It was recently announced that energy giants ‘SSE’ and ‘Npower’ were going to merge their supply companies, becoming one, giant energy supplier that would act under the ‘independent’ status. It is unclear as to how exactly this will work, as regardless of how they perform their restructure, they will ultimately still be owned by their respective parent companies in a joint venture. So, why is this happening and what do they stand to gain?
In the past, being one of the Big Six held extreme value and guaranteed huge market share regardless of customer service levels or prices. Having already established their household name status through brute financial force, the Big Six have largely been unchallenged for the majority of their history. This has all changed in recent years now that smaller, independent suppliers have begun to dethrone the Big Six by offering much cheaper tariffs and better customer service.
It is theorised by many, therefore, that the primary reason for this power play by SSE and Npower, given their falling customer numbers and revenues, is that they are trying to give their brand a new image. The title of ‘independent’ is becoming ever more attractive. This is a rather transparent attempt at doing so, however, as they will still have their parent companies to fall back on.
What will happen to current customers?
No statement has yet been made about the position current SSE and Npower customers will find themselves in following the merge. It is assumed that fixed tariff holders will carry on as normal until their contract ends, followed by an automatic switch on to the new supplier’s standard variable.
Southern Electric, or SSE as they now trade under, are the second largest supplier in Britain with over 7.8 million households under their tariffs. Npower are just behind with 4.8 million household customers, but put together could cause some real upsets in the energy markets. It is as of yet up in the air as to whether this move with benefit or damage current market conditions. If two of the Big Six are to disappear and form a new independent, then will more people start to become aware of how the energy markets work? Will they realise that they have the option to switch?
Less competition, higher prices
Co-founder of Bulb, Hayden Wood made the comment that dissolving part of the Big Six will not help market conditions, but only worsen them. It is his opinion that the less competition that exists in the market, the higher prices will be on average. While this could well be the case, there must be some good news buried within this announcement for independents like Bulb: learning that two of your biggest competitors are going to disappear cannot be bad news. Of course, there will be a new company forming as a result that could potentially have twice the power, but who knows if it is going to work at all?
Shareholders have expressed their concerns and are not confident that this new ad-hoc business model is to succeed. If it were to, it would create a nightmare situation for their competitors; however, if it were to fail, it would open up a huge gap in the market for independents to continue their rise. Whatever the case the next few years will be extremely interested for spectators.
The new company
As the two companies are still in advanced talks regarding the physicalities and regulations related to a merge of this kind, there is no way of knowing the exact composition of the company, nor the name that it will bear. What we do know is that SSE shareholders will have a a 65.5% stake in the new company, where Innogy will own the other 34.5%, making SSE the commanding share.
We also know that if customers were to be directly transferred, as hypothesized, the new company would have a 23% market share on electricity supply and 19% of gas. This would make them the new market leader in electricity. Combined, the two supply companies have a sales arsenal of around £10.7 billion, which would make them a kind of ‘ultra-company’. It is not yet known whether this will take off, but it is definitely worth finding out.