The clean-energy retailer is both serving and disrupting the utility sector — selling software, renewable power, smart home energy devices and more.
When you think of electric utilities, the words fast, nimble, tech-savvy or cuddly probably don’t come to mind. Nor do those qualities often apply to the startups dragging the old grid into a cleaner, less centralized future. But relative newcomer Octopus Energy quickly proved itself to have all those traits and more, and took over the U.K. electricity market in the process.
Octopus Energy sells clean electricity to some 5.3 million customers globally, 5 million of them in the U.K. To supply that clean energy, the company has spent $6.3 billion to build its own renewable power plants. It supplements the electrons with a head-spinning array of clean energy products and services: smart electric-vehicle chargers, heat pumps, and payments for customers who shift their consumption around at key moments.
Scores of cleantech startups have tackled these kinds of products and services individually over the years, in pursuit of the elusive ideal of an interactive, decentralized grid. Many of those startups have crumbled while waiting for mass consumer demand to materialize; others have been subsumed into energy incumbents. Octopus leapfrogged over that muddy slog by connecting the far-out grid innovations with a recognizable retail electricity business that quickly grew to reach millions of people.
When I first reported on Octopus Energy in the fall of 2022, the company had vaulted from its founding in 2016 to being the fourth-largest electricity retailer in the U.K. In March, when I interviewed founder and CEO Greg Jackson at South by Southwest in Austin, the company had already absorbed bankrupt competitor Bulb Energy and claimed the No. 2 slot. Jackson had just flown in from Paris, where he had warmed up for our talk by joining U.K. Prime Minister Rishi Sunak and French President Emmanuel Macron on stage to announce new investment in French renewable projects. If the journey wore him down, he didn’t show it.
Though intrigued, I’d initially resisted writing an in-depth profile on Octopus Energy because, fittingly, it’s a many-tentacled beast. It was going to take considerable work to get my head around the company’s multifarious business model and its ever-expanding list of new side hustles. But that diversity of activity is necessary to achieve the company’s goals, Jackson told me when we finally sat down together.
“Fundamentally, we believe that renewable energy, a clean energy future, is a cheaper energy future. And our job is to build a system that makes that possible, that brings that benefit to households, but also to businesses and to economies,” he said on stage in Austin. “And so…we have to do everything to make that real. Because if you try and do one bit of the system, it doesn’t work.”
Such a grand vision runs the risk of collapsing under the weight of its ambition, as SunEdison did on its quest to become a clean energy supermajor. But neither Jackson nor his investors shy away from taking big swings.
“What we’re trying to build here is a business with genuine global scale,” said Simon Rogerson, co-founder and CEO of Octopus Group. That firm was the first investor in Jackson’s startup, lending its name in the process. “The question is, when is this business going to get to the hundred-million customers? When will it be globally dominant?”
So far, Octopus has managed to grow market share at a time of generational upheaval in European energy markets, and do so while selling its proprietary software to the very incumbents it’s disrupting. I had to figure out how this little startup pulled it off.
The software platform that utilities needed
Electric utilities have to veer as far as possible from the Silicon Valley ethos of “move fast and break things.” When utilities break things, the lights go out and people die.
Octopus Energy’s founders came not from the utility space or cleantech startups but the enterprise software industry. Their key insight was to make better software for the banal operations of electricity retailing and invest the money this saved into faster clean energy adoption.
Though utility companies aren’t constitutionally oriented around rapid software development, they still depend on software for core tasks like managing customer accounts and billing. And doing enterprise software in a hesitant, drawn-out way actually creates its own set of risks, Jackson argues.
“A traditional energy company’s software infrastructure is made up of 10 or 20 different systems all bolted together, and…as soon as you try to change one of them, the others fall down,” Jackson said. “If you’re risk-averse, I think that that legacy stuff is far riskier than actually running modern software.”
Jackson’s knack for flipping the conventional wisdom on its head plays well in a pitch deck, but selling to incumbent utilities is another matter. They’ve seen startups come and go, promising to optimize this and that, while the utilities keep the wires humming with as little interruption as possible. At first, they viewed Octopus with the same skepticism as all the others.
“When we spoke to energy companies, they’re typically very conservative, understandably,” Jackson said. “We realized that rather than try to persuade them, the only way we could [convince them] was to do it ourselves. So we actually built an energy company as the demo client, the trial for the software platform Kraken. And it so happens, that energy company is becoming very big.”
Now Octopus Energy directly serves 18% of the U.K. retail energy market — not bad for a demo project, all things considered.
Notably, the company achieved this during a particularly tumultuous time for the U.K. grid sector. Record-high fossil-gas prices pushed up wholesale electricity costs so much that the government instituted a price cap on electricity in October, paired with public subsidies to cover the gap between what customers pay and the real cost to serve them, said Ethan Cohen, a VP analyst at research and consulting firm Gartner who covers utilities’ digital transformation.
“This has effectively halted competition, as there is no incentive for customers to save money by switching suppliers, but incentives such as the bundling of commodities and services and unexpectedly good customer service can impel retail switching,” Cohen told Canary Media.
Retail customers aren’t the only ones switching to Octopus. Its Kraken software runs utility interactions with 45% of U.K. households, according to the company. That means Octopus convinced rival retailers that they’ll be more successful using its upstart software platform. Legacy utility adopters include E.ON and EDF.
Octopus, then, simultaneously competes in the electricity marketplace and equips its competitors with tools to more effectively compete in that marketplace — a counterintuitive proposition, as far as capitalism is concerned.
Indeed, Octopus uses its own utility brand as an innovation hub, constantly trying new programs with thousands of customers, Jackson noted. When a program is proven to be effective, Octopus pushes it to its more traditional enterprise software clients, so they can “innovate more safely, more securely.”
If this arrangement suggests a possible conflict of interest, Jackson counters by analogy. Energy majors regularly join forces to explore and harvest new oil and gas reserves. More directly analogous, Amazon’s AWS cloud computing platform sells services to numerous companies that directly compete with other branches of Amazon’s business empire; AWS touts Netflix as a flagship customer, even as that brand tussles with Amazon’s own video streaming service to hold viewers’ attention.