#33 Octopus CEO: Energy Bills Likely to Rise From July

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1:30Hello, welcome to Big Boss Interview, where we hear from people at the top of the biggest companies and then ask what's keeping them awake at night. I'm Fliss Hanna and I'm joined by Sean Farrington. He's telling me about his latest interview. And Sean, it's a really timely one. Yes, it's the boss of the UK's biggest supplier of energy to households around the UK. So that's Octopus Energy. And the boss there, the founder, the co-founder is Greg Jackson, somebody who we do hear from a lot. about the world of energy prices, what's happening with your tariff and all of that kind of stuff, particularly when prices move as they have done so much in recent weeks.

2:09So we got into what that has been like running a big energy company at the time of an oil and gas crisis, how customers have been reacting to that. It's really fascinating talking to him about what the impacts may be of some of this technology that he's been leading on, the use of artificial intelligence, And the way he thought that this could be a very different type of industrial revolution to the ones we've had before. Some of the concerns he might have about what that means for not just the human brain, but then the prospects and living standards of everybody, if it develops the way many think it will and the pace at which it will.

2:45We got into where Greg Jackson came from. You know, how do you end up creating a massive disruptor to what feels like a very traditional market like energy supply as well? growing up in the north of England and he spoke about his single mum is quite passionate about the system that's required to support families around the UK to enable them to kick on from tougher situations so there was a lot that we spoke about with Greg Jackson the chief executive of Octopus Energy here he is

3:18Greg Jackson thank you for joining us on Big Boss Interview you thank you for having me i've been looking forward to this and well what a time to be able to have a conversation with the boss of one of our biggest energy companies supplying so many households right around the country what has it been like almost for you personally the last few weeks being in charge at octopus at the height of a gas and oil crisis well you know it's a bit like Groundhog Day. And I hate to say that I'm not being glib. But here we go again. It's only maybe three years since first of all, the post pandemic supply chain, and then huge the Russia's invasion of Ukraine created a fossil fuel crisis, a gas crisis.

4:03Here we are, just three years later. And I think I'm first of all, to put in context, this is serious, you know, wholesale gas prices, the global market, roughly double where they were just three weeks ago. But, you know, the Russian invasion of Ukraine, things were like maybe four times higher than this. So in context, this is serious. But so far, it's kind of not close to the worst we've seen. At the same time, you know, we are currently right now, emailing millions of homes, millions of families to tell that their energy bills are going to be going down in April, because the government have cut the taxes on electricity, something we've been campaigning for for years.

4:48I'm really glad it's happening. But it couldn't be more confusing for people. Well, quite confusing for people. Do you think a lot of your customers are acting as if we are at those price peaks that we saw with Russia's full invasion of Ukraine, even though as you've just laid out contextually we're not there yeah i think first of all something we learned during that crisis was the importance of communication that's communicating with customers about what we know and what we don't know and what may be around the corner but also communicating for example with the government about you know the extent to which certain groups of customers or indeed all of them might need support in different circumstances so right now we're communicating an awful lot.

5:35I've sent video messages to millions of our customers talking through this. So where we are right now is the price cap, the energy price cap is going to be lower in April, May and June than it has been for a long time. So that's a cut in energy prices for most people. So if you're on a variable tariff, you'll see your prices fall. And if you're with a large company on an existing fixed tariff they will also pass through these government tax cuts so you'll see your prices fall if you're coming to the end of a fixed term tariff it will be harder to get one at the moment and the value won't be as good because when we're selling a fixed term tariff we literally go to the market and buy the best value we can that day and that's where you know things have really sort of become difficult since the invasion but then from july onwards there's every chance that the energy price cap and other tariffs are going to be going up reflecting what's going on in the Middle East right now because we buy energy in advance so that's what will flow through into people's bills.

6:40If this is short-lived we hope that any impact will be very temporary. I noticed that Martin Lewis pointed out you know when we hear that the price cap could go up 300 pounds in July that's an annualized figure so if it's only you know higher for a few months and typically that'll be about 80 pounds a household in mine said but if this goes on for longer or if there's you know damage in in particular in Qatar that takes a long time to repair then it could get more serious are you starting to act as if it might go on longer what do you do within the business if in the last few weeks you're you're seeing people want answers to those questions yeah I think look in business you should always hope for the best and prepare for the worst.

7:23And so right now, you know, we're hoping this will be over quickly, but we've got to get all our contingency plans ready because I've got to say so far in this crisis, each time that things could have got better, they haven't done. And so, you know, obviously remain optimistic, but we've got to be planning on this being more serious. What does that mean for Octopus? Yeah, well, I think what it'll mean really is for customers, which is it's now very likely that we'll see higher prices in the period from July to September, that fixed tariffs will be higher, and the business tariffs are going to be higher.

8:00So, you know, working with customers on if they're going to need additional support, we're getting ready for that. But also, you know, if they're going to need advice on how to simply save energy, or indeed, something you can do with electricity is use it differently to save a lot of money. You know, we've pioneered so many ways that people can save money by, for example, Using more electricity on the days it's windy and sunny because that's when the wholesale price is lowest. So there's a lot of things we can do going forward to help people if it turns out that the base prices of energy are going up.

8:30How do you see the impact on businesses and households this summer, given what you're looking at there, compared to a few years ago? Fortunately, summer is a period of low consumption of energy and particularly of gas. So, you know, again, the optimistic view here is if the impact hits during summer, then it's not going to be too bad. If it carries on to winter, it's worse. And from an industry perspective, you know, the summer is the time that Europe should be filling up its gas storage. So if we continue to see very high prices, we're either going to be putting more expensive gas into that storage, so it will kick on into the winter, or indeed there'll be less going to storage.

9:11Are households and businesses more resilient? for, you know, if that winter is not that far away, if that does end up materialising with higher costs throughout the winter, are they more resilient than the winter we had at the end of 2022? I think people have very recently experienced a much more dramatic increase in energy costs than we are likely to see here. So yes, there's resilience, but you know, that was tough. And in the end, the government stepped in subsidising people's bills to the best part of£100 billion. pounds and it was very damaging to industry. So yes, there's some resilience, but the cost to the UK was colossal.

9:49It's one of the reasons we have to escape from this, being at the mercy of the global fossil fuel market. By the way, look, Sean, you're asking what households have been doing, right? So we've seen a 50 % increase in sales of rooftop solar for households just in the three weeks since this kicked off we've seen a 30 percent increase in sales of heat pumps 40 increase in orders because there's a bit of a delay for something 20 increase in demand for electric vehicle charges 30 demand increase in demand for electric vehicles but some of that increase is this that is that compared to last year is that some that increase just the natural course of things or is this are you seeing a real big jolt in the last three weeks these are a huge jolt i I mean, we've got fairly steady order levels across those products month to month.

10:38And they're all the increases in the three-week period since this kicked off. Because so many people are saying, look, we've just got to do something about it. The irony, right now, petrol drivers are sadly seeing prices going up very quickly and worrying about where they may end up. Meanwhile, people driving electric vehicles were already able to drive at like four or five times lower prices because electricity is so much more efficient and because the government's tax cuts on electricity, it's going to be even cheaper to drive an electric car. Now, of course, not everybody can do that, but the more people do it, the less we rely upon petrol, making it easier for everybody else as well.

11:18I wanted to ask you about that, not everybody can do it. When you see who's doing that in the last three weeks, is this high-income households that are doing this, creating more of a divide between the haves and have-nots? No, that's disappearing now. The reality is that a few years ago, an electric car was a 100 grand Tesla, right? That was definitely, you know, cars for rich people. But nowadays, you know, a whole load of middle-priced cars are roughly price parity to buy between electric and petrol. And there's a second-hand market in electric cars, which there wasn't before. And, you know, sometimes you'll see stories talking about, you know, the reduced second-hand values of electric cars.

11:56That's great news for anybody who wants to buy an electric car. Great electric cars. Turns out the batteries last longer than anyone thought. Super value in the second-hand market. So, you know, that world's changing. I remember when mobile phones were first introduced and, like, you know, it was this kind of yuppie device. Nowadays, everyone's got one. It's going to be the same with EVs. So you talk about the resilience of households and how they're adapting there. What about the industry as a whole? I know that there's a lot of comparisons being made with 2022 and Russia's full invasion of Ukraine.

12:30Just before that happened and we had the extreme price hikes, we had an energy supply here in the UK, bulb, go bust, as those prices started to get a bit volatile just in the run-up to that war then. Do you think the industry is more resilient this time round, or do you expect to see some suppliers really struggle once again with gas prices this high and oil prices this high? I always say that, I mean, I said before I couldn't speak for other companies. But first of all, every company that's here today made it through, or nearly every company made it through that far greater shock in 2022. So I think, you know, the people who are here now know what they're doing.

13:09And I speak with experience, you know, it was Octopus that bought Bulb, according to the headlines, potentially saving bill payers and taxpayers six billion pounds in fact the deal we did there made the government a profit on the period that they had to own bulb so i think the you know the reality is those kind of issues really predated the last crisis what happened is there were loads of energy companies had set up pilot high sell it cheap i used to say like the moment things get tough they'll all disappear and they did but where you are now is the proper grown-up companies that invested very heavily in operational capabilities, technology, and of course, very, very prudent financial management.

13:52What does that mean for that financial management when energy prices are so much higher? You and I have talked before about the capital requirements that the regulator will have and the, I don't know how you would describe it now, we're in March 2026, the journey that Octopus is on to reach some of those targets which the regulator is satisfied with when there's a higher price for gas and oil a spike like this a shock how does that impact that sort of resilience yeah i think a very well run company like octopus is very prudent essentially we hedge all of our energy now what that means is we lock in a price in advance so that for as long as we've guaranteed a price to customers, we're paying a guaranteed price to our suppliers.

14:42And that essentially insulates you against the vast majority of this volatility. Now, a lot of those smaller companies didn't have the financial firepower to lock in like that, which meant that when the market price spiked, they couldn't cover it. But the companies that survived the previous crisis are clearly ones that had that kind of management. Are there conversations going on at the moment within within the industry i know that your takeover of bulb was in a very urgent emergency situation uh that that materialized back in sort of 2021 2022 are you looking at other energy companies at the moment and thinking they could actually be part of a future part of the octopus business or their customers not just trying to persuade the customers to join you but actually by taking that business?

15:31You know, about 10 ,000 customers a week join Octopus in the market, you know, because they want the service we provide and the value. So frankly, from our perspective, there aren't many companies out there that we could acquire that would be better than, frankly, customers joining us in the market through their own choice. So, you know, we're not massively looking for more acquisition opportunities now. Can I ask you what you make of Tesla looking to get involved in the exact same market that Octopus are involved in? Elon Musk's business and certain parts of it is thinking, right, we want to be part of energy supply and how that's done in the UK.

16:14Is that a bit of a new threat to Octopus? It's probably not the right word, but whatever it might be. Yeah, if you put aside some of the sort of political lurches that we've seen in that world, Tesla was a huge innovator in electrification. The global electric car industry is where it is thanks to a combination of Tesla and China. So huge kudos for that. I think in the UK, they've been sort of sniffing around this market for electricity supply for many years now. I think they first put in their application for a license years ago. So I think we actually may be the only company, one of the very few companies globally that can integrate directly with Tesla.

16:56So their customers get, people who've got their hardware, cars and batteries, can get a bunch of services from Octopus. So, you know, I kind of think, I'm not sure what their plans are in the UK. But first of all, you know, their innovation has been very powerful. We work a lot with them. and frankly you know i'd rather have more innovative companies in the uk than you know those that are trying to hold back progress you know we need to drive all this innovation are we heading to a world do you think where it is those energy suppliers are just going to be intertwined with the car that's on your drive potentially one day when people can afford it the battery that they might have somewhere where their boiler used to be or something like that in their house that that tesla might and others might be thinking do you know what we don't actually want our stuff to work with with octopuses uh plug-in charges or network whatever that might be and we're going to actually hold that to ourselves and try and persuade people the whole product is from us yeah the uk should be really proud of some stuff in this space um we've got one of the most innovative markets for a lot of smart stuff and electricity probably because our base prices are so high.

18:11But companies like Octopus, frankly, specifically Octopus, is a global leader in the integration of things like electric cars and domestic batteries into the system. So we've got relationships at the very top level with most of the major car companies. A few years ago, I think a lot of them thought about being energy companies, but frankly, you have to look at these energy crises to know that's not the market they want to be in. And instead, they partner with us. So today, for example, we've got about 350 ,000 cars in the UK that are literally paired with Octopus. That is, the car owner has gone into their app, they've paired it with their Octopus app, and we set the charging schedule for each of those cars every day.

18:53We estimate where they're going to get home from work, when they're going to plug in and how much electricity they'll need. And we use all that to forecast then what we're going to be doing in the market. it. Collectively, we shift around two and a half gigawatts of electricity every day, or capacity doing this, which is the equivalent of more than two nuclear power stations. Now, today, electric cars are only 5 % of the fleet. When they get to 100%, you know, that's going to be 50 gigawatts, 100 gigawatts. The UK is a 50 gigawatt system. So that's the scale of change that electrifying cars makes.

19:28And we're a global leader in it here in Britain and Octopus is doing this now in a bunch of other countries and I can't tell you governments around the world regulators around the world and car companies around the world are always visiting our offices to see how it's done. Can I play you a little bit of Larry Fink the chief executive of the world's biggest asset management company BlackRock a colleague a business editor here Simon Jack has been chatting to Larry Fink as part of this big boss interview series and and almost exactly on the point that you're talking about there about innovation and investment in electricity and energy generation around it.

20:03There was an interesting exchange, let's have a listen to their exchange, about China's approach to energy generation. China is building the biggest solar fields that we've ever seen in mankind. They're building over 100 gigawatts of nuclear, 100 gigawatts of nuclear as we speak. They're moving very rapidly towards that new AI. That's like 30 nuclear power stations, right? I mean, they're just, what they're doing is breathtaking in terms of how they're planning out for this the need for more power what i see in europe is just i just see a lot of talk and no action what do you make of that well first of all i spend a lot of time in china and we've done deals with chinese companies in fact we set up a subsidiary there to trade in the chinese energy market so we're part of the very progress he's talking about the interesting thing here in europe is we are torturing ourselves continuing this argument about are we going to do electric cars aren't we going to do electric cars are we moving too fast moving too slow are we going to drill the north sea you know wind turbines don't work it's not always windy and it's not sunny in china they're just getting on with it as a result 75 of all the renewables being built in the world right now are being built in china now i saw the u.s president doing interview where he said china's making wind turbines and sell them to everybody else but not using themselves that's just wrong as larry fink said that the amount they're installing is colossal.

21:22And they're not doing it because they're nice people. They may or may not be. They're doing it because it gives them more and more resilience, more and more energy security against the kind of crises we're seeing yet again in the Middle East and in the global fossil fuel industries. Look, the reality here is, I hear, well, if we drilled for more oil, more gas, then we'd be more resilient. Maybe it makes a tiny difference at the edges. It would certainly generate some tax for the inland revenue and be good for jobs. But on a big picture scale, the reason you get these crises is the fossil fuel industry will never have a bunch of spare capacity ready for these kinds of incidents.

22:01They're not going to drill oil fields in wells just in case, which means whenever there's a supply crunch, the prices go through the roof, and we end up with crises like this. What they're doing in China is just escaping that altogether. More than half the cars sold in China last year were electric cars. 25 % of their HGVs that are going to market now in China are electric, right? They're electrifying their economy at a dizzying pace. This Chinese state oil company is planning on no petrol stations in China by the year 2040, right? So while we are tying ourselves in knots, exactly as Larry Fink says, they're getting on with it.

22:38How does that tally with what you describe as this, you know, the UK being this hub of innovation and countries around the world looking at what we're doing here? can those two things be right? Well, first of all, they are right. So China's building all this stuff and is astonishing at the hardware. When it comes to some of the software and the optimisation, you know, there's companies in the West, in the UK, Octopus, the company we started, Kraken, real global leads in this, which is why we're doing deals with Chinese companies. But, you know, as someone who grew up in the UK is proud of the UK and proud of UK innovation.

23:20I saw things like, you read the story about the jet engine invented here in the UK, commercialised elsewhere in the world. A ton of computing advances invented in the UK, commercialised elsewhere in the world. Once again, there is a risk in this stuff that the UK has had a lead and just as it's about to become hugely economically beneficial, we back away from it. Are you seeing that with your own business? No, not with our business. But I think... Just wonder with Kraken, for example, just to almost give a little summary to those not familiar because it's not quite plastered everywhere the way the Octopus brand is.

23:56But it's the platform behind it, which you're now looking to spin off and it could become a much, much even bigger business in itself. But it is the software behind it. And some of that might mean you focusing on, I don't know, the US stock market as the home for it in the future. and it might not be the UK that is able to benefit fully. Yeah, I think, first of all, I should say, I'm intensely proud of Kraken. My co-founders and I came from a technology background and we could see the way that you could revolutionise energy with technology, everything from dramatically improving customer service, bringing operating costs down so you could offer better value, and innovating the way you've been talking a lot in this podcast, all that needs tech.

24:40We actually pitched the idea to a bunch of existing energy companies And it's classic kind of like incumbents that either said they couldn't see the opportunity or they did see it, but they were too conservative to make the technology transformation we were offering. So we realized we had to do it ourselves. And that's why we created both Octopus as the proof point, what you can do with technology at scale in energy and Kraken, which initially, you know, we used to build Octopus and then start offering to other companies. In terms of that question you asked there about the UK stock market, I think that the challenge starts long before a company thinks about going to the stock market.

25:17In the case of our company, Octopus Energy Group, including Kraken, we've raised about$3 billion of investment into our company. Maybe$2.9 billion of that has come from outside the UK because the UK has this real problem. We've got an incredible startup scene. there's a bunch of reasons why you have great startups here but when it comes to them getting investment for the growth stage of their business really scaling it the uk has over the last 20 years been a less and less good place for that what's been lost if that investment what's been lost for the uk if that investment is coming from overseas well what's happened first of all is different people give you different reasons but the more i've researched the more i'm convinced It's basically down to some pension and fund management regulations affecting insurance as well, around about the year 2000.

26:10Since then, the percentage of their funds that they've put into UK equities has fallen from about 40 % to about 3%. So what are we missing out on? So what we're missing then is British companies, if we go and raise money elsewhere in the world to grow our business, and then one day it's valuable and you float it on the stock market or whatever, it's pensioners in other countries that are benefiting from that, not British ones. So there are two things that are really missing here. So the first one is we haven't had the funding to build great big companies here unless they've gone overseas to do it.

26:45And overseas investors are going to care less about British jobs, they're going to have less relationships with the British government to help drive the support for the sectors that are renovating. And secondly, British pensioners are getting lower pensions. In fact, it suggests that from the same investments, A British pensioner might get half the pension of a Canadian. And so, you know, fixing this, which I know this government are absolutely focused on. And indeed, I think Jeremy Hunt also started King of with Manchester reforms that carried on by Rachel Reeves. A bunch of changes in the way pensions work could fix this.

27:18But you can see it's absolutely critical. We do sort it. Can I ask you about your conversations with politicians and the fact that you've clearly said communication is important for Octopus. But people may be more aware of the boss of their energy supplier than they might have been at times in the past. You've had an advisor in one form or another to the government, a non-executive on the board of the cabinet office. People will see and hear your interviews on not just when we're talking on a specific day about Octopus, but more generally your thoughts on things. What has it been like, your engagement with politicians in recent years?