TWO of the UK’s biggest domestic energy suppliers have announced a merger as competition increases.

SSE, which is the second largest supplier, confirmed it is to merge its domestic arm with Npower.

Pre-tax profits at SSE were down almost 14 per cent to £409.6 million in the six months to September and the firm said the deal will allow the major players to make savings and achieve greater success in a “competitive and regulatory environment”.

The move reduces the Big Six energy giants to a “Big Five”, with SSE shareholders owning 65.6 per cent of the operation and those of Innogy, Npower’s German parent company, holding 34.4 per cent.

Those with a stake in SSE will vote on the deal by July next year, while Innogy has committed to seek the approval of its supervisory board by the end of 2017.

Alistair Phillips-Davies, chief executive of SSE, said: “The scale of change in the energy market means we believe a separation of our household energy and services business and the proposed merger with Npower will enable both entities to focus more acutely on pursuing their own dedicated strategies, and will ultimately better serve customers, employees and other stakeholders.”

The announcement comes as the Big Six prepare for regulatory changes after last month’s UK Government announcement that a price cap will be imposed on poor-value energy tariffs.

In an interview with the BBC’s Today programme, SSE retail chief operating officer Tony Keeling said this was not the driver behind the deal.

He said: “We’ve been looking for well over a year about what we should do.

“We’ve listened to government regulators and customers and understand that the market needs to transform and we’re absolutely committed to doing that.

“By merging SSE’s retail business with Npower’s retail business to form a new organisation, we think we can be more efficient, more agile and more innovative for customers.”

On the reduction of major players serving the market, he went on: “We think it is very good for competition and customers.

“There are over 60 people competing in the market and if you look back to 2011, there were only eight.”

Peter Terium, chief executive of Innogy, said Npower will be “better placed to offer value to our customers and our shareholders as part of a new company”.

The parent company booked a half-year loss for Npower in August as it grappled with what it called “fierce competition and political pressure”.

It said it would attempt to counter “very tense” trading for the UK retail business by driving down costs, but admitted annual earnings would also be stuck in the red.

Meanwhile, 200,000 UK customers have quit E.On this year, with the company blaming energy price hikes, “fierce” competition, tough regulation and the Brexit-hit pound.

The German energy firm’s finance chief Marc Spieker said its base has since stabilised.

The company hiked its standard variable dual-fuel prices by an average of almost per cent from April 26 and the company warned the price cap and other changes “will have a significant negative impact on earnings in the United Kingdom”.

The group’s adjusted underlying earnings are set to come in between £2.5 billion and £2.7 billion for the full financial year.