The companies said the deal has been affected by multiple factors, including the performance of their businesses, clarity on the final level of the Government’s default tariff cap and changing energy market conditions.
SSE said: “These implications meant the new company would have faced very challenging market conditions, particularly during the period when it would have incurred the bulk of the integration costs.”
The two firms had been hoping to seal the merger of their retail operations in the first quarter of 2019 after it was recently given the green light by the competition watchdog.
But only last month, SSE admitted there was “some uncertainty” over whether the merger with npower would go ahead after the pair delayed the tie-up due to the incoming cap on default tariff prices.
SSE will now consider a standalone demerger and listing, a sale or an alternative transaction for its household energy division.
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.”
“We are now exploring all the available options with a view to delivering this future in the best possible way. In this, the interests of our customers, employees and shareholders remain paramount.
“In the meantime, we remain strongly committed to high standards of service for customers and delivery of our five-year dividend plan for shareholders.”
Last month, SSE revealed widened losses for its household gas and electricity supplier and the loss of another 460,000 SSE customer accounts as fierce competition took its toll.
SSE said the incoming price cap on standard variable tariffs (SVTs) - due to come into force in January - will put further pressure on retail division profits for the full year and in 2019/20.
Npower’s German owner, Innogy, also reported falling customer numbers in the UK in November, saying it lost around 500,000 accounts this year and warning that the supplier will make a loss for the fourth consecutive year.
SSE said suppliers were suffering amid competition from small suppliers as households switch to cheaper providers.
Mr Phillips-Davies added: “SSE Energy Services remains a profitable business with a strong track record, a customer-centric culture and an excellent team that has enabled it to be a market-leader for many years.
“We will build on this while continuing with separation activity in preparation for its long-term future outside the SSE group.”