The energy sector is having its Uber moment
By Colin Kruger
Octopus Energy founder Greg Jackson made a big splash at COP 28 – the United Nations Climate Change Conference hosted in Dubai last December.
The Octopus logo was everywhere and Jackson regaled audiences of dignitaries, politicians and the business elite with stories about how the energy retailer, and its digital retail platform Kraken, was transforming the UK energy market.
Octopus Energy founder and chief executive Greg Jackson wants to make its digital platform Kraken the backbone of the green industrial revolution.
The previous day, around half a million Octopus customers had been paid to use less electricity at peak times. The scale of the group’s UK operations meant this incentive had the same effect as “turning off the entire energy consumption of two cities,” he explained.
“It means we can just get rid of all the coal standby. It costs 10 times less than coal to pay consumers. That’s what we did today,” he said.
And that’s not the only trick. The adoption of electric vehicles in the UK is allowing one of its products, Intelligent Octopus, to create an energy sharing network out of these car batteries in what is called a virtual power plant (VPP).
For the EV owners, it means Kraken automatically stores power when prices are low, and sells back to the grid when prices are high – ensuring they get their power at the lowest possible price.
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.
For the electricity grid owners, it helps stabilise the peaks and troughs of power demand and supply in a world heading towards a renewable energy future.
Jackson claims that the growing scale of this Intelligent Octopus VPP will be shifting more power than a nuclear power station within a year.
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,” said Jackson.
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 an 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, while also improving customer service that 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).
The Australian Energy Market Operator is counting on consumers like Donna Jones to play a bigger role in managing the grid as coal plants shut down. 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?
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.
Read more on this topic:
- Australia’s green future at stake as Origin takeover hangs in balance
- When everyone else lost power, Kate’s stayed on. Here’s why
- Victorian households to become national energy grid guinea pigs
with Simon Johanson
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