SCOTLAND'S SSE has shed its household supply arm to challenger Ovo in a £500 million deal.

The Perth-based power giant had planned to sell the division to Npower, but last November that deal was called off in light of the UK Government's energy price cap plans.

Today it was announced that 3.5m customers and 8000 staff are to transfer to Ovo.

The deal makes that 10-year-old company the second biggest supplier in the UK, with only market mainstay British Gas larger.

Before the agreement, Ovo had grown to become the largest independent operator, with a 1.5m-strong customer base and 2000 workers.

SSE said there would be no immediate impact for consumers and they would still continue to see SSE branding on their bills for the meantime.

Ovo has agreed to use the SSE brand under licence while it transfers over the bought business.

Stephen Fitzpatrick, founder and chief executive of Ovo, said the deal was a "bold move" but insisted the group and its systems were ready.

He said: "There's a lot of work to do, but it feels like, for us, this is the start of a new exciting chapter."

"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 added.

However, he declined to comment on whether Ovo would cut costs across the SSE retail business after the deal.

Until now the third-largest supplier in the UK energy market, SSE recently revealed a 68% drop in underlying earnings for its household division to £89.6m for the year to the end of March.

Gas and electricity suppliers have come under intense pressure following this year's introduction of the cap on standard variable tariffs, as well as increasing competition from a swathe of smaller players.

In May, SSE announced plans to offload its energy services segment after more than half a million household accounts switched to a new supplier in the year to March.

The company vowed to sell or float its energy services arm by the second half of 2020.

Fitzpatrick said Ovo – which sold a 20% stake to Japan's Mitsubishi Corporation earlier this year – will seek to turn around the SSE unit's fortunes, but will not put profits over investment and customer service, stating: "I don't want Ovo to become a company that's focused on quarterly profit numbers."

Meanwhile, SSE chief executive Alistair Phillips-Davies said: "We have long believed that a dedicated, focused and independent retailer will ultimately best serve customers, employees and other stakeholders and this is an excellent opportunity to make that happen.

"I'm confident that this is the best outcome for the SSE Energy Services business."

Stephen Murray, energy expert at MoneySuperMarket, commented: "The likes of Ovo, Shell, Bulb and Octopus mean there's a base of emerging suppliers who are continuing to challenge the Big Six in the domestic energy market and can fill the void left by SSE deciding to focus on other parts of its business.

"Today's announcement will enhance the ever-growing competition for customers."

Meanwhile, Dr Jamie Stewart, energy spokesperson at Citizens Advice Scotland, said: “This deal brings to an end a period of uncertainty for SSE customers, but this is only the start of a complex transition process. Our network of advisers see first-hand the difficulties that consumers can face when billing and IT services are migrated. It is vital that the strong customer service standards currently offered by both companies are maintained throughout this process.

“Our message to affected customers is that you will be contacted by both companies in due course and the transition should not affect your bills, but please seek our advice if you have any concerns.

"A significant number of SSE customers in Scotland have two or three rate electricity meters; this can cause compatibility issues when transferring between energy suppliers. We would call for support services for these consumers to be prioritised to ensure that functionality is maintained and that overall the deal can bring better outcomes for these customers.

“As ever, we are committed to making sure consumers’ interests are protected, so we intend to meet with Ovo in the near future to make these points to them.”