In a statement, SSE said its board "has been in discussions with Innogy SE about creating a new independent energy supply company to which would be contributed: SSE's household energy supply and services business in Great Britain; and Innogy's household and business energy supply business in Great Britain".
SSE said on Tuesday the talks were about merging its household energy supply and services business with Innogy's United Kingdom supply business npower, sending SSE shares more than 3 percent higher and Innogy's up 1.6 percent.
Energy companies are expected to have to slash their costs to cope with the cap and the combination of the two businesses could help them become more efficient and allow...
The firms are in advanced talks to create a new joint company, taking over the accounts of the 13 million gas and electricity customers they hold between them. The combined 23 percent would just top Centrica-owned British Gas's share of 22 percent, data from regulator Ofgem shows.
Shares in SSE climbed 3% on the announcement while Centrica was down 1%.
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"At first glance it's hard to see how the regulator would let this one through", said Neil Wilson, senior market analyst at ETX Capital. "The combined business would be listed and SSE would demerge its shares to its shareholders", SSE said.
Big Six energy supplier SSE is reportedly mulling an exit from the domestic market as the government sets its plans for the price cap. "The answer is probably not", an industry source said, speaking on condition of anonymity.
The big six are also facing an impact to profits from price caps proposed by the government.
When introduced, which is not likely until next winter at the earliest, it would be the biggest energy market intervention for 30 years.