Octopus Energy – the UK startup that is growing beyond its roots

Shell’s rival was ready to take over when it decided earlier this year to abandon its UK and German retail energy home business.

Octopus Energy will pay an undisclosed amount for Shell’s retail division. The deal is expected to be completed this year. This will make the London-based firm Britain’s 2nd largest retailer, behind British Gas. It has 6.5mn clients.

Octopus Investments, based in London, has provided funding for the company since its founding in 2016. The move will help Octopus accelerate in its rapid rise and is a positive step towards cleaner energy.

Greg Jackson, founder and CEO of the company, described its early days as “a street battle” as the group raced to grow a large client base.

Some have compared Octopus Energy with a British tech startup, Kraken.

The company, like many other tech start-ups, has yet to achieve a profit despite operating in 17 different countries, and generating revenues of £4.2bn last year. It supplies gas and electricity for homes, but also generates wind power, leases electric cars, and installs heat pumps and solar panel.

Jackson, serial entrepreneur and investor, responded that he is still focused on the growth of his business. “We’re on track to achieve what is most important to us: building a global electrification business.

He said, “We will continue to invest in growth for many years to come.” It’s our choice to make a profit.

Octopus has been hailed as a disruptor by investors such as Generation Investment Management (chaired by Al Gore), but now that it is serving more than a quarter of British households, it may have to fine-tune its start-up mentality.

Octopus is the winner so far of UK regulator Ofgem’s push to break up the dominance by the so-called Big Six Suppliers over the last decade.

The effort has proven controversial. Octopus has faced a number of competitors who have imploded since the energy crisis began in 2021.

Octopus emerged as the strongest player from the wreckage. It took over Bulb Energy last year in a controversial procedure, adding 1.5mn new customers. They also acquired Avro Energy which served more than 580,000 homes.

The company is now a part of the new “Big Six”, which dominates the market. This includes British Gas, EDF and Scottish Power as well as another former challenger, Ovo. According to data from Cornwall Insight, their combined market share of 91 percent is higher than the share that large suppliers held at least since 2017.

Do households benefit from this new regime? Over the last two years, the energy crisis has reduced competition and bundled tariffs around the price cap established by Ofgem.

Jackson defended the company’s role in the market, claiming it performed ahead of others on customer service and brought innovation.”Previously you might have had a whole load of companies but there was no differentiation,” he said. It was like walking down a market — everyone selling the same thing, shouting louder.

This innovation included taking part in National Grid’s new scheme in which the company paid households to reduce electricity consumption during peak hours if it feared that there was a shortage.

National Grid introduced the so-called “demand flexible scheme” last winter as a way to deal with unusual circumstances, such as a reduction in nuclear power output and concerns about gas supply following Russia’s invasion into Ukraine.

Jackson says that the scheme led to pictures of families sitting by candlelight, but those who participated in it ended up with “free electricty” for the day. These schemes will play a larger role in a renewable energy system. Their supporters argue that they reduce the amount of infrastructure required.

Jackson said, “We worked with National Grid for years to help them understand the benefits and possibilities.”

He said, “If you have a bumper crop in green energy you can get cheap energy.” “If we do not have a bumper harvest, we can pay for you to use less energy when it is in short supply.”

Octopus’ business is built around managing and optimizing the growth of electricity from renewable sources. For example, by developing software and rates to optimise the charging of electric vehicles, a growing point in competition on the market.

Tom Goswell is the head of consumer markets for Cornwall Insight. He said, “With today’s group of large suppliers it’s quite a different environment.” There are some examples of where consumers have benefited from more innovation.

Octopus has experienced rapid growth, but it is not without controversy. In November, rivals such as Scottish Power and British Gas owner Centrica took the company to the High Court to argue that the government unfairly favored the company with its agreement to compete against Bulb. Octopus claimed that the case had been “desperate” before the deal could proceed.

The Kraken and Krakenflex software, which Octopus licenses to other suppliers for managing customer accounts, dispatching and using electricity from renewable assets will be a key test.

The technology attracted investors such as Tokyo Gas, Origin Energy, and Generation Investment Management.

Kraken hosts approximately 30 million accounts, which represents about half the enterprise value of Octopus Energy. Jackson hopes to reach 100 million by 2027.

Octopus, on the other hand, is not profitable. It reported a loss of £165.7mn last year. Jackson stated that the “underlying business is basically break-even”, but this helped subsidise customers’ bills.

He added that Britain is a great place to start up a business, but it does not do well in terms of helping businesses grow.

He said: “I believe Britain is a less favourable environment for the creation of Googles and Amazons.” “You’ll be laughed at in Britain if you make that claim, whereas you can raise investment in America.”