SSE – Npower Merger- How do you like them apples?
Last night news broke that SSE and owners of Npower agreed on a £7 billion mega merger. The two “big six” companies who currently supply energy to 12.5 million customers combined are looking to control 22.5% of the UK domestic energy market. This would make them a major force to be reckoned with for British Gas who has a 27% market stake.
What does this mean for you the consumer? Let’s start off by looking at the two companies that plan on consolidating the big six.
SSE reported the highest profits of any other energy company last year with an impressive £347 million. They have a reputation for having the best customer service of any of the big six companies. They are also known for being among the least competitively priced when it comes to tariffs offered. They are the energy company with the second most customers but currently stuck at just over half of British Gas’. In common with the rest of the big six, SSE’s customer base is steadily declining. Energy customers that are fed up with paying high tariffs can easily find significant savings on their energy spend by switching away from SSE.
Npower is the little-brother partner in this merger with a 35% stake. The parent company, Germany’s Innogy is sure to welcome a merger as Npower recorded a £90 million loss last year and has been stuck in the red in recent years. The causes of this crippling loss can be largely attributed to a monumental collapse of Npower’s billing system coupled with a reputation of having very poor customer service. The area that Npower excels at is managing risks of the wholesale energy market, allowing them to offer some of the most competitive tariff prices of the big six.
This merger could go one of two ways:
- The companies successfully restructure in a way where they can cover one another’s short comings. Their strengths and weakness are well matched. SSE can improve Npower’s systems and customer service and Npower can bring its wholesale market strategy to a company that now has more buying power.
- On the other hand bad habits die hard and mergers of this magnitude are not easy to manage; in fact that’s how many of the industry inefficiencies crept into being in the first place. Even a few bad apples will quickly ruin the whole barrel. Worst case scenario we end up with npower’s customer service and SSE’s pricing strategy! If this were to happen then the direction that the merger takes could have a very negative impact on 12.5million customers and the energy market at large; even if it does have a positive impact on the merged company’s bottom line……
A SSE-Npower merger competing with British Gas would mean that two companies could control half of UK’s domestic energy market. Coincidently this will also mean that the two companies with the largest percentages of their customers on the expensive standard tariffs will now control 50% of the market. Not exactly a poster child for the benefits of competition.
The big six now share the market with 50 new energy suppliers who have entered the energy market over the past 5 years. These smaller energy companies offer enticingly cheap tariffs which have helped acquire hundreds of thousands of customers from the big 6. Those companies that are part of the big six (British Gas, SSE, Npower, Eon, Scottish Power and EDF) are finding that growth is nearly impossible, especially in light of their price hikes. Customers seem to be fed up with paying more for their loyalty.
If you are one of the 12.5 million energy customers with SSE or Npower, over half of which on standard tariff, it might be in your interest to do a quick energy comparison. With our price comparison tool, you can see the best deals offered by suppliers in your area. We hope that the merger is a success and the energy market reap the benefit of tighter competition in the Big 6. However that outcome is likely to be a monumental triumph of hope over experience, so don’t hold your breath.
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