UK watchdog examines impact of German energy shakeup on SSE-npower merger

The UK competition watchdog is exploring the impact of a major asset swap in Germany on the proposed merger of two of the UK’s biggest energy suppliers, npower and SSE.

In a deal announced on Saturday the German utility E.ON agreed to acquire rival RWE’s subsidiary Innogy SE, growing E.ON’s energy network and retail businesses.

In return, RWE gets a stake of about 17% in E.ON and will be refocused on renewable power generation by acquiring most of E.ON’s renewables business and keeping the renewables unit at Innogy SE.

As well as a shakeup of the German energy sector, the deal has big potential consequences for the UK.

Npower is owned by Innogy SE but under the asset and shares exchange the business will transfer to E.ON, one of the UK’s “big six” energy firms.

The UK’s competition watchdog was already investigating the merger of npower and UK-listed SSE, but on Monday said it would now also examine the ramifications of the E.ON-RWE deal. The Competition and Markets Authority is understood to be in conversations with E.ON.

Industry watchers said the E.ON-RWE deal would complicate and potentially endanger the merger of npower and SSE.

“E.ON’s ownership of npower could make obtaining the necessary regulatory clearance more complex,” said analysts at Jefferies Bank.

Analysts at Investec said the changes in Germany posed “potentially significant competition issues in the UK supply market”.

Innogy SE said on Monday the merger of npower and SSE was on schedule.

Martin Herrmann, chief operating officer of retail at Innogy SE, said: “This transaction is on track and in line with our timeline. We have applied for this with [the CMA]. We do hope in the fourth quarter 2018, early 2019, the process or the transaction will be approved.”

Herrmann said the merger of the energy suppliers, two of the big six that dominate the UK, was a necessary response to a UK market which had become extremely difficult.

“We are affected by the price regulation requirements [the government’s price cap] … And secondly there’s a deadline of 2020 with regard to smart metering. So the UK market environment is extremely difficult.”

However, Herrmann said he could not comment on how the merger would be affected by E.ON and RWE’s announcement.

The complex nature of the E.ON/RWE deal means it is not expected to complete until the second half of 2019, many months after the merger of npower and SSE.