SSE’S projected tie-up with Innogy has its work cut out

Comment Martin Flanagan

SSE’S talks with Npower’s owner Innogy about setting up a new independent energy supply company may run foul of regulator, Ofgem. The government has also been on the industry’s case, price caps and all, and it will take some doing by SSE and Innogy to persuade the powers that be to allow a Big Six to become a Big Five in an industry that is already a lightning rod for consumer controversy.

Ofgem and Whitehall’s mantra is that anything which helps energy competition and keeps household and business energy bills down is good, and yet an Sse/innogy merger would create the UK’S largest household energy supplier with a 24 per cent market share, ahead of British Gas’s 22 per cent. At its most basic, fewer suppliers means less competition and less competition means higher prices. Ofgem may rest its case on that simple premise.

The talks between the Scottish Hydro owner and Innogy could also suggest the big boys – which also include Scottish Gasowning Centrica, EDF, E.on, and Iberdrolaowned Scottishpower, are feeling the heat after more than 1.1 million homes have switched to a better deal with small suppliers so far this year.

Attritional loss of customers in any industry leads businesses to wonder whether consolidation is the way out of their difficulties. And SSE and its wouldbe German partner would not be slow in reminding Ofgem that smaller suppliers now account for more than 8 per cent of UK energy market share, up from 1 per cent just three years ago,

There is only so much pain the Big Six can absorb through slashing costs and taking a hit to profit margins. That is why SSE and Innogy are testing the waters with the announcement.

I still they they will have their work cut out in getting it through.