Scottish Power’s owner explored deal for UK retail energy unit
Iberdrola spoke to rivals in recent months about potential combination amid challenging market conditions
The owner of Scottish Power has sounded out rivals about a possible deal with its UK retail business as the sector grapples with high consumer debts and the rapid rise of Octopus Energy.
Iberdrola, the Spanish energy group, had spoken to several companies in the sector about a combination with Scottish Power as it reacts to the challenges facing the retail market, according to people familiar with the matter.
The talks, which have taken place since the start of the year, excluded Scottish Power’s networks and power generation businesses but no formal deal process was conducted and no partner had been found, they added.
Options reviewed included potential combinations that could have seen Iberdrola sharing control of the business, some of the people said. Scottish Power said it “does not comment on market speculation”.
Questions over the future of its UK household supply division, which has about 4.4mn gas and electricity customers, follow a major reshaping of the energy market over the past decade.
Challenger brand Octopus Energy this year overtook British Gas as the country’s largest household energy supplier, leaving others questioning whether and how to bulk up their operations to help them compete.
Senior people in the industry said any deal could attract scrutiny from Ofgem, the regulator, if it risked reducing the number of players in the market and increasing prices for households.
Thirty smaller providers collapsed in late 2021 and early 2022 after being caught between surging wholesale energy prices and government-mandated price caps, which limited their ability to pass on costs to customers.
Shell exited the market in 2023, citing poor returns, just six years after entering it as part of its efforts to diversify from fossil fuels.
Consumer debts to energy companies have hit a record £4.4bn as bills remain hundreds of pounds higher than before the energy crisis, even though gas prices have eased.
Iberdrola chair Ignacio Galan has been bullish on the UK, praising “predictability and stability” in the country and saying the UK and the US would receive almost two-thirds of €58bn in planned investment by Iberdrola over the next three years.
But the investment would be focused on electricity networks and the retail unit was “irrelevant” in terms of what it would receive, Galan told the Financial Times last month.
Scottish Power’s UK retail unit produced net profits of £182mn in 2024 on revenue of £4.7bn, according to accounts published this month.
Andrew Ward, chief executive of Scottish Power’s UK retail business, told MPs on Wednesday: “If you look at the customer business . . . I lost money three out of the [past] five years. Over the five years, I have made £50mn, which is less than £10 per customer. It is not a high profit part of the energy system.”