Interview: Octopus Energy boss Greg Jackson speaks to Simon Lambert

0:04Simon Lambert: I'm Simon Lambert from This Is Money and I'm joined now for a special interview by Greg Jackson, the CEO and founder of Octopus Energy. He's a man who knows more about energy bills and energy prices and the future of energy than most people in this country. He's going to talk us through where we're at now on energy bills, what he sees the future of home energy as being, how he thinks we could get bills down for people in the long term and where we could possibly be in a decade's time. Greg, welcome to This Is Money. First of all, I think the thing that everybody wants to know is where are we at with energy bills at the moment other than the fact that most people would have hoped that they would have come down more by now?

0:49Simon Lambert: Well first of all, hello Simon and indeed hello to your listeners, thank you for having me. But energy bills are too high. I guess I should very quickly say, thanks to the energy price cap, which essentially caps supplier profits, that's not any more because of high price from suppliers. It's because our energy system is too expensive. The price of gas is still around about 50%, the wholesale price of gas, is about 50 % higher than it was before the energy crisis. That's actually a lot back because at one point the wholesale price of gas was i think 15 times higher so it's come down a lot it's not yet back to normal levels now that doesn't just mean that gas is more expensive but because of the way the electricity wholesale market works the price there is set by gas 98 of the time or something so high gas prices then set high electricity prices But I think there are some other issues underneath it that could be addressed by, for example, the government.

1:55So far this year, our country has spent something like£800 million paying wind farms to turn off on windy days and then paying gas generators to fill the gaps. because the way that the wholesale and electricity market works, these wind farms get told what they're going to get paid and they get paid it even if there's not enough grid to ship the electricity to where you want. That's crazy. We're just paying for nothing. Now, that's the kind of thing that if the government address that, we could start to see bills coming down further. We're also spending a lot of money doing things like upgrading the electricity networks, all of which goes on bills.

2:38In the long run, it might bring bills down. But the companies that run the networks are paid based on how much they spend. So if they spend more, they earn more. And instead, we could change this system so that they got incentivized to spend less, and that would bring bills down. I'd just give a couple of examples here because fundamentally, our high energy bills are partly driven by high gas costs and partly driven by high system costs. There's not a lot the UK can do about gas costs that set globally. There's a lot we can do about the system.

3:10Simon Lambert: Now, with this thing that you mentioned there, where the electricity price is set by the gas price, it's the sort of highest price marginal production of a unit, isn't it? It's like what it would cost to generate that one extra unit that we need. Why is it that we can't just change that? If we're producing so much cheaper electricity elsewhere, why are we using that to set? the price of electricity still when everybody knows it's a problem. Yeah. So what you're describing there is that every half hour, the electricity system operator, part of the government really, runs an auction. Every electricity generator in Great Britain submits their price.

3:50And like any auction, they sort it by price, starting at the cheapest, getting to the most expensive. But the most expensive unit that we buy in that auction sets the price that everybody gets paid. So you might have a generator, a wind generator, who's got very cheap electricity because they don't have to pay for any fuel costs themselves. Their fuel, wind, is free. And they might be bidding a price of£50 per megawatt hour. Someone else, a gas generator, might be bidding£150. And the wind generator gets the£150, not the£50 they bid. And so that means that there's kind of an awful lot of the time cheap generators are getting paid expensive prices because of that auction.

4:33Now that auction is set by government policy. It's been around for decades. It didn't used to matter because when all of our electricity was coming from coal and gas, they all had to pay the same input price, basically. So the auction price was very, very similar to everyone's costs. But now that we've got this very wide range of different kinds of electricity generation, we don't get the benefit of the cheapest. Now our company proposed reforms that would have helped address this. The government chose not to do it because I think a lot of the existing generators, the system works very well for them, they lobbied very hard against it.

5:11But it does need policy change to stand up to the big generators who, you know, some of them make very large margins, there's no price cap in their world, and to stand up to them and start to address these problems.

5:22Simon Lambert: because we're actually quite good at renewable energy in the uk aren't we on a sort of comparison to the rest of the world yeah we definitely were so the uk has got just about the highest proportion of of offshore wind in the world but other countries now spain for example has more renewable energy than us brazil has more renewable sweden and norway and they have cheaper prices they don't just have cheaper prices because the amount of renewable but also because of the way they run their systems. But increasingly, the way the UK runs it means that we don't get the benefit of this renewable. In fact, sometimes it works against us, like this thing about paying wind farms to turn off on windy days.

6:04So I think that what's happened is the UK sort of moved early, like we've done in so many industries, like, you know, the jet engine was invented here, but other countries ended up making all the money out of it. We did a lot in the early days of renewables but we haven't then grasped the nettle to reform our markets so that consumers get the benefit of that instead sometimes it actually goes the other way is making things more expensive we need to change the market and is energy storage one of the the keys to this is that

6:33Simon Lambert: one of our big problems is that we can generate lots of cheap energy but we can't store it and so it ends up as you say going to waste wind farms being told to turn off that kind of thing Storage is one answer. In fact, you know, the UK's got a lot of grid-scale batteries, 10 times more than Spain, for example. But that's, you know, it's expensive. First of all, what we should do is just on windy days, give people in the areas where these wind farms are cheap electricity. If we can't ship it around the country, at least use it there and bring the cost down for them. You know, ironically, Scotland generates three times more electricity than it can use, but it pays the highest prices.

7:13That's how broken things are. storage is getting cheaper all the time grid scale batteries getting cheaper we will need more and they'll be very useful but first of all let's just make electricity cheaper particularly by the way that would also mean that you put in the batteries is cheaper when we store it we've just got to fix

7:29Simon Lambert: that broken market there's there's this great irony that we're being told that we need to save more energy not use as much energy at the same time as we're rushing headlong into technology that uses vast amounts more energy in terms of artificial intelligence data centers and so on the government has decided that data centers are a good thing and we want data centers in the uk would that encourage more data centers to set up if they knew that they could go to one of those locations close to the wind farms scotland for example you know the northeast or whatever and they would know that okay yes they're not always going to get cheap energy but on those days when there's too much you know if they're close by they would get cheap energy yeah i mean that's what we've seen in other countries.

8:11TikTok has set up its biggest AI data center in a very rural bit of Norway. They've done that because it's cheap electricity in that region, because the Norwegian electricity system makes it cheap if you need the source. So you would see more investment in the industries of the future, but also by my existing heavy industries would often be able to benefit from cheap electricity as well. So it'd be good for the economy.

8:36Simon Lambert: Obviously, we're talking there about energy on a grand scale on a national scale but octopus it deals with energy on a domestic scale but more than any other company uh in the uk now how has octopus gone from being a challenger energy company to the uk's biggest domestic supplier yeah i think first and foremost we look after customers uh of course every company says that but the proof's in the pudding i think we wonder which recommended the toughest test of service i think eight years in a row but you know we also come top of off gems the regulators own surveys of custom satisfaction by a long long way but i think we're the only company that's above average you know you'll see the same in the u switch awards and almost every ranking and that's because fundamentally we thought that too often in a sector like this people end up phoning a company and having to press them so many buttons to get through to someone who then won't help them and and we realized that you know if you're spending the kind of money you're doing electricity and gas you deserve better service so that was number one i think number two was that we've got this broken energy market that we can continue hunt around to try to find ways to save people money so you know we've got one and a half million customers who signed up for programs where they get cheap electricity on windy and sunny days or when the grid is tight, we'll pay them, we'll literally pay them to use less energy.

10:05And so finding lots of ways at least to try and help people get a bit more value from energy. And then I think we're the only big energy companies that's always charged less than the price cap on the variable rate. So even if you don't want to do any of the special schemes, there's still money to be saved. And so I think that combination of value and service has been the secret.

10:25Simon Lambert: And with those special schemes, these are the things like your agile tariffs. Is there a situation where you look at it and you go, OK, well, if you just want to do the straightforward, get some energy from someone, pay the price that you're told you're going to pay, you take the standard tariff, that's fine. But you're not going to get the best deal in your energy bills. You're not going to save money on your energy bills. do people have to be willing to say okay do you know what i will get a smart meter i will do something a bit different and sign up to one of these agile tariffs i will try to kind of to use a horrible phrase like lean into this kind of future of energy rather than just going well i just want levels to be exactly the same as they've always been but i think it's a bit like um super markets uh yeah there are some people who will always shop for bargains and will change what they're going to buy to get a bargain.

11:16There's others who always buy what they normally buy, but if it's an offer, they'll load up on it. And there's others who don't look at the offers at all. And all of those are entirely fine. And it's the job of a company like us to give you great value however you want to do it. So the first thing I said is like just trying to have our standard price below the price cap. So if you don't do anything, it's a bit cheaper. But then fixed tariffs are often cheaper than the variable deals on the price cap. And so I think our company has more customers on a fixed tariff than any other, certainly any other big one, because we make it really clear and easy for people to see that just lock in your price for a year and we'll typically be able to save you money.

11:56And sometimes quite a lot, a couple hundred quid a year sometimes. I think then, if you want to go further, we've got the kind of things you're talking about. Now, the Agile tariff, for example, is a tariff that changes every half hour. You don't need to check your app, though. It's just helpful to know that electricity is typically quite expensive between 4pm and 7pm. Very, very cheap overnight and cheap on sunny afternoons. As long as you know that, you can use a little bit more at the cheaper times and a bit less at the expensive times, you'll save money. Only maybe, I know, 100 ,000 of our customers are on tariffs like that.

12:30Millions and millions of more straightforward stuff. But even if you're on a straightforward tariff, you can then get programs you sign up to where we'll give you a text message or a notification in the app on a windy day or a sunny day and let you know that electricity is going to be cheap at those times. I think the point really is there's lots of ways of saving money you don't need to think about, but if you do want to think about it, you can go further. And this, it's not complicated. It's a lot simpler than a supermarket, but it's the same kind of idea. And, you know, sometimes people do say to me, no one should have to think about their energy.

13:04I mean, you don't have to, but a bit like with food, if you go to a supermarket and there's food that's reduced to clear, it is great that some people get a bargain and we reduce waste and we can do the same in energy now there are some people who do really like to think about it though aren't there i've spent time on forums seeing customers chatting about it and it's like my grandparents used to drive hours and hours to find the very cheapest petrol you know they and their friends will swap notes on what was going on morrisons or asda's and i think in the same way a lot of people and start swapping notes on just how to save money and i think that's great if you're the kind of person wants to do that now it's fantastic as you get a bargain but you also make the system more efficient you're reducing waste you know you're using this very valuable resource better

13:50Simon Lambert: feeding into that is the is the kind of the increase in the number of people getting solar panels for example i mean solar panels has definitely gone from something that was a early adopter niche thing you know quite some years ago i mean my father-in-law signed up to solar panels in the early days when you got the really good inflation-linked feed-in tariff rates and he had to pay quite a lot for the panels obviously because they were expensive in those days but i can't remember what he said to me he said he's worked it out and he reckons that the the yield he's getting on them now is something like 12 14 or something they paid for themselves a long time ago the deals are quite so good anymore because the government realized they probably need to stop paying people that amount of money but also because they've become more mainstream more people are willing to sign up for them and then also you've got the the rise of electric cars are you seeing that are you seeing a change in the the type of people who are getting solar panels and then deciding maybe to go down the route of battery storage or combining with an electric car and signing up for those those tariffs that you're talking about well yeah i think actually mentioned their battery storage and i think battery storage has been the game changer for solar panels in the UK because obviously solar panels generate when it's sunny but we use a lot of electricity in the evenings.

15:10If you've got a battery it fills up from the solar panel during the day when it's sunny and then can use the power in the evening when you need it. More than that most people with solar panels end up generating more electricity than they can use at least at sometimes these days you now get paid for the electricity you put back onto the grid from your solar panel so if you don't use yourself doesn't get wasted it earns you money and if you've got a battery we can put that electricity back onto the grid in the evenings when electricity is very expensive and so you earn a lot more for it and it's really the combination of battery and solar panel that has really created this new boom in uh uk solar and you ask like you know what kind of people get it and and i think a lot of people buy it outright if you've got some savings this is can be a good use of money to reduce your bills going forward and increase the value of your home and to reduce the risk of volatile bills in future you now got a lot more control i think there's also you know some people buy on finance and it kind of pays for itself but once you've paid off the finance you've essentially got a house that can save 90 on its electricity bills it looks like for a lot of people it's a very good investment what i see most is that the people who get it are the ones whose neighbors have got it because what you find is once one house has got it and they've kind of discovered the benefits then their neighbors pop around ask the questions and they go and get it as well so you'll see streets with no solar panels and then you'll streets with five houses 10 houses because as soon as your neighbors got it you discover it

16:53Simon Lambert: could be good for you too that actually this is really quite good effect that kicks in which definitely has a more powerful effect than the government tells you to do something effect i sometimes drop in on our installers when they're installing things in people's homes and you can literally see it like what are the scaffoldings up the guys on the roof putting the solar panels and the neighbors pop around to start asking questions while you're there you know it's quite interesting you did ask about you know once people start getting these you talk about solar and battery and the other things people get it like like an electric car or electric heating with a heat pump because once you're generating your own electricity electric cars are already super cheap to charge at home i think if you use a special tariff for electric cars it can be five over six times cheaper per mile than a petrol car and given that electric cars are now you know some of them roughly the same price as their petrol equivalent some are cheaper and in the second hand market electric cars can be i think 80 percent of the it's super cheap anyway but if you're generating solar electricity you can get to a world where you're basically not paying for driving and that is something that actually can save people a substantial amount of money and you're right the prices of electric cars have come down by a huge amount to close to parity when with new cars and with second-hand cars some of the quite a quite cheap electric you know run around nowadays which is something that just was not the case you know five years ago you were paying a premium and you couldn't get that many kind of cheaper second-hand cars unless they were very old generation ones but you mentioned the heat pumps there that definitely i think falls into the category of government telling people to do something and not having the desired effect and there's definitely been a bit of a backlash against heat pumps i think from our readers but then you know you speak to people who've got them and they say look this is great this is saving me me a fortune what is the benefits of heat pump and how much work do people then have to do elsewhere in terms of sorting out their heating and all those other things well i agree with you by the way that the way that governments seem to try and force things on people and then you know the language of ripping out gas boilers stuff like that really to cause i mean i get it i you know we all get this kind of reaction that says you're going to tell me what to do and the reality with heat pumps is there are relatively new technology to the uk very common in the rest of the world i was just with some people from Canada.

19:26They're in an area of Canada where 60 % of houses are heated by heat pumps, even though their temperatures in winter go down to minus 30. So, you know, heat pumps can work extremely well in all climates. It's just taken a while. The UK's housing was all built, well, some of it was built initially to be heated by coal, and then all of the more recent housing built to be heated by gas. And so it's taken a while to adapt heat pumps to work really well with UK houses. But now that's happening, I think surveys show that 85 % of people who've got a heat pump prefer it to their old gas boiler. And they prefer it typically because, first of all, it can save money.

20:06As long as, again, you have an appropriate heat pump tariff for electricity, it can be two or three hundred pounds a year cheaper to run than a gas boiler and more reliable. If you look at a gas boiler, it's got a lot of complex parts. It's got risks of dangerous fumes that we've got to sometimes you've got a carbon monoxide monitors the gas boilers are often not as reliable as we think you know that people pay a lot for their gas boil to cover their insurance heat pumps are just so much simpler so once they're installed you know what customers tell us is their homes are more comfortable they're cheaper to heat and the ping's more reliable i mean every winter you get to this bit where people turn up in the office saying that They're late in because the gas boiler was on the blink.

20:51It happens that we've got a phrase for it, which meant they had no water, couldn't have a shower, all that stuff. So I think we've got to recognise that gas boilers have done a good job, but increasingly there are better solutions around. They're not yet ready for everyone, but where heat pumps are good for you, you can save money. And again, government policy hasn't helped. Some of the old incentive schemes kind of encourage people to put heat pumps into houses that you couldn't even heat properly with gas. So of course you got some dissatisfied customers. And some of the installers back then weren't good enough.

21:26But where you are now is the satisfaction rates on heat pumps are great. And I've seen exactly the same curve with electric vehicles, which was like 10 years ago. Electric cars were expensive, definitely not right for everyone. But it took time to start getting the cost down and really make them attractive to a lot of households, which I was at a kid's birthday party. There's a one-year-old there. So it's just adults standing around talking, really. And I was talking to the grandparents and they were just telling me about the electric car they'd got. You know, they're not environmentalists. They got it because it was cheaper.

22:00And they were talking about, I think they spent like eight pounds charging it in the last year because they hunt around for free charging when they're shopping and things like that. And, you know, you've got a world now where electric cars can suit a lot of normal people. And heat pumps are heading that way. they're just not as far down the road yet. But if heat pump's right for your house, and typical three, four bed semi often is going to be right, it's already a great solution.

22:26Simon Lambert: Whose houses wouldn't it be right for on the kind of flip side? One interesting thing in sectors like this is so many policy makers, opinion formers, live in big, expensive mansions that don't have much insulation and hundreds of years old and a drafty some of those are going to be harder for heat pumps today i mean heat pumps can do it they're just going to be expensive and complicated it's also worth noting my 20 of homes in the uk don't have gas so there's a whole bunch bunch of ways in which like heat pumps can be good for people where they can't even have gas today they're good for people who've got kind of fairly typical uk homes uh but they're more challenging like if you live in a stately home i i grew up in a house without the bottom connected to the gas mains.

23:14Simon Lambert: There's like one of those places where, weirdly, there was a cul-de-sac of 14 houses built in the countryside. They weren't connected to the gas at the time when they were built. And then they looked into it. I think my parents looked into it, you know, and they were quoted some kind of, all the houses quoted some crazy price. So they all run off a combination of, my mum's got a counter gas, but some of the neighbours have got oil tanks and things like that. and actually you know one of the neighbors who's done a big renovation project has put the heat pump in because i guess in that situation it just makes sense because heating your home on oil or a gas tank is really expensive isn't it really expensive and inconvenient you know yeah i've got a mate who you know the oil delivery just didn't turn up when it was supposed to yeah and there's a lot of issues like that but i think um again heat pumps are just improving rapidly our company we actually built our own factory to manufacture heat pumps it is in northern isle british made uh designed for britain and they can heat water that goes into radiators hotter than a gas boiler yeah they can heat up to about 72 degrees celsius whereas um a gas boiler is going to be typically 55 60 65 so a modern heat pump can actually prick more heat than a typical gas boiler because that has been one of the criticisms in the past hasn't it oh they won't heat your water high enough and the other criticism has been the noise have they got quieter i mean i must admit a couple of years ago i did go on holiday to a house in france that had a heat pump and it was in the back garden and it was on a lot more than i thought it would be and it did annoy me when i was sitting in the garden the noise comes from two things there's a unit in it called a compressor which essentially compresses the gases to create the heat compressors used to be quite noisy but a bit like car engines i remember when car engines were really loud and and over time the engineers would kind of get rid of that noise they'd be able to do the same with the compressors and then there's the fan it's got a big fan rotating so as long as the the fan is kept clean and maybe with occasional maintenance like once a year or less the fans are quiet these days as well in my house if i'm sitting in the kitchen i can hear the fridge more than i can hear the heat pump i had a customer last week before based on social media he'd got his heat pump from octopus and his wife used to make him turn the heating off at night when they had a gas boiler because it's too noisy and with the heat pump he no longer has to turn the heating off at night so you know it's worth remembering quite a lot of gas boils are pretty noisy too and some size heat pump actually solves that problem and they can be in quite inconvenient places as well so what about i mean we talked about this before with people who just want the standard tariffs but you know in terms of the future of energy what do we do about just bringing prices down bills down long term and also the people who who don't want these things they don't want electric car they don't want solar panels they don't want a heat pump and they don't want a tariff that changes well they definitely shouldn't have to have any of those things these should all be people's choices where you know they think it values their home where they think it will make things cheaper more efficient or easier but if you don't want to change anything you shouldn't have to the big things to get like energy costs down now are in particular the energy market the electricity market has to be reformed to squeeze out the waste that's everywhere in that market so less than half your bill is the actual electricity we pay so much now for all of the extra bits of the system, like gold-plated upgrades to the networks, which aren't always necessary.

26:50We've gone through this program of putting smart meters in people's homes, but half of the electricity network isn't metered. So we actually don't know how efficient. There are now technologies that can let you get a lot more out of the network without building new pylons, without building new substations. But the UK is not using many of those technologies. You see them around the world. So all of this now really sits with government and regulator to change the way that system works, and they need to do it urgently.

27:21Simon Lambert: Are they engaging with that properly, fully? I mean, Ed Miliband is a man who is very interested in the energy market, isn't he? I think the challenge is whenever they try and engage with it, there are companies who are making money out of the existing system that lobby hard against it. And I should say, you know, look, the ongoing gas companies have made huge margins. Our gas is still about 50 % higher than it was before the crisis. And during the energy crisis, the UK government spent£100 billion, or thereabouts, subsidising bills and dealing with the costs of the fact that gas became so expensive.

28:00not because the gas companies they made huge margins not because they've done anything special but because in particular putin invaded ukraine and i think you know we're still carrying quite a lot of these costs some of that we're not in control of that's a global issue that the system costs i keep talking about that's in the government's gift and they need to be brave and tackle those incumbent interests to get the cost down otherwise you know it's hard to see how bills are going to come down far.

28:32Simon Lambert: And finally, where do you see home energy in 10 years' time? What are our homes going to look like energy-wise in a decade? What's going to change? Look, for a lot of people, they won't look that different. I really hope bills will come down if you see strong actions from governments. But increasingly, look, there's sort of an irony that a lot of these technologies can almost eliminate energy bills. In fact, we work with house builders to build what we call zero bills homes so they have solar panels heat pump battery and a smart hot water heater and we can optimize all that equipment to eliminate energy bills there's 5 000 homes so far have been built since we introduced this program and they're accredited and are running with zero bills we think we could build another 100 000 of those by 2030 the more we can build cheap technologies into new homes literally the cheaper we can make those homes to run but also we start creating an energy system when we can make it cheaper for everybody else and so i think if we can have as many homes as possible being cheaper through solar and battery and um and heat pumps as well by the way where appropriate you can then make electricity cheaper for everybody and i really hope we can see both government action but also investment and innovation from private companies and empowering homeowners to do this it's still too bureaucratic you know if you get solar panels you still have to fill out a load of forms and wait for approval before you can sell your solar back to the grid you know that that should be a same day thing so i think there are lots of areas this can be made better both you know decisions people can make for their own homes and that will add value to them but also decisions for government policy makers and responsibility in companies like us.

30:18Simon Lambert: And those homes that you mentioned there that are paying zero bills, are they like the kind of passive house type homes where it's all sealed and everything? Or are they just normal homes that have just been fitted out with all of this stuff? They're just normal homes. And they're not expensive. I mean, some of them are social housing, affordable housing, and premium housing. It's every kind of house. It's just about the technology of solar, battery, and heat pump and the way we can optimise that. I think another example would be you know we just launched a deal with byd that the car company and i hope there's a couple more car companies seen where if you get a car whose battery goes both ways so your your home can use a little bit of electricity from your car's battery we can give you 12 000 miles a year of free driving because again we of course the you know the reason you get a car is to get from A to B.

31:11It's not to have like an edgy storage. So the primary thing is you'll always have enough electricity in the battery to drive. But what we can do is essentially fill the battery up at the very cheapest times. When electricity is expensive on the grid, we put a little bit of that electricity back into your house or back into the grid. And with the money earned from doing that, we buy back more electricity at cheap times for more driving. It uses AI so that it will always have enough electricity for driving but it can literally eliminate fuel costs combined with the fact that electric vehicles need a lot less service and maintenance you know there's no oil filters to change there's no oil to change but brakes are essentially electric brakes so you don't get much wear on the brake pads all the stuff that you get done in a service is so much cheaper in electric vehicle so you know you can see ways that all this stuff can bring down costs but too many of us we We still remember the way things were five years ago or ten years ago when an electric vehicle was a hugely expensive Tesla rather than these much more affordable and very cheap to run vehicles that you now have.

32:19Simon Lambert: Greg, thank you very much. That's all we've got time for. Thank you for joining me. Really interesting chat.