SSE, the UK’s third-biggest energy company has agreed to sell its household supply business to smaller rival Ovo Energy in a £500 million deal.

The move would catapult Ovo – founded a decade ago in Bristol by Stephen Fitzpatrick – into the ranks of the big energy suppliers, in a major shake-up of the industry.

Ovo's planned takeover of the energy services business of the Perth-based energy company is expected to complete later this year or early next year.

The SSE deal would add 6.2m household account customers to Ovo’s existing 1.5m.

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SSE’s chief executive, Alistair Phillips-Davies, had been under pressure to dispose of the retail division since the group’s embarrassing failure to merge it with rival npower in December. Both companies blamed the government’s cap on energy prices and growing competition for their failure to reach a deal.

Gas and electricity suppliers have come under intense pressure in the UK 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 households switched to a new supplier in the year ending March 2019.

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

SSE, which employs 8000 staff,  said should the deal with Ovo go through, it will "all it can to ensure a smooth transition for customers and employees".

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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.

"Ovo shares our relentless focus on customer service and has a bold vision for how technology can reshape the future of the industry.

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

The consumer organisation Which? had previously expressed some concerns when a potential deal was first talked about.

 Caroline Normand, its director of advocacy, said last month: “Mergers in essential markets, such as energy, are rarely a good thing for consumers, especially given the low levels of competition. The competition authorities must ensure there is thorough scrutiny before allowing any venture to go ahead, to ensure it doesn’t reduce competition and lead to higher bills.”