SSE in talks with Ovo over sale of UK energy business
Deal would make Bristol company second largest supplier of electricity and gas in country
SSE is in talks about selling its UK energy supply business to Ovo, a deal that would see its smaller rival become the second largest supplier of electricity and gas in the market behind British Gas.
SSE has been trying to find a solution for its domestic business, which supplies around 5.7 million homes in Britain, after a deal to spin it off and combine it with Npower, the UK retail unit of Germany’s Innogy, fell apart at the end of last year.
Ovo and SSE have held talks in recent months although details of any possible transaction are not yet known.
SSE said in a statement late on Saturday in the UK that the discussions “are continuing, however no final decisions have been taken and no agreements regarding the terms of any transaction have been entered into”.
Since the Npower deal fell through in December, the FTSE 100 utility has been exploring both a sale or a possible flotation of the unit as a standalone business.
SSE added in the statement that it remains “focused on securing the best long-term future for the business, its customers and employees, and for shareholders”.
Ovo Energy was founded in 2009 by Stephen Fitzpatrick, a former City financier, and has quickly become a significant force in the UK energy supply market, attracting customers away from the so-called Big Six suppliers, which include British Gas, Eon, EDF Energy, Npower, ScottishPower and SSE.
It has a 5 per cent share of the market, making it the seventh largest supplier, according to the latest data from UK energy regulator Ofgem. A deal for SSE’s retail business would give it an 18 per cent share, just behind British Gas on 19 per cent.
Bristol-based Ovo earlier this year sold a 20 per cent stake to Japan’s Mitsubishi Corporation in a deal that valued it at about £1bn. It is also backed by private equity group Mayfair Equity Partners.
Mr Fitzpatrick has been expanding the company outside of the UK and last year bought a majority stake in a German supplier. Ovo has also been investing in technology such as vehicle-to-grid, which allows owners of electric vehicles to store electricity in their car battery when it is cheap and sell it back to the grid when there is strong demand.
The Big Six energy suppliers have come under increasing pressure as the number of new “challenger” brands such Ovo have mushroomed in the past decade, attracting customers on the promise of cheaper deals and better customer service. The number of suppliers in the market has grown from 12 at the start of the decade to a peak of 70 last year.
A government-mandated cap on energy prices for 11 million households, which came into force in January, has also put large suppliers with high legacy cost bases under pressure.
SSE wants to concentrate on the development of renewable energy projects and its regulated networks business.