energy

Ovo to become UK's second largest energy supplier after £500m SSE deal

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Ovo Energy is in line to become the UK’s second largest energy provider after agreeing to buy SSE’s household supply arm in a £500m deal.

Ovo, which already supplies 1.5m households, will take on 3.5 million SSE customers, making the company the second largest supplier behind British Gas, which has 12 million domestic customers. About 8,000 staff will transfer to Ovo, which employs about 2,000 workers.

The deal signals a shakeup of the UK’s big six energy providers, propelling Ovo to the ranks of the major suppliers a decade after it was founded by the former City trader Stephen Fitzpatrick.

Fitzpatrick, who remains chief executive, said the deal was a “a significant moment for the energy industry”. He added: “Advances in technology, the falling cost of renewable energy and battery storage, the explosion of data and the urgent need to decarbonise are completely transforming the global energy system.”

It is not Ovo’s first acquisition, having gained half a million customers from rivals Economy Energy and Spark after their collapse. However, it is the most significant purchase for the firm since it was founded in 2009.

The £500m price tag for the SSE Energy Services division is double the £250m offer reported in August, when the two companies confirmed they were in talks over a potential sale. It came only months after SSE announced plans to offload the business.

Ovo has agreed to pay £400m in cash and £100m in loan notes. The deal is expected to be completed later this year or early in 2020.

The sale, which still needs a stamp of approval from regulators, will leave SSE to focus on its renewables and energy distribution business. It should also relieve pressure on its chief executive, Alistair Phillips-Davies, after the failed merger with npower in December. The two firms blamed the government’s energy price cap and tough competition for their failure to reach a deal.

Phillips-Davies said he was confident that the sale to Ovo was the best outcome for the SSE Energy Services business and added that the company would do all it could to ensure a smooth transition for customers and staff.

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Stephen Murray, an energy expert at Moneysupermarket.com, said the deal created a formidable challenger to the traditional big six energy suppliers.

“The likes of Ovo, Shell, Bulb and Octopus mean there’s a base of emerging suppliers who are continuing to challenge the big six in the domestic energy market and can fill the void left by SSE deciding to focus on other parts of its business.

“Today’s announcement will enhance the ever-growing competition for customers, which means you’ll have more choice, more competitive tariffs and a switching market where hundreds of pounds worth of savings are readily available for who are open to moving supplier.”

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