Photographer: Matthew Lloyd/Bloomberg
U.K. Household Energy Industry Set for Biggest Shake-up in a DecadeBy and
Accord comes as government proposes household price cap
New retail energy company will be listed on London market
SSE Plc struck a deal to create a new energy company with Innogy SE in what will be the biggest shakeup of the industry in more than a decade.
The combination will result in the U.K.’s second-largest household supplier after Centrica Plc’s British Gas unit with about 11.5 million accounts. It will reduce the so called Big Six leading providers to five. SSE shareholders will hold 66 percent and Innogy will get a 34 percent stake in the new company.
The strategy is a response to U.K. Prime Minister Theresa May’s plans to limit domestic prices to protect millions of households from what she calls “rip-off” charges. U.K. Business Secretary Greg Clark told lawmakers on Tuesday that the government will seek to push through the cap as soon as possible.
“When we look at the competitive landscape and the uncertain political environment for energy retailers in Great Britain, it is clear that npower would be better placed to offer value to our customers and our shareholders as part of a new company,” Peter Terium, chief executive officer of Innogy, said Wednesday in a statement.
The deal is expected to close in the fourth quarter of next year or early 2019. SSE sees more than 100 million pounds ($131 million) in synergies by combining the two retail companies, executives said on a call with analysts.
SSE fell 0.4 percent to 1,404 pence at 10:37 a.m. in London. Shares earlier surged the most since June 2016. Innogy rose 0.6 percent in Frankfurt.
Innogy’s Npower has been a problematic business for its German owners. The unit has bled customers and been forced to cut jobs after a billing system failure that dragged on for years. The company was voted worst U.K. supplier among its peers in a Which survey published in January.
Innogy, which remains committed to the U.K. market, was listed in Frankfurt in July last year in what was Europe’s biggest initial public offering since 2011. The company was spun off from RWE AG and includes grid, renewables and retail divisions in response to Germany’s transition toward an economy based on renewable energy that triggered a collapse in wholesale power prices. EON SE also split, creating a fossil-fuel and trading business called Uniper SE.
SSE is following the path of the German utilities, according to Peter Crampton, an analyst at Macquarie Group Ltd. in London.
“By splitting things up, you get a much better view of the operations,” he said.
Since 2010, Npower has lost 25 percent of its retail base, while SSE has lost a fifth, said Meredith Annex, an analyst at Bloomberg New Energy Finance in London.
Centrica Plc’s British Gas unit has 13.8 million clients.
SSE has dropped 5.8 percent this year, compared with a 13 percent gain in Euro Stoxx 600 utilities index. Innogy has gained 28 percent in the same period.