The Modern Merger: SSE & npower
Barely a few weeks ago, Dashboard pointed out the willingness of energy companies to merge with technology experts to create a better fit for customers, a more efficient process for themselves and an overall smarter environment to extract and analyse information from.
Whilst this is a continuous trend that can be observed with weekly case studies, there was recently another type of merger that drew a lot of attention in the energy industry.
At the beginning of November, two of six British energy supplier giants announced they were merging. Through this move, SSE and npower are effectively turning the Big Six into the Big Five, who will retain the market share of over 80% of all household energy services. Their plan is to create a new company with over 11 million customer accounts and £3 billion in assets; this is scheduled to take place in the last quarter of 2018 at the earliest, or (more realistically) the first quarter of 2019.
Considering the merger’s unique scope and total volume, combined with the novelty aspect, it will be testing the energy market’s regulations heavily over the next 12 to 15 months. The news has already attracted negative reaction from Labour’s shadow business secretary and consumer group, Which?, who criticise the firms for creating an environment of diminished competition. As such, this could cause hiked prices and conditions more likely to yield to a monopoly. A similar situation was seen in the mobile phone industry in 2001, when Sony and Ericsson joined forces and became Sony Ericsson in an already narrow oligopoly – a few years later, the industry would be very near to becoming a monopoly.
SSE’s CEO, Alistair Phillips-Davies, says this strategical move “will ultimately better serve customers” by creating higher efficiency and greater innovation – similarly to electech mergers. Other benefits that the parties are expecting the merger to create are: a cost reduction of £100 million per year as well as less politically risky networks and businesses that would be attractive to any potential investors.
Dashboard thinks it’s detrimental not to keep up with non-technological news in the energy industry, as this could, and most likely will, have a wider impact e.g. on the regulations. It will be interesting to monitor the development of this deal and see the reach of its direct and indirect effect over the next year.