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UK utility ESS is in a rush to merge its household electricity supply business with German peer Innogy and exit the household power market ahead of a government move next year to put a cap on energy utilities profits.
Innogy is the parent company of UK energy supplier Npower and its chief executive, Peter Therium, told The Telegraph that the talks about a merger had been going on since last year, prompted by the emergence of new, smaller rivals, but London’s plan to cap energy supplier profits sped them up.
The plan for the merger has been sent to the Competition and Markets Authority, which will decide whether to let it go ahead. If it does, the deal, calculated to be worth some US$3.94 billion (3 billion pounds), will cut the number of large electricity suppliers in the UK from six to five.
SSE and Innogy have plans to make the new company public and list it on the LSE within a year, but this would be tough to accomplish as the CMA will very likely take about this long to make sure the merger doesn’t threaten competition on the local market. If the CMA greenlights the tie-up, the new company will become the second-largest energy supplier in the country after British Gas.
The Telegraph notes that the government’s plans affecting utilities involve a cap on standard energy tariffs in a bid to settle customer worries that if they don’t switch to a lower-cost energy supplier, they will be overcharged. This cap would erase some US$1.3 billion (1 billion pounds) from energy utilities’ annual profits.
According to Reuters, if the deal is approved, it could lead to further M&As in the energy utility space as most of the large players in this field are being increasingly challenged by new, nimbler entrants.
Innogy’s chief said he was confident the regulator would approve the deal, even though after it the new company and British Gas would alone control more than 50 percent of the market.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.