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SSE and Npower merger won’t stop customers switching, says watchdog
The consumer watchdog has dismissed fears that the £3bn mega-merger between Big Six supply giants SSE and Npower could stifle competition in the energy market.
The Citizens Advice Bureau has said the tie-up may dilute competition by shrinking the six largest suppliers in the market down to five. But the consumer champion said the dilution of competition is unlikely to breach the competition authority’s tests or reduce the number of customers who choose to switch.
The consumer group’s acceptance of the deal is a vote of confidence for the energy supply pair which hope to wrap up the biggest M&A deal in the energy market since privatisation by the end of this year.
The Competition and Markets Authority (CMA) is undertaking a full probe into the proposed deal, which would create a supplier with a combined 11.5m customers in the UK. It follows a two-year root-and-branch review of the market, which for years has been dogged by criticism of rising bills and low customer engagement rates.
Citizens Advice said, in its written evidence to the CMA’s investigation, that even though choice will be reduced, any blunting of the market’s competitive edge will be countered by the Government’s legislation to cap energy prices for customers on the most expensive tariffs.
SSE is spinning off its supply arm to merge with Innogy-owned Npower, creating a “new kind of energy supplier”. The tie-up will be spearheaded by Katie Bickerstaffe, who was poached from Dixons Carphone earlier this year.
The CAB also poured doubt on fears that a smaller number of main suppliers would dull the impulse for customers to switch. Energy customer switching is at record levels, in part due to a deluge of micro-suppliers into the market which has ballooned to over 60 energy companies. Last month almost half a million people chose a new supplier, up 13pc from May last year.
SSE and Npower have argued that the sheer volume of choice in the market means that there is unlikely to be reduced competition. They also point out that there is very little competition between the pair for new customers because most people shopping around for a better deal will choose a cheaper energy minnow.
In May, 45pc of those switching moved from a large supplier to a medium-sized supplier, and only 23pc went between large suppliers.
The CAB’s chief energy economist, Richard Hall, said although it is true households tend to switch supplier in response to a price hike, the overall prompt “driven by five large suppliers moving prices may not be materially less than the prompt driven by six”.