Greg Jackson is clear what he thinks has gone wrong with the retail energy industry. The big six firms - SSE, EDF Energy, British Gas, NPower, E.ON UK and Scottishpower - have spent years focusing too heavily on their shareholders.
“They've done that while struggling to deliver value to their customers, and have ultimately declined.”
The big six were positioned between 22nd and joint 27th in the latest Which? energy survey results. The firm that topped the list was green energy firm Octopus Energy, which Jackson founded alongside business partner James Eddison in 2015, with funding from eventual parent company Octopus Group.
Since launching the brand in May the following year, Octopus has amassed 1.5 million customers - a five per cent share in a market that has proved increasingly competitive for challenger brands - 14 exited the market in 2019 according to Cornwall Insight. The big six, meanwhile, still retain over 70 per cent market share.
Jackson attributes its success to its customer service and to a superior business model that its technology enables.
The firm doesn’t have a call centre, for example. Instead, it has teams of “energy specialists”, with each team of 10 being responsible for an average of 70,000 customers. “Each one runs like an individual business, looking after everything for those 70,000 customers.”
Jackson says this means the firm has been able to serve customers more efficiently and personally. It helps that Octopus is able, he says, to offer customers lower prices thanks to its back-end technology.
In the UK’s fluid energy market, distributors like Octopus buy electricity from the wholesale market that clears every half an hour. Supply and demand is regulated by National Grid and retailers are penalised if they over- or under-supply against demand.
“For a company of our scale, you’d usually have a team of between 15 and 20 people running that operation. We have a team of three,” says Jackson.
By automating that process - using purpose-built machine learning algorithms that forecast demand (and runs risk scenarios against price variation) - Octopus has been able to procure energy more reliably, sourcing it from over 100 direct contracts with local wind, solar and hydroelectric providers and passing on the cost saving to customers.
Organic growth and opportunistic M&A
Building the brand on these fundamentals and on its external accolades (Octopus is Which?’s only recommended provider), Jackson says the company has been able to achieve organic growth of between 60,000 to 80,000 new customers a month.
The firm has also been able to capitalise on the industry’s wider struggles.
In August 2018, for example, Octopus took on 100,000 of collapsed provider Iresa’s customers under Ofgem’s provider of last resort scheme.
“Because of our unique technology platform, we're able to fold acquisitions into our business quickly and effortlessly,” says Jackson, which means for companies exiting the market Octopus is the natural acquirer. Over the last two years the firm completed six acquisitions including Affect Energy, and more recently a deal to buy ENGIE UK’s 70,000 retail customers in January 2020.
Latest accounts show a £5.9m loss for the year ending April 2018 as the firm rapidly expanded, with turnover growing 267 per cent over the previous year to £129m. Jackson says Octopus Energy Groups up-to-date revenues are “roughly” £1.5bn.
In January 2020 The Telegraph reported that the firm was exploring funding options to accelerate its international expansion. Octopus has partnerships with companies in Germany and Australia, and has 500 staff spread across four sites in the UK, but plans to be in 30 countries within the next five years.
“There aren't any global players in energy today, yet if you look at the transformation needed to go green and the capability enabled by technology, the opportunity to fill that gap is huge,” says Jackson.
The likes of BP, Shell and other oil and gas majors are currently filling that role, but as the demand for the “black stuff they pull out of the ground” decreases and the world adopts electric vehicles and decarbonises, Jackson believes they’ll be replaced by global electricity companies using sustainable sources.
It’s a noble and ambitious aim. But if it reaches its desired scale, what stops Octopus becoming the sort of rigid, inefficient, shareholder-first dinosaur that Jackson is so aggressively trying to make extinct? After all, seamlessly serving 1 million customers is one thing; serving 30 million is a different prospect entirely.
“It's about foundations,” says Jackson, who explains that the company’s technology platform can already comfortably hold 100 million customers, adding that its decentralised approach to customer service and decision making are also “scalable”.
“We've got 1.5 million customers on our platform and we're not even touching the sides, says Jackson. “The race is on for us to get big before our competitors get efficient.”
Image credit: Greg Jackson, courtesy of Octopus Energy