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SSE and npower merger hits the skids over price cap

Image: SSE.

Image: SSE.

SSE and innogy have been forced to renegotiate and possibly delay the proposed merger of their supply divisions, laying the blame squarely at Ofgem’s looming price cap.

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

SSE said that it had become apparent that the impact of “recent market developments”, specifically the default tariff cap to be enforced by Ofgem, meant the commercial terms of the deal needed to be reconsidered.

It elaborated that the price cap stood to have an effect on the new entity’s requirements to post collateral against its credit exposure and its ability to obtain and retain an appropriate credit rating.

As a result, the two companies are heading back to the negotiating table over the coming weeks, with a progress update due to be provided by mid-December.

Furthermore, the renegotiation looks set to delay completion of the deal beyond the Q1 2019 timeframe the two companies had been aiming for.

But Alistair Phillips-Davies, chief executive at SSE, said SSE was standing firm in its belief that a potential merger could deliver “real benefits” for customers and the market in general.

“In assessing potential changes to the commercial terms of the proposed SSE Energy Services/npower combination, the interests of customers, employees and shareholders will be paramount,” he added.

Martin Herrmann, retail COO at innogy, meanwhile pointed to the complex nature of the transaction.

“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 combined retail company. Both innogy and SSE continue to see the benefits of a combination of the two businesses,” he added.

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