK customers

HOUSEHOLDS could face higher bills as a £38bn merger of two giant power companies threatens to overhaul the UK energy market.

German energy group Eon is buying rival Innogy, which includes the firm’s UK subsidiary Npower.

Eon already supplies around 4.6m customers in the UK while Npower also supplies around 4.6m.

But the deal comes as Npower is set to form a new listed company with rival SSE, which has 7.7m customers and is getting out of the UK household energy market.

If both deals go ahead, Eon would end up with a stake in the new company with more than 11m customers, giving it an even bigger foothold in the UK market.

The big six firms would be cut to just four independent companies – British Gas, EDF, Scottish Power and Eon – causing major concerns over a lack of competition.

The deal between SSE and Npower is already being probed by authorities.

Less competition threatens to increase prices as firms know customers have fewer options.

Rachel Reeves MP, chairman of the Commons’ Business, Energy And Industrial Strategy Committee, said: ‘This latest development risks being a major blow to competition in our energy market, reducing customer choice, and threatening to be a very poor deal for energy consumers in the UK.’

Competition officials are examining the deal, with some analysts suggesting a solution could be for Eon to sell down its shares in the new SSENpower company. Analysts at Investec said the deal posed ‘potentially significant competition issues in the UK supply market’.

However, Peter Earl, head of energy at Compare The Market, warned that ‘a sizeable number of challenger brands have recently emerged onto the energy scene offering more competitive tariffs’.

It comes as Npower said it had lost 155,000 customers over the year, mostly following a 9.8pc price increase last March. It posted a £56m loss, its third loss in a row.

Major UK suppliers have been hammered by growing numbers of smaller competitors.

They are also under pressure from a price cap due to start next year to try and save customers’ money. The market share of the big six fell to a record low of 78pc last year, down from 84pc for both gas and electricity one year earlier. The biggest supplier, British Gas, is cutting 4,000 UK jobs after losing 1.4m customers.

In Germany, the break-up of Innogy is the sector’s biggest overhaul since the country decided to get out of nuclear power after the Fukushima nuclear disaster in 2011.

Innogy plans to hold on to its stake in the new firm being formed by SSE and Npower for at least six months.