Energy firms SSE and Npower have cancelled their merger plan.

The move has been blamed on “very challenging market conditions”.

The deal would have created the UK’s second-biggest energy supplier.

The government’s new price cap means is due to start in the new year and has been a key factor in the cancellation.

In a company statement, SSE said it had decided the tie-up was no longer “in the best interests of customers, employees or shareholders”.

SSE chief executive Alistair Phillips-Davies said: “This was a complex transaction with many moving parts. We closely monitored the impact of all developments and continually reviewed whether this remained the right deal to do for our customers, our employees and our shareholders.”

“Ultimately, we have now concluded that it is not. This was not an easy decision to make, but we believe it is the right one.”

Commenting on the collapse of the SSE-Npower merger, Peter Earl, Head of Energy at said “In a market that has historically suffered from a lack of competition, the collapse of a merger between two of the largest providers in the country may well be a positive thing for consumers. SSE and Npower are two companies who regularly increase prices and, as a result, have been hit with many customer departures, in favour of smaller companies. The merger would have been a helpful defensive move following these losses so that the combined company could increase profits but, despite the deal being cleared by the regulator, it was unlikely to benefit average consumers.”

“However, sadly, I think that many customers will continue to remain on uncompetitive tariffs, which will be priced just below Ofgem’s cap which comes into effect on 1 January . I am concerned that the price cap will play into the likes of SSE-Npower’s hands, lulling people into thinking that they won’t need to switch change provider to get the best deal. In the vast majority of cases though, people will still need to switch to get the best and most competitively priced tariffs.”