Octopus Energy is bringing clean, distributed energy to the masses

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 from 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.

Move faster than a utility on clean energy breakthroughs

All of this back-end software matters to the rest of the world insofar as it hastens the clean energy revolution. Not only has Octopus Energy already extended 100% clean energy to all of its electricity customers, but it also spins up novel cleantech services at a speed and scale unknown to utilities or most other cleantech startups.

For example, residents in rural areas who join the ​“Fan Club” by choosing to support local wind-farm construction enjoy up to 50% off their electricity when it’s really windy; this program is intended to build community support for onshore wind, a contentious proposition in Britain, by giving locals a clear benefit from the projects. Some of the turbine towers light up green on windy nights to signal to nearby fan club members that they’re getting discounted power, Jackson said.

“If we build a wind farm in our brand, near your town, and you switch to our company, you’ll get cheaper power,” he explained.

Octopus has already delivered a wish list of items that grid futurists have imagined and salivated over for years, all of which are geared toward encouraging customers to be flexible about when they consume power.

Households with electric vehicles get major discounts if they let Octopus control when the car charges throughout the night, with the understanding that it will be fully charged when the driver needs it the next morning. Octopus sells and installs solar panels and home batteries, then pairs them with bill structures designed to compensate homeowners for exporting rooftop solar power to the grid. The company even started manufacturing its own heat pumps to provide its customers highly efficient heating and cooling that can respond to renewable power supply.

Taking this ethos even further, Octopus last year started a collaboration with homebuilders called Zero Bills homes. Octopus equips new all-electric homes with solar, storage, heat pumps and water heaters, using its ample home energy data to ensure the equipment is right-sized. Then Octopus orchestrates the devices such that homeowners don’t pay any energy bills for at least a decade, Jackson noted.

“If we’re going to decarbonize, we’ve got to really hustle and get those products and services into more homes more quickly,” said grid technology investor Steve McBee, founder and CEO of Huck Capital. (McBee is not an investor in Octopus.) ​“Octopus is the clear leader in that. They’ve really set the bar, set the standard, set the cadence, and are forcing everyone else to play catchup with them.”

Octopus sees a business case for handing out this menagerie of household devices because the company can control the devices to shift consumption to times when renewable production is cranking out cheaper electricity. If it costs less for Octopus to supply homes with clean energy at those times, the company can pass on some of those savings to customers, sweetening the offering compared to less creative retailers.

“What we’re really trying to build is a world where we have the right amount of generation at any moment in time, for all of our customers, from green sources,” Jackson said. ​“Then we flex the demand from our customers — we help our customers use it at the time that’s greenest.”

Sometimes this behavioral nudging takes on national importance. Last fall, as the U.K. buckled down for its first winter since Russia’s invasion of Ukraine sowed chaos in fossil-gas supply chains, Octopus rolled out a program to pay customers for reducing their energy use in hours when the British grid was struggling to meet demand. In a matter of weeks, Octopus got 40% of its eligible British customers to participate, some 600,000 households.

Octopus didn’t perfect this formula overnight, Jackson noted; it took a series of tweaks to get the right balance of rewards and customer messaging. That rapid iteration was only possible because Octopus doesn’t work at normal utility pace, which might have involved spending a couple years studying how a small sample group responded to the opportunity before deciding whether to expand it or not.

“One of the biggest challenges in energy is that so much of our innovation is based around very, very slow cycles, that most innovation is just declared a failure or not going to work,” Jackson said. ​“Or worse, we set it in stone at some suboptimal level, and you never change it again.”

Path to scale, if investors tag along

If Octopus succeeds in its mission, it won’t just make utility software more efficient. It will turn electric retailers into delivery mechanisms for customer-centric clean-energy devices on a scale the cleantech industry has not been able to achieve before.

A company that only sells solar doesn’t have a preexisting relationship with customers; it has to spend money to convince people to buy the product, and these ​“customer acquisition costs” have bedeviled the industry for years. The biggest U.S. solar installer, Sunrun, has reached hundreds of thousands of homes with its rooftop-solar offerings, though just 58,000 with home battery systems. Few other solar installers have managed to break out of local or regional scale.

Market-leading retail utilities, by contrast, serve millions of customers. If retailers start to leverage their existing customer relationships to hook households up with solar panels, batteries, smart water heaters, electric-vehicle chargers and the like, suddenly small-scale, localized clean energy starts adding up to a force to be reckoned with in the power grid.

McBee of Huck Capital actually tried this before, as the leader of the home retail business at NRG, when the U.S. competitive power producer veered into clean energy under CEO David Crane. That didn’t go well — clean energy products were still coming down in cost, and shareholders who bought the stock for the traditional power-producer business model ultimately forced Crane out in 2015. The boardroom coup cast a long shadow over the cleantech sector.

“We were both too early on the idea and not aligned properly with our shareholders to get through the seam of opportunity that was there,” McBee said. By contrast, he said, Octopus has ​“total alignment” with its investors, like the Canada Pension Plan Investment Board and Al Gore’s Generation Investment Management. ​“They’re thinking about the market in a really big and ambitious way.”

Long-term, Octopus may need to turn to public markets for the low-cost capital to deliver on its world-changing ambitions. Here the specter of NRG looms again: If public market investors don’t understand something, they’re not going to want to invest in it, said McBee.

“You have to make it a clean investment, a simple and understandable investment,” he said. ​“You have to decide what you want to be great at, and go be great at that. I would want to limit the number of moving pieces.”

That’s something to keep in mind as Octopus launches an unusually vast variety of home energy products and services. Wall Street understands the risk/​reward profile of retail electricity, and has experience evaluating enterprise software developers, but the through line from utility software to, say, in-house heat-pump manufacturing may lose some potential investors.

For his part, Rogerson, whose firm is still the largest shareholder in Octopus Energy, said the startup has carefully chosen investors who are thinking very long-term. ​“The pressure to create an exit is not there, and I think that’s entirely right,” he noted.

That’s a nice place to be, provided Octopus continues to earn the patience of those long-term thinkers. In the meantime, the public may become more familiar with a new generation of more consumer-centric power companies. The U.K.’s third biggest electricity retailer, OVO, similarly pitches clean and distributed energy on the back of a modern software infrastructure. Even NRG is turning back to the distributed energy vision it once spurned, and recently acquired Vivint Smart Home for $2.8 billion, to position itself as “​the leading essential home services platform.”

If investors want to get in on the trend toward consumer-focused energy, they could do worse than betting on the company that took over the U.K. market while selling its software to the very companies it was disrupting.