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The planned merger between Npower and SSE could reduce competition and push up prices for some customers, the UK's competition watchdog has said.

the deal would face an in-depth inquiry unless the two companies could address competition concerns.

The proposed deal would see a merger between two of the UK's "big six" energy suppliers.

SSE said it was "confident" the merger would lead to benefits for customers.

Rachel Merelie, senior director at the CMA, said: "We know that competition in the energy market does not work as well as it might. However, competition between energy companies gives them a reason to keep prices down.

"We have found that the proposed merger between SSE Retail and Npower could reduce this competition, and so lead to higher prices for some customers. We therefore believe that this merger warrants further in-depth scrutiny."

The combination of SSE and Npower would create a company with about 11.5 million customers, making it the second-biggest UK energy supplier behind British Gas.

The other members of the big six energy suppliers to the UK are Germany's E.On, Scottish Power - which is owned by Spain's Iberdrola, and France's EDF.

'Vital scrutiny'

Alistair Phillips-Davies, chief executive of SSE, said: "We remain confident that the proposed merger will deliver benefits for customers and for the energy market as a whole and that we will be able to demonstrate this to the CMA in due course.

"We look forward to continuing to work constructively with the CMA and other interested parties."

Alex Neill, from consumer watchdog, Which?, said: "The competition authorities are right to warn that this merger of two big energy suppliers could reduce competition and lead to higher bills.

"Given that both of these energy suppliers also struggle on customer service, coming in the bottom half of our satisfaction survey, it's vital that there is thorough scrutiny of the impact on consumers before allowing any venture to go ahead."