A “challenger” supplier in the energy market, which employs around 250 people in Ipswich, is set to be sold to Co-op Energy in a deal valuing the business at around £9.25m.

Flow Energy, part of Flowgroup plc, was launched with ambitious plans to take on the UK’s “Big Six” energy suppliers but the number of rival firms also entering the market has put its margins under pressure while the Government’s plans for an energy price cap have further clouded the outlook.

Flowgroup has now reached a provisional agreement for Flow Energy to be acquired by Co-op Energy, which is part of the Midcounties Co-operative, based in Warwick.

The deal is expected to be finalised during the second half of April. There is as yet no indication of the likely impact of the sale on jobs.

In a statement to the Stock Exchange, Flowgroup said: “The response of the ‘Big Six’ energy suppliers to Government policy developments is considered likely by the company’s management to be, in many instances, to lower their standard variable tariffs.

“This would lead to an erosion of the differential between the prices challenger suppliers are able to offer and the tariffs being offered by the big six. The board believes this would be likely to have a significant adverse impact on consumers’ propensity to switch suppliers.”

It continued: “The board has continued to work with its advisers on the strategic positioning of the group and its financing requirements, but it has become clear that, in order for the business to continue to operate in the near and medium term, it would need to raise substantial additional capital.”

With major investors not in a position to provide additional funding and an equity fundraising not feasible under current conditions, the sale of Flow Energy was “the only realistic course of action”, the statement added.

David Bird, chief executive of Co-op Energy, said: “As part of The Midcounties Co-operative, Co-op Energy is a strong, independent supplier that is committed to acting in the interests of its customers and members.

“Our proposal to acquire Flow Energy Limited will continue to build our movement by welcoming a large number of new customers into what is already the largest member-owned supplier in the UK energy market.

“Integrating Flow Energy Ltd will allow us to extend our co-operative values to a larger audience and further strengthen our ability to support renewable, community-owned energy generation in the UK.”