SSE has held talks over selling its UK energy supply business to Ovo, a deal that would see its smaller rival become the second largest supplier of electricity and gas in the market behind British Gas.
SSE has been trying to find a solution for its domestic supply business after a deal to spin it off and combine it with Npower, the UK retail business of Germany’s Innogy, fell apart at the end of last year.
Ovo and SSE have held talks in recent months although details of any possible transaction are not yet known. News of the talks were first revealed by Sky News.
Ovo Energy was founded in 2009 by Stephen Fitzpatrick, a former City financier, and has quickly become a significant force in the UK energy supply market, attracting customers away from the so-called Big Six suppliers which include British Gas, Eon, EDF Energy, Npower, ScottishPower and SSE.
It has a 5 per cent share of the market, according to the latest data from UK energy regulator Ofgem. A deal for SSE’s supply business would give it an 18 per cent share, just behind British Gas on 19 per cent.
Bristol-based Ovo earlier this year sold a 20 per cent stake to Japan’s Mitsubishi Corporation in a deal that valued it at about £1bn. It is also backed by private equity group Mayfair Equity Partners.
The Big Six energy suppliers have come under increasing pressure as the number of new “challenger” brands such Ovo have mushroomed in the past decade, attracting customers away on the promise of cheaper deals and better customer service. The number of suppliers in the market has grown from 12 at the start of the decade to a peak of 70 last year.
A government-mandated cap on energy prices for 11 million households, which came into force in January, has also put large suppliers with high legacy cost bases under pressure.
SSE has been trying to offload its domestic supply business to concentrate on the development of renewable energy projects and its regulated networks business. Since the Npower deal fell through, it has been exploring both an alternative sale or a possible flotation of the unit as a standalone business. At its last update in July, SSE said work continued “towards a listing or new ownership [of the unit] by the second half of calendar year 2020”.
SSE Energy Services, as the supply business is called, had 5.71m domestic customer accounts at the end of June, down from 5.78m at the end of March. Ovo Energy has more than a million customers.
Both Ovo and SSE said they did not comment on market speculation.