Octopus defies energy crisis to draw global investors

In a five-month wave of collapses that has halved the number of British household energy suppliers, one company appears to have been swimming against the tide.

Octopus Energy has raised $900m from former US president Al Gore’s sustainable investment group and Canadian pension fund CPP Investments, pushing its valuation close to $5bn, rivalling British Gas owner Centrica.

The London start-up, founded in 2016, now operates in 13 countries and serves 3.1m UK households and businesses, putting it firmly among the country’s six biggest energy retailers.

The fundraising comes as record wholesale gas and power prices have triggered the industry’s worst crisis in decades, resulting in the demise of two dozen of the company’s competitors in Britain.

Rivals have called for government intervention, with Good Energy recently declaring a “national crisis”. Suppliers are continuing to hold talks with UK ministers over the festive season to push for support for the sector and customers, who face rises of as much as 56 per cent in their bills when Britain’s energy price cap is next adjusted in April.

Greg Jackson, chief executive of Octopus Energy © Chris Ratcliffe/Bloomberg

Greg Jackson, Octopus founder and chief executive, believes it is imperative to find ways of diffusing the impact of the “once in 30 years event” over several years for consumers.

“The key really is for the industry and the government to work together to find a way to spread it so we don’t see it all hitting bills in a single year,” says Jackson.

Energy UK, the trade body, has suggested government loans may be needed to allow suppliers to spread the costs for consumers but not imperil their own businesses in the process.

Jackson said private financing could also fill that gap.

“There is plenty of private sector finance available to deal with things in the energy sector and in this case, whether it be private or government [financing], all we need is a mechanism to use it to bring down bills this year and spread the cost over a number of years,” Jackson says.

Bulb Energy, the biggest company to fail so far, was founded just a year earlier than Octopus. Until 2020 it outcompeted Jackson’s company for customers. Now it is being propped up by the taxpayer, with an initial loan of £1.7bn, while administrators working on behalf of the government to figure out what to do with its assets and customers.

Jackson accepts it is “totally reasonable” to question the success of Octopus while others are dropping like flies, but he also likes to distance himself from comparisons with other suppliers.

“I compare us more to a tech disrupter like Amazon than a UK energy retailer like Bulb,” he said. “We were founded by tech entrepreneurs.”

“Sadly the energy retailers seen going pop in the UK . . . haven’t been disrupters. They have largely been mini versions of a traditional energy company without the economies of scale, the balance sheet or the risk management.”

Jackson, a seasoned entrepreneur and investor, founded Octopus with the unrelated Stuart Jackson, who is chief financial officer, and James Eddison, chief technology officer.

At the heart of the company are its “Kraken” and “KrakenFlex” software, which it also licenses to other companies including EDF Energy, Eon UK and Origin Energy of Australia.

Jackson likened Kraken, which helps companies save costs and improve areas of their business such as billing and customer service, to the disruptive software systems that underpin global companies such as Uber.

KrakenFlex, meanwhile, allows companies to offer the services that customers will increasingly want in the future and that will help grid operators balance supply and demand more efficiently. Among its uses is enabling households trade energy via their electric vehicle battery, charging while demand and prices are low and selling back to the grid at a profit when demand is high.

About 25m customers globally are on the Kraken platform and Octopus intends to increase this to at least 100m by 2027.

Software licensing agreements generate lower revenues but higher profit margins than energy retail and have been key to the company’s ability to attract new investors, according to Jackson. Octopus also raised funds from Origen Energy and Japan’s Tokyo Gas in 2020. In total it has attracted $1.5bn in equity investment.

“Half of our $5bn valuation is down to [the] tech platform which we are licensing,” Jackson said.

However, Octopus has not been immune to the recent market chaos.

“If it weren’t for the energy crisis our UK energy retail business would have been a break-even business this year . . . the energy crisis has probably set that back a year,” he said.

The company’s last available accounts, for the year to April 30 2020, show a net loss of nearly £47m on revenue of £1.2bn and net liabilities of £62m. Its next accounts are due to be filed at Companies House in January.

Jackson insists he is not concerned with short-term profits.

“What we will see is businesses within the group, as they reach maturity, will be profitable but we will be ploughing that back in growing the group,” he said.

“I think what people need to get their head around is the massive scale of this market and therefore the opportunity for us to keep attracting capital to keep growing is far greater than the sort of short-term profit pressure.”

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