Utility Week

14 | 19TH - 25TH OCTOBER 2018 | UTILITY WEEK Policy & Regulation Electricity supply m arket shares by com pany: D om estic (G B) Br it is h G as E D F Eon Np o w er Sc o t t is h P o w er SSE C o -o p er at iv e E n er g y F ir s t U t ilit y Ovo E n er g y U t ilit a U t ilit y W ar eh o u s e G r een St ar E n er g y Bu lb Small s u p p lier s Q 1 2 004 Q 3 2 004 Q 1 2 005 Q 3 2 005 Q 1 2 006 Q 3 2 006 Q 1 2 007 Q 3 2 007 Q 1 2 008 Q 3 2 008 Q 1 2 009 Q 3 2 009 Q 1 2 01 0 Q 3 2 01 0 Q 1 2 01 1 Q 3 2 01 1 Q 1 2 01 2 Q 3 2 01 2 Q 1 2 01 3 Q 3 2 01 3 Q 1 2 01 4 Q 3 2 01 4 Q 1 2 01 5 Q 3 2 01 5 Q 1 2 01 6 Q 3 2 01 6 Q 1 2 01 7 Q 3 2 01 7 Q 1 2 01 8 0 5 1 0 1 5 2 0 2 5 Domestic electricity market share (%) HOW THE MARKET SHAPES UP GB ELECTRICITY MARKET SHARE BY COMPANY, DOMESTIC G as supply m arket shares by com pany: D om estic (G B) Br it is h G as E D F Eon Np o w er Sc o t t is h P o w er SSE U t ilit y W ar eh o u s e Ovo E n er g y F ir s t U t ilit y U t ilit a C o -o p er at iv e E n er g y G r een St ar E n er g y Bu lb Sm all s u p p lier s 2 005 Q 2 2 005 Q 4 2 006 Q 2 2 006 Q 4 2 007 Q 2 2 007 Q 4 2 008 Q 2 2 008 Q 4 2 009 Q 2 2 009 Q 4 2 01 0 Q 2 2 01 0 Q 4 2 01 1 Q 2 2 01 1 Q 4 2 01 2 Q 2 2 01 2 Q 4 2 01 3 Q 2 2 01 3 Q 4 2 01 4 Q 2 2 01 4 Q 4 2 01 5 Q 2 2 01 5 Q 4 2 01 6 Q 2 2 01 6 Q 4 2 01 7 Q 2 2 01 7 Q 4 0 1 0 2 0 3 0 4 0 5 0 60 Domestic gas market share (%) GB GAS MARKET SHARE BY COMPANY, DOMESTIC What is the Eon-RWE mega-deal? Innogy's parent company RWE – the ultimate owner of Npower – has agreed to exchange its 76.8 per cent stake in Innogy for a 16.67 per cent stake in Eon, as well as Eon's renewable portfolio and €1.5 billion in cash. Innogy's renewable division will be returned to RWE. In accordance with Germany's stock market regulations, Eon has also offered to buy out the other Innogy shareholders at a total value of €40 per share – consisting of an offer price of €36.76 plus projected dividends of €3.24 across 2017 and 2018. At the time this asset swap was announced, there were concerns it could affect the SSE-Npower retail merger. Analysts at investment firm Jefferies say Eon's future ownership of Npower "could make obtaining the necessary regulatory clearance more complex". However, in its final report, the CMA said it considered that the completion of the Eon/RWE transaction is "insufficiently certain to be part of the counterfactual". The big numbers SSE Retail Npower Number of customers (million, April 2018)* 3.091 2.280 Proportion of customers on SVTs (%)* 69 44 Gas Electricity Gas Electricity Revenue (£m, 2017) 1,408 2,403 944 1,431 Number of accounts † (million, year end 2017) 3.913 2.591 2.670 1.906 Market shares (%, Q1 2018) 11 14 8 9 *Excludes prepayment customers † A dual fuel contract is counted as two separate accounts Source: company figures continued from previous page When the merger was proposed in November 2017, the seemingly snap decision sparked speculation it could be an exit strat- egy for SSE and Npower – because earnings from the domestic retail market are continu- ally subjected to regulatory and government interference. For big power players, retail energy supply makes relatively little money – and is messy because large numbers of customers are involved. A market expert told Utility Week: "For SSE, whose finances are becoming somewhat stretched, regulated energy networks and renewable power – backed by subsidies – are the two main cash earners and investment priorities." And both companies have been losing market share to "strong competition". In June 2018, there were 73 licensed energy retailers supplying domestic customers in Great Britain. Hopcro suggests this merger marks a "pivotal point" in the evolution of an energy supply market ripe for change and SSE and Npower should be "given credit" for recog- nising this and instigating a major move. "On the 'get big, get niche, get out' spectrum, getting bigger is clearly a viable option. The question is, can they make it work? "The key challenge for SSE-Npower will be to blend agility with scale. It is a highly dynamic market and suppliers already have many issues to address – not least the need to drive their smart meter rollout pro- grammes. The risk with mergers is always that the internal work required can distract from what's going on in the market. But this merger must be a sprint not a marathon." The companies have given scant detail on what happens next. SSE says it is continuing to work towards completion in the first quar- ter of 2019, and that "more information will become available "in the coming months". Until the transaction is complete and the new company lists on the stock exchange, SSE Energy Services and Npower remain "entirely separate companies" and will com- pete as normal. Even with CMA clearance in place, competition law continues to apply while the two are separate entities. So, for now at least, the big six lives on.

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