It will also mean that RWE will end up with a large stake in Eon.
Plans to carve up Innogy between parent RWE and rival German utility E.ON drove its shares sharply higher on Monday, lifting the combined value of the three German energy firms by 5.7 billion euros ($7 billion).
Through the deal, which includes a share issue and asset swaps, E.ON will acquire Innogy's prized regulated energy networks and customer operations, while RWE will take on the renewables businesses of both E.ON and Innogy.
Background to the deal is the ongoing transformation of utilities especially in Germany, which forced RWE and E.ON to spin-off their conventional assets.
The big six pair both shrugged off fears that a complex deal between German energy giants RWE and Eon, which emerged over the weekend, would derail their plans to create Britain's second largest energy supplier. In addition, RWE would get the minority stakes held at present by E.on subsidiary PreussenElektra in the RWE-operated nuclear power plants Gundremmingen and Emsland.
Germany's power companies are reshaping as they look to boost green energy output, shift away from fossil fuels and prepare for Germany's exit from nuclear power in 2022. As a result, it does not believe the E.ON deal with RWE will affect its own merger.
Germany's cartel office said it was too early to comment on possible hurdles in the planned asset swap deal. By bolstering its network infrastructure, E.ON should be able to generate substantial cost savings, while RWE will be able to ramp up its solar and wind offerings.
While the two companies were in touch with each other over the last year, concrete negotiations about Innogy only picked up this year, the sources said.
Innogy reported a 3 percent rise in 2017 adjusted operating profit and said it would propose a dividend of 1.60 euros per share for 2017, unchanged from a year earlier.