Big Six companies SSE and npower are in talks about merging their businesses to create a giant energy supplier in the UK.

German utility innogy, parent company of npower, and SSE are in “advanced exclusive discussions” about combining their gas and electricity supply business in Britain.

Such a deal would possibly see the Big Six turn into a Big Five.

SSE serves around 7.8 million households while npower has 4.8 million.

The suppliers said: “The combined business would be listed and SSE would demerge its shares to its shareholders. No binding agreements regarding the terms of the combination have been entered into at this stage.”

SSE added: “In discussions, SSE is mindful of the requirements of customers and the concerns of employees. It will disclose the outcome of the discussions as soon as they are concluded.”

The news follows the government’s launch of the draft bill to cap energy prices. The cap is expected to prove challenging to some of the biggest suppliers as it would apply to standard variable and default tariffs.