Octopus Energy offers sector its Uber moment

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Needless to say, the group’s big presence at COP 28 was to signal that world domination was the next step based on one simple insight: “This application of technology and the insights into the physics of renewables is changing everything.”

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The Octopus view is that the old energy world of big power plants and the attitude that “customers don’t care as long as the lights are on” is a thing of the past.

The future is one of using AI to manage customer demand and behaviour in a renewable energy world which requires decentralisation and flexibility. Anyone with a EV or solar battery can now be an active participant in the energy market, with a platform like Kraken automatically trading on their behalf.

“Before Uber, taxi firms had an office and people would dispatch taxis. And we replaced that with big data that anticipates supply and demand or in fact matches it, maybe using price signals to make sure that they meet everyone’s needs. That’s what we need energy to look like,” Jackson told The Economist during the COP 28 conference.

But it isn’t the prospect of a green revolution that is driving Kraken’s popularity.

It is the cloud-based platform’s ability to cut the operational costs of dealing with customers, and improve customer service, which has seen it adopted by energy retailers around the world and driven its customer numbers to 50 million. This is what triggered the interest of Australian energy giant Origin Energy, which acquired a 20 per cent stake in Octopus in 2020 for just over $500 million, and adopted Kraken as its retail platform.

“[Kraken] has a strong global sales pipeline due to its ability to rapidly transform business operations and customer experience, which is critical in a rapidly transforming energy system,” Origin chief executive Frank Calabria said in December, as the energy group injected a further $530 million into Octopus.

The soaring valuation of Octopus Energy helped defeat a $20 billion bid for part-owner Origin Energy – which faced climate protests at last year’s AGM. A successful bid would have triggered $30 billion worth of renewable investment spending by the Brookfield-led consortium.Credit: Oscar Colman

All of Origin’s retail customers are now on Kraken, and the group says it is on track to deliver on forecast cash cost savings of $200 million to $250 million a year – compared to a 2018 baseline – by 2025. These huge savings did not catch the eye of Origin’s investors as much as the massive growth in Kraken’s customer numbers, as well as the growth of Octopus into the second-largest energy retailer in the UK.

Origin’s investment in Octopus in 2020 lifted its valuation to £1 billion ($1.93 billion). By the time the $20 billion Origin takeover battle with the North American consortium Brookfield/EIG reached a crescendo last year, the valuation of the Origin stake – and how much it would soar in future – was one of the contentious issues that helped Origin investors defeat the bid.

Macquarie Equities research around that time flagged that Octopus could be worth up to £8.2 billion ($15.8 billion).

AEMO is counting on consumers like Donna Jones to play a bigger role in managing the grid as coal plants shut down. Ms Jones took part in Project Edge.

AEMO is counting on consumers like Donna Jones to play a bigger role in managing the grid as coal plants shut down. Ms Jones took part in Project Edge.Credit: Jules Boag

“Given the quantum of earnings revisions made by Origin, we believe they have underestimated the value of Octopus,” Macquarie analysts said in a research report last September.

Ironically, given Octopus Energy’s mission to help save the plant, the defeat of the bid also meant defeat for Brookfield’s pledge to spend up to $30 billion on green energy investments – far more than Origin is planning to spend as a publicly owned company.

The question is, where does this leave Origin as it attempts to push its own green energy transition?

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As Origin boss Calabria explained to this masthead after the company’s half-year result, a world of VPPs and modifying consumer behaviour is its future too.

“We have been building our virtual power plant, or Loop. And we have been integrating that into the way we think in terms of wholesale capacity,” he says.

Origin’s Loop business is based on a technology platform which pre-dates its Octopus investment.

“Kraken has its own Flex system, and it’s doing it on third parties in the UK as well as its own business … Kraken is therefore moving beyond its core platform into this flexibility. We see that as an increasingly important feature and capability for the new energy system because you have to actually manage all those things in real time,” Calabria says.

Origin customers are limited to dealing energy with the energy group at this stage, but that could soon change.

The Australian Energy Market Operator (AEMO) has been trialling a VPP project in regional Victoria – Project Edge.

It created a wholesale marketplace where households and businesses could buy and sell electricity from rooftop solar, household batteries, electric vehicles and smart appliances for the first time. And it gave traditional energy businesses such as AGL, which was a participant in the project, a better understanding of the benefits of harnessing and orchestrating consumer energy resources in concert with the power grid.

Independent analysis from Deloitte Access Economics on Project Edge shows that this could deliver up to $6 billion in savings to consumers over the next 20 years, plus another $3 billion in emissions reductions.

“Orchestrating rooftop solar, batteries and the charging patterns of electric vehicles … is critical to a successful energy transition,” AEMO chief executive Daniel Westerman says.

with Simon Johanson

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