NEWS that the planned merger of SSE’s retail arm with npower had been called off by the firms pleased market watchers who feared its potential impact on the household energy market and jobs.

While the competition watchdog cleared the deal, critics argued the reduction in the ranks of the big six players to five that would have resulted could not be good news for consumers.

After deciding that changes in trading conditions meant the deal no longer worked, SSE faces big challenges. The firm has made abundantly clear how badly it wants to get out of the retail business in order to focus on areas such as renewable energy generation and transmission networks.

SSE may look to sell the retail business or spin it off. But it may not be an easy task to find a buyer willing to pay an acceptable price for the retail arm or enough investors to back it as a stand-alone business.

The UK Government may be left wondering whether the decision to impose the cap on energy bills that will take effect in January will be as good for the market as it may have hoped.

SSE said the price cap was a big factor in its decision to pull out of the npower deal.

Professor David Elmes, of Warwick Business School Global Energy Research Network, noted the fact that eight energy companies have collapsed this year reflected just how hard it is to run a viable retail energy business in the UK.

He added: “These eight failures among the smaller energy retailers, plus the collapse of the SSE-npower deal, show the Government is struggling to support a sector that’s essential to the UK economy.”

Ironically, trades unions expressed concern yesterday about what the scrapping of the SSE-npower deal would mean for jobs at the firms.

“Bringing together the parts of both companies that look after residential customers was meant to secure jobs and ensure both firms had a future,” said UNISON national energy officer Matt Lay.

“Now the deal is off, employees will feel understandably anxious about what’s to become of them.”