Npower’s owner Innogy is in talks with Scotland-based energy supplier SSE to adjust the terms of their proposed merger.

The development was made necessary by prevailing market conditions and the price cap proposed by the UK regulator Ofgem.

Innogy signed an agreement in November last year to combine its UK retail business Npower with SSE’s energy services business.

Innogy Retail chief operating officer Martin Herrmann said: “The planned merger of our subsidiary Npower with SSE’s British retail energy business is a complex transaction. Adverse developments in the UK retail market and regulatory interventions such as the price cap have had a significant impact on the outlook for the combined retail company.

“Both Innogy and SSE continue to see the benefits of a combination of the two businesses. Together with SSE, we have decided to enter into negotiations on adjustments of the terms of the agreement dated November 2017, including potential additional direct or indirect financial contributions by each party.”

The company noted that the parties are still interested in pursuing the transaction.

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“The planned merger of our subsidiary Npower with SSE’s British retail energy business is a complex transaction.”

According to SSE, the discussions over the proposed changes to the commercial terms of the deal could last several weeks and the transaction is now likely to be completed after the first quarter of next year.

In a statement, SSE said: “These developments include the potential impact of the level of the default tariff cap on, amongst other things, the new company’s requirements to post collateral against its credit exposure and its ability to obtain and retain an appropriate credit rating.”

The deal was cleared by the UK Competition & Markets Authority (CMA) last month.

Under the agreement, Innogy would own a 34.4% stake in the combined entity.

Ofgem proposed the price cap on gas and electricity bills to help customers achieve average savings of £76 a year.

The regulator stated that the price cap is estimated to remove around £1bn of what it claims is overcharging from consumers’ bills.

Earlier this week, Ofgem confirmed that the price protection measure will be implemented from January next year.