SSE, the UK’s second-biggest energy company, which supplies almost 6m households, is in talks to sell its household supply business to upstart Ovo Energy.
If a deal is finalised, it would catapult Ovo – founded a decade ago in Bristol by Stephen Fitzpatrick – into the ranks of the big energy suppliers, in a major shake-up of the industry.
The SSE deal would add 5.7 million household customers to Ovo’s existing 1.5m, putting Ovo in second place after British Gas, which has 12m domestic customers. Ovo has offered £250m for SSE’s struggling household division, called SSE Energy Services.
Ovo has grown into a medium-sized firm after taking on half a million customers from smaller rivals Economy Energy and Spark, which collapsed in January, boosting its market share to nearly 5%.
SSE’s chief executive, Alistair Phillips-Davies, has been under pressure to dispose of the retail division since the group’s embarrassing failure to merge it with rival npower in December. Both companies blamed the government’s cap on energy prices and growing competition for their failure to reach a deal.
A sale would leave SSE focused on its renewables and networks businesses, as a generator and distributor of energy. It runs energy networks and power stations as well as onshore and offshore wind farms, including Scotland’s largest offshore wind farm, Beatrice in the Moray Firth.
“SSE is actively progressing a number of options for the future of SSE Energy Services, having determined that its best future lies outside the SSE group,” SSE said in a statement on Sunday. “SSE can confirm it is in discussions with Ovo Group over the possible sale of the SSE Energy Services business.
“These discussions are continuing. However, no final decisions have been taken and no agreements regarding the terms of any transaction have been entered into.”
The consumer organisation Which? expressed some concerns. Caroline Normand, its director of advocacy, said: “Mergers in essential markets, such as energy, are rarely a good thing for consumers, especially given the low levels of competition. The competition authorities must ensure there is thorough scrutiny before allowing any venture to go ahead, to ensure it doesn’t reduce competition and lead to higher bills.”
Sarah Broomfield, energy expert at uSwitch, was more positive: “If this deal does materialise, Ovo may well bring a different feel to what SSE customers have traditionally been used to, as one of the companies at the forefront of new technologies such as smart meters and electric vehicles.
“But households affected would most want to know about the price they’re paying and the customer service they’re getting.”
SSE, headquartered in Perth, Scotland, employs 20,000 people across the UK and Ireland, including 9,000 at the household supply division. The business has been run separately from the rest of the company since it started preparing for a merger with npower.
The traditional energy industry has been rocked by the advent of renewable power sources such as wind and solar, along with price caps and carbon taxes. Last week Ofgem, the regulator, reduced its price cap on standard energy tariffs to reflect lower costs for suppliers, which means bills for 11m homes will fall by £75 this winter.
SSE reported a 38% drop in adjusted profit before tax to £736m for the year to 31 March, and admitted this “fell well short” of its expectations. It warned of another hit to profits this year.
The company plans to shut its last coal-fired power station at Fiddler’s Ferry in Cheshire by the end of March next year. It is the operator of the biggest onshore wind energy fleet in the UK and Ireland and says it has consent to increase offshore wind generation from 1 gigawatt to about 3.3GW, which would make it the biggest offshore supplier.