SSE customers may join Ovo Energy in proposed deal
Ovo Energy is set to acquire SSE Energy Services in a historic blow to the dominance of the Big Six energy suppliers. Ovo has agreed to take on SSE PLC’s home energy business, including its telecoms interests. This means it will get SSE’s domestic customers, business operations and staff.
The £500m deal has yet to get regulatory approval, but if it passes Ovo’s customer base will increase from 1.5 million to almost 5 million.
If it does get approval customers will not notice any difference for some time. The SSE brand will be licensed to Ovo during a transition period, to give the two suppliers time to migrate SSE’s assets to Ovo.
However, SSE will continue supplying businesses in mainland UK and as well as all customers in Northern Ireland and the Republic of Ireland.
Will the Big Six be infiltrated by independent Ovo?
This is the first time a Big Six supplier has agreed to sell its domestic retail arm. It means that Ovo may take SSE’s place at the top table alongside British Gas and multinationals EDF Energy, Npower, Eon and Scottish Power.
When Ovo launched in 2009, the Big Six held 100% of the market, by 2018 it was down to 75% and their combined annual profits fell by 10% over the same year.
SSE’s losses have accelerated as consumers find more and more reasons to switch, including high prices and poor service.
SSE has been facing problems for a while and another merger between SSE and Npower had previously been in development.
This was abandoned in late 2018 due to what SSE called "very challenging market conditions". It said that the government’s new national price cap on energy had made it difficult for the merger to take place.
The deal with 10-year old challenger company Ovo is likely better for consumers than a consolidation of power by two of the Big Six giants.
Who is SSE?
SSE is the UK’s third-largest energy supplier, its largest producer of renewable energy and it had a 13% market share in 2018. The company has been around since 1998 when two former public sector utility authorities merged.
In recent years SSE's share prices have been in decline, losing over £400 in value over the last half-decade. In this context, shedding its floundering domestic energy interests looks like a move to restore shareholder confidence.
In May, it publicly announced it was looking to sell or float its energy services division. This came on the back of a loss of more than 500,000 customers to other suppliers.
SSE is considered to give the best customer service of all the Big Six, which isn’t necessarily saying much.
On Trustpilot, customers complain of unexpectedly high bills which the company struggled to justify and significantly long waiting times when contacting the supplier by phone.
That said, SSE is still top domestic energy supplier for customer service according to the Citizens Advice Bureau and uSwitch chose it as Large Supplier of the Year for 2019, giving it a higher customer satisfaction score than the rest of the Big Six.
Who is Ovo Energy?
Ovo is the UK’s largest independent energy supplier. It has a reputation for providing good customer service and in 2019 was named by uSwitch as Supplier of the Year for the fourth time in five years. In 2019 it was ranked first for customer satisfaction as well as in five other categories.
It has increased its UK customer base by an impressive 50% over the last year and has set up shop in France and Spain, with plans to expand to Australia, Germany and Italy in 2020.
As for its green credentials, Ovo Energy has banned coal and nuclear from its fuel mix and promises at least 33% of energy on standard tariffs is sourced from renewables. It also offers a greener tariff guaranteed to use only 100% renewable energy.
Ovo founder and CEO Stephen Fitzpatrick called the deal a “significant moment” at a time when the move to renewable energy is leading to massive changes in the global energy system.
“For the past three years Ovo has been investing heavily in scalable operating platforms, smart data capabilities and connected home services, ensuring we’re well-positioned to grow and take advantage of new opportunities in a changing market,” he said.
“SSE and Ovo are a great fit. They share our values on sustainability and serving customers. They’ve built an excellent team that I’m really looking forward to working with.”
SSE head Alistair Phillips-Davies said Ovo had a “bold vision for how technology can reshape the future of the industry”.
“I’m confident that this is the best outcome for the SSE Energy Services business,” he said.
If the sell-off goes ahead, SSE Plc plans to focus on low carbon infrastructure with an eye on the UK’s net-zero emissions by 2050 plan.
“We have a clear strategy around developing, operating and owning renewable energy and electricity network assets, along with growing businesses complementary to this core,” Mr Phillips-Davies said.
“With a large and growing renewable energy pipeline and a leading position in the electricity networks needed to deliver low-carbon energy reliably to homes and businesses in an increasingly electrified economy, we are well placed to create value from the low-carbon transition.”
How will this potential deal affect customers?
Ovo is not the cheapest independent supplier on the scene, but its customers have been willing to pay a premium for its award-winning service.
However, with such fast growth, expansion into new international markets and now the potential addition of SSE’s business, will it be able to maintain its noted high quality of service? Will Ovo’s fairly high prices climb even higher? Time will tell.
The deal is still to meet regulatory approval which will take until late 2019 or early 2020. That’s if it happens at all.
A merger of Npower owner Innogy and Eon has been in the works since 2018 and is yet to materialize. Innogy has even publicly speculated that the struggling Npower operation may have to be wound down.
For now, both suppliers will continue to operate independently and customers will not be affected by any changes yet.