Thu. Jan 20th, 2022

In a five-month wave of collapses that has halved the number of UK domestic energy suppliers, one company seems to have swum against the tide.

Octopus Energy has raised $ 900 million from former US President Al Gore’s sustainable investment group and the Canadian pension fund CPP Investments, which is boosting its valuation. nearly $ 5 billion, competitive British Gas owner Centrica.

Founded in 2016, the London-based start-up now operates in 13 countries and serves 3.1 million UK households and businesses, placing it firmly among the country’s six largest energy retailers.

The fundraiser comes as record wholesale gas and power prices caused the industry’s worst crisis in decades, leading to the downfall of two dozen of the company’s competitors in Britain.

Opponents called for government intervention, with Good Energy recently announcing a “national crisis”. Suppliers continue to hold talks with UK ministers over the festive season to plead support for the sector and customers, which saw increases of as much as 56 percent in their accounts when Britain’s energy price cap is adjusted next April.

Greg Jackson, CEO of Octopus Energy

Greg Jackson CEO of Octopus Energy © Chris Ratcliffe / Bloomberg

Greg Jackson, Octopus founder and CEO, believes it is imperative to find ways to spread the impact of the “once in 30 years event” across consumers over several years.

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

Energy UK, the trading body, has suggested that government loans may be needed to enable suppliers to spread the cost to consumers but not endanger their own businesses in the process.

Jackson said private funding could also fill that gap.

“There is a lot of private sector funding available to handle things in the energy sector and in this case, whether it is private or the government. [financing]”All we need is a mechanism to use it to bring down bills this year and spread the costs over a number of years,” says Jackson.

Bulb Energy, the largest company to fail so far, was founded just a year earlier than Octopus. By 2020, it had surpassed Jackson’s client company. Now it is backed by the taxpayer, with an initial loan of £ 1.7bn, while administrators work on behalf of the government to find out what to do with its assets and customers.

Jackson assumes it is “perfectly reasonable” to question the success of Octopus while others fall like flies, but he also likes to distance himself from comparisons with other providers.

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

“Unfortunately, the energy retailers in the UK have seen pop. . . were not disruptors. They were largely 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, co-founded Octopus with unrelated CFO Stuart Jackson and chief technology officer James Eddison.

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

Jackson compared Kraken, which helps companies save costs and improve areas of their business such as billing and customer service, to the disruptive software systems supported by 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 network operators balance between supply and demand more efficient. Some of its uses are to enable households to trade energy via their electric vehicle battery, to charge while demand and prices are low, and to sell back to the grid at a profit when demand is high.

About 25 million customers worldwide are on the Kraken platform and Octopus aims to increase it to at least 100 million by 2027.

Software licensing agreements generate lower revenue but higher profit margins than energy retail and were 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 attracted $ 1.5 billion in equity investment.

“Half of our $ 5 billion valuation is down [the] technological platform that we license, ”Jackson said.

However, Octopus was not immune to the recent market chaos.

“If it were not for the energy crisis, our British energy retail business would have been a break-even business this year. . . the energy crisis probably set it back a year, ”he said.

The company’s last available accounts, for the year to 30 April 2020, show a net loss of almost £ 47 million on revenue of £ 1.2 billion and net liabilities of £ 62 million. The following accounts will be submitted to Companies House in January.

Jackson maintains he is not worried about short-term gains.

“What we will see is that businesses within the group, as they reach maturity, will be profitable, but we will plow it back into the growth of the group,” he said.

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

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