Perth-based energy giant SSE and German rival Innogy are in talks about merging their UK retail energy businesses to create a listed company that would challenge British Gas to be the UK’s biggest power supplier.

SSE shares rose about 2% on the news to give it a current stock market value of more than £14 billion.

SSE said in a statement: ” … the board of SSE plc has been in discussions with innogy SE about creating a new independent energy supply company to which would be contributed: SSE’s household energy supply and services business in Great Britain; and innogy’s household and business energy supply business in Great Britain.

“The discussions between SSE and innogy are continuing and are well-advanced but no final decisions have been taken and no binding agreements regarding the terms of any combination have been entered into.

“Any proposal to form a new company combining the businesses described above would be subject to the customary regulatory approvals, and approval of the transaction by SSE plc shareholders.

“The combined business would be listed and SSE would demerge its shares to its shareholders.

“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; but in the meantime will not be commenting further on any aspect of the discussions.”