By Nina Chestney
LONDON (Reuters) - British energy suppliers SSE (L:SSE) and Innogy SE's (DE:IGY) Npower on Wednesday won final regulatory approval for a tie-up of their retail units, clearing the way for the creation of the UK's second-largest retail power provider.
The merger, given the go-ahead by Britain's Competition and Markets Authority (CMA), would create a new entity with a 23 percent market share, the second largest in the UK market behind Centrica's (L:CNA) British Gas, with 27 percent.
It would also cut the "Big Six" providers to five.
The companies aim to complete the deal by the first quarter of next year at the latest, they said earlier this year.
After a review of the deal, the CMA decided to clear the merger as SSE and Npower are not close rivals for customers on standard variable tariffs (SVT), it said.
"With many energy companies out there, people switching away from expensive standard variable tariffs will still have plenty of choice when they shop around after this merger," said Anne Lambert, chair of the CMA's inquiry group.
The CMA found that the number of people switching energy providers in Britain was the highest in a decade, and the proportion on SVTs has fallen.
Those who do not switch are usually on one of the large energy suppliers' already expensive SVTs, so the CMA examined whether the merger would change how those prices are set.
While SVT prices are mainly driven by changes in wholesale costs, large energy suppliers take account of each other's tariff changes when setting their own, the CMA said.
The watchdog looked at whether a reduction in the number of large suppliers would encourage larger or earlier tariff changes.
"In this case, SSE and Npower do not pay special attention to each other, consistent with the evidence that they are not close rivals for SVT customers, who instead prefer to move to other suppliers," the CMA said.
Energy regulator Ofgem's cap on such tariffs should also help to protect SVT customers, the CMA said.
Both SSE and Innogy welcomed the CMA's decision.
Innogy said preparations for the new British retail energy company are progressing and both parties have achieved important milestones in recent months.
"This is a complex transaction and there is still much work to do in the coming weeks and months," said Alistair Phillips-Davies, chief executive of SSE.
"However, we’ve always believed that the creation of a new, independent energy and services retailer has the potential to deliver real benefits for customers and the market as a whole," he added.