Britain's Co-op to buy Flow Energy as energy price cap looms

LONDON (Reuters) - Britain’s Co-operative Energy will buy fellow energy supplier Flow Energy, the two companies said on Tuesday, with the smaller firm warning it would have struggled under the government’s looming price cap.

Flow Energy, the main business of Flowgroup, which is listed on London Stock Exchange’s AIM junior market, will be sold for 9.25 million pounds ($13.10 million), FlowGroup said.

Flow Energy has around 130,000 customers and is one of the more than 50 suppliers challenging Britain’s big six energy providers - Centrica’s British Gas, SSE, E.ON, EDF Energy, Innogy’s Npower and Iberdrola’s Scottish Power.

The move is a sign of further consolidation in the industry which is facing a price cap by the end of the year on the most commonly used contract, standard variable tariffs (SVTs).

“The headwinds facing challenger suppliers, in particular the impact of the Government’s price cap and the significant number of new entrants to the market pursuing aggressive pricing strategies, have continued to strengthen,” FlowGroup said in a statement.

A cold winter and an increase in wholesale prices also put strain on the company which said it would have needed to raise substantial additional capital without the sale.

Co-op Energy is a part of Britain’s mutually-owned Midcounties Co-operative which has a strategy of returning profit to its members and their communities

Co-op Energy has around 320,000 customers and took over 160,000 customers from GB Energy in 2016 when the small supplier collapsed.

Some small suppliers have warned the price cap could cut competition in the sector and make people less likely to seek cheaper prices and switch suppliers.

The government said a cap is need to prevent customers from paying “rip-off” prices.

(This version of the story corrects para 7 to say Co-op Energy is part of Midcounties Co-operative (not Co-operative Group)).

Reporting by Susanna Twidale; editing by Jason Neely