SSE and OVO have agreed a £500m deal that will see the Big Six operator sell its SSE Energy Services business to OVO Energy, in what is set to be one of the biggest shake-ups to the UK energy market in recent years.

The two companies announced this morning they had reached an agreement that will see OVO pay £400m in cash and £100m in loan notes in return for SSE's retail business, which boasts 3.5 million domestic customers, around 8,000 staff, and operating profits last year just shy of £90m. The deal is expected to be completed in late 2019 or early 2020 and is set to catapult OVO up the energy supplier league table, taking it from 1.5 million customers currently to around five million customers.

Both companies said the deal was driven by the huge disruption being experienced by the energy industry as a result of the transition to a net zero emission energy systems.

"Following the transaction, SSE will be able to give an even greater focus to delivering the low carbon infrastructure needed to help the UK reach net zero emissions," said Alistair Phillips-Davies, chief executive of SSE. "We have a clear strategy around developing, operating and owning renewable energy and electricity network assets, along with growing businesses complementary to this core. With a large and growing renewable energy pipeline and a leading position in the electricity networks needed to deliver low-carbon energy reliably to homes and businesses in an increasingly electrified economy, we are well placed to create value from the low-carbon transition."

Stephen Fitzpatrick, CEO and founder of OVO, said the deal would similarly strengthen the company's plans to offer customers an increasingly sophisticated range of energy services and smart technologies.

"This transaction marks a significant moment for the energy industry," he said. "Advances in technology, the falling cost of renewable energy and battery storage, the explosion of data and the urgent need to decarbonise are completely transforming the global energy system.  For the past three years OVO has been investing heavily in scalable operating platforms, smart data capabilities and connected home services, ensuring we're well positioned to grow and take advantage of new opportunities in a changing market."

He added that SSE and OVO were a "great fit" in support of this strategy. "They share our values on sustainability and serving customers," he said. "They've built an excellent team that I'm really looking forward to working with."

The move follows OVO's recent announcement of a new sustainable marketing strategy ahead of its imminent 10th anniversary, as well as confirmation earlier this year that Japanese conglomerate Mitsubishi has acquired a 20 per cent stake in the firm. It also comes as the company continues to expand its Kaluza division, which offers customers a range of smart home and electric vehicle charging technologies.

The proposed deal is the latest in a string of market developments as the UK's leading energy companies have sought to position themselves for a decade in which the pace of decarbonisation across the sector is expected to accelerate and related technologies such as electric vehicles and energy storage systems are set to play a growing role.

The proposed deal comes after SSE and Innogy scrapped plans last year to merge their British energy retail operations and also follows reports SSE has kicked off the process to sell its portfolio of North Sea gas fields. It also follows ScottishPower's decision last year to sell its gas assets to Drax and Shell's move into the retail energy market with the acquisition of First Utility, as well as OVO's previous expansion through the taking on of Spark Energy's customers.