Episode Transcript
Julia: Hello and welcome to the London Stock Exchange's Be Inspired series. I'm Julia Hoggett, the CEO of the London Stock Exchange, and in this series we get to talk to founders and CEOs of companies about the journey that they've been on, the challenges that they faced, and their visions for the future. And today I'm utterly delighted to be joined and hosted in Octopus Energy's offices by Greg Jackson, who's the CEO and founder of Octopus Energy. Greg, it’s lovely to see you. Thank you very much for having us here.
Greg: Thank you so much for coming and it’s really great to have you here.
Julia: So I love doing these things because I get to learn about the journeys that companies have been on. And one of the throughlines I've found in all of the interviews that I've done is, very often founders have identified a problem or something that they see isn't working and that's actually been the inspiration for the companies that they've set up. And I'd have thought Octopus Energy is almost the perfect exemplar of that very narrative. So I'd love to get your sense of how this company was started, what that problem statement was that you felt needed to be addressed.
Greg: That's a great way of looking at it. It's simple in our case. Energy costs too much, service to customers has been too poor, and, crucially, energy is the single biggest driver of climate change. So what we had was three issues, some that affect us personally, service and cost, and others that affect the world we live in. And we could see how technology could tackle all three of those. That was really the founding insight for this group.
Julia: And you're talking about the technology as well and a lot of people, I think, think of Octopus Energy in the same way they think of other, I'd say, normal energy providers. But, in fact, you do much more of a vertical stack and, in some regards, a horizontal stack as well in terms of what you do. Can you just talk me through the way you've thought about the construction of the company? Because, in a sense, you started with a technology platform that then became an energy company. Is that the right way of thinking about it?
Greg: Yes. That's right. And, first of all, by the way, I hope not too many people think of us as a normal energy company.
Julia: No. I don't think they think of you as normal at all.
Greg: And all the data says our absolute focus on service means that we've got a net promoter score that's between 20 and 45 points higher than anyone else in this sector, which is the biggest gap of any company in any sector. But you're right that in the UK we're famous as an energy provider, energy supplier, but the founding team came from technology. And, a bit like the founding team from Uber didn't come from the cab industry, not coming from energy meant that when we looked at the energy sector, we thought about how you would do it, starting from scratch, built entirely around technology. And, in fact, before we had the idea for Octopus Energy, we wondered whether we could build a technology platform that we would provide to energy companies globally. But, when we spoke to them, they said, look. One of two things. Some energy companies said, we've been doing this for decades, we know what we're doing, thank you very much.
Julia: Yes. Go away.
Greg: Go away, yes, which is a great sign. Because we've worked in disrupted sectors before and, in every sector that’s going to be disrupted, you hear that. I think the second thing we heard was, some energy companies said, look, what you're saying sounds really interesting, but someone's got to do it first. And we realised that we were going to have to do it first.
Julia: You've got to prove it out.
Greg: Yes. So we simultaneously set out to build a technology platform, Kraken, and an energy company, Octopus, which would be the demo client.
Julia: Yes.
Greg: Today that demo client has got revenue…
Julia: It’s huge.
Greg: It's huge, right?
Julia: Yes.
Greg: In fact, it’s the biggest power company in the UK and, I think, the largest provider to households of energy by revenue. And it's got so many metrics that say that we've definitely proven technology enables you to do it better. But also our technology platform, Kraken, that's in many ways less well known outside the sector but is increasingly recognised as being a global leader in cloud-based technology for utilities. Kraken serves, I don't know, 54 or 55 million accounts globally and is growing incredibly. Four years ago, that was a couple of million.
Julia: Can we talk a little bit through what Kraken… What's the differentiator for what Kraken does in terms of how it's thinking about what that technology product is and how that ultimately translates into a differentiated service as a consequence of that?
Greg: So energy was surprisingly far behind every other sector, so many other sectors, in technology. One leader in energy said to me, look, our sector thinks of a monthly meter reading as big data. And yet we live in a world in which data is becoming increasingly important, particularly in energy, particularly with the move to renewables. And so Kraken really provides, first of all, a single dataset for the entirety of a utility. So it records every phone call, it transcribes it, all available live forever, every email, every text message, every WhatsApp. But it also has every meter reading. It has a forecast for every meter for the next two years, which gets updated every four hours. And that meter, that forecast, is at the half-hourly level or, in some markets, the five-minute level. But it also stores every financial transaction, every forecast for every generating point, every solar panel, every wind turbine. And for example, if people have got electric cars, it stores all the details about what model, what amount of electricity it can take on board at any moment in time, how much it can store, and then a forecast for when that car is going to next plug in and how much battery it'll need. And all of this and so much more.
Julia: So it's a complete solution to run an energy company?
Greg: It really is. Traditionally, utilities or grids would, in simple terms, wake up in the morning and they'd know they've got a demand curve like that for the day. And all they do is turn power stations on and off to meet that demand. But in a renewable world, it's the exact opposite way round. You wake up in the morning, you look at the weather forecast, and you're going to have this electricity available. You want to shift demand. Because, look, there's a huge barrier in the traditional incumbent thinking in energy, which is, renewables are intermittent. And there was a real desire to try and turn renewables from being a zigzag into a square wave. That's phenomenally expensive. You're far better off saying, before we worry about the gaps, let's make the most of the peaks. And if we shift as much demand as possible into those peaks, first of all, we get the cheapest power we've ever had and it's getting cheaper every year. Secondly, the problem of the gaps becomes smaller because you've used more electricity.
Julia: So you've got less to fill in terms of alternative supply.
Greg: Less to fill. And so Kraken, among many other things it does, is exceptional at being able to work out what demand can be shifted and shifting it. Take people with an electric heat pump. With a smart use, a very smart tariff, we shift 46% of their usage out of peak time compared to if they didn't have a heat pump at all. I.e., not only does the heat pump not use anything at peak, but the household uses a lot less.
Julia: Let's talk about the energy generation because you're now generating energy and a lot of renewable energy as well. So you've moved into a vertical stack in terms of the energy company. What was the transition? Was that always going to be the vision, that you would do that as well as do the technology?
Greg: There's a great interview with Jeff Bezos, I think in 1999 on MSNBC, where the interviewer said to him, you're building warehouses, we thought you were an Internet business. And he says, Internet, schminternet, we're a customer business. And if building warehouses close to where our customers live enables us to have a bigger range for faster delivery and lower prices, we'll build warehouses. And I think we've taken the same view on energy, which is, we'll do whatever it takes to be able to leverage our technology to drive down the cost of energy as it goes green. And one feature of renewables is, as we said, they’re variable. They vary by time and they vary by location. And one of the key components of that is the weather, obviously. And so what we find is that if we have our own generation, we can produce a forecast for every individual generating point and, at the same time, we can be forecasting consumption for our customers in the local area and further away, and we can work out which of that consumption we can shift. So we can be trying to match up…
Julia: You can see the full picture in the way you described before.
Greg: Exactly, and I think it's really interesting. Utilities have traditionally been, financially, really boring. In many ways they’re a cost-plus business. And yet, under the hood, the price of electricity on the grid, an arbitrary grid in an arbitrary country, varies from minus-1,000 of some currency unit to plus-20,000, right? And what we've been saying is, if we can use better data and better forecasting of both generation and better shiftability of consumption, we can essentially be buying at minus-1,000 and selling it somewhere higher than that and break that direct link between cost and price. And I think that's how we turn utilities from being, financially, often seems quite a sleepy sector into one where actually we've got huge opportunity to drive down the cost of the product and give consumers the benefit. The ability to use Kraken to drive down costs can help free up more money to invest in, for example, the infrastructure that's needed without increasing bills or rates to customers.
Julia: Yes, not creating this sense of a binary trade-off, which is always the issue.
Greg: Exactly. Part of my background… I'm partly a technologist but also partly an economist. And part of that economist thinking is like, where can you unlock Pareto improvements? I.e., you make some people better off without making others worse, escape from zero-sum games. Technology is amazing for that and that's really what we set out to do with Kraken and which we deliver with Octopus.
Julia: Yes. And I have to say, this sense of a company that is using technology to unlock the opportunity to enhance the way we use energy, improve the way we use energy, and help us get through the transition. We were talking earlier about electric vehicles. And so increasingly now, one of the vertical stacks that you have is the generation through all the way to the provision of the vehicle and the optimisation of people's use of it. And we were talking about the degree to which we don't necessarily know either how much energy we consume or what a kilowatt-hour is or what it represents and how much it costs. But people do know how much petrol is, a gallon of petrol is or a litre of petrol is. And they know, increasingly, how much it costs them to recharge their car. And so you start creating an awareness of that utilisation through driving which we've never really managed to generate in the home. And so you've got an opportunity to change behaviours but also take us on that path to net-zero in a way that the traditional model, I think, would find it nigh-on impossible to do. Because it's got one solution, which is, level off the amount of energy production using renewable energy because we're not going to be thinking about optimising the consumption, whereas you're trying to manage both curves simultaneously in a more effective fashion. That's unlocking a huge amount of value for the consumer and a huge amount of value for society at the same time.
Greg: That's right.
Julia: It’s remarkable.
Greg: Look. I think we've got a lot to learn in sectors like this from places like supermarkets. In a supermarket, it's totally natural that, when you go in there, there are hundreds of offers on display. And, by the way, there are loads of different ways of bringing those offers to consumers to get different behaviour changes. You went in to buy bacon, but sausages were half-price. You bought sausages instead. You get a bargain, but societally it dramatically reduces food waste. Because, without doing that, we'd be throwing it away. In energy, we currently throw it away. So, look. The UK is one example. It happens everywhere. But in Scotland, when it's windy, we throw away billions of pounds of clean energy every year, right? Because, instead of giving consumers a price signal, a bargain, we keep the price flat and turn off the windfarms. So, for example, it's amazing. Again, as an economist, you see this, right? In the UK, we currently have, every half-hour, a single national electricity market with a single national price. If we move to regional pricing so that each region reflects its own supply and demand every half-hour, every region would be cheaper than it is today. Costs would fall in every region. Scotland would have the cheapest electricity in Europe. Other, poorer regions would all have cheaper electricity than they do now. Data centres. Instead of looking at not being able to build at all, or sitting in a ten-year queue for a connection or going to other countries, data centres would be flocking to Scotland to get the cheap electricity. It's a lot easier to build fibre than it is to build pylons, right? And what can we do with electric vehicle fleets? I was talking to a company that do electric buses, electric school buses in the US. And they were originally asked to electrify bus depots, but actually that was the wrong question. Because you start building bus depots where you've got abundant electricity or… school buses are left standing most of the day. Where can that huge battery be useful to the grid? So, as soon as you start having these price signals, you literally move infrastructure, not necessarily in hugely disruptive ways.
Julia: Arguably optimised ways.
Greg: It's optimised. This is what our society has always done. Why, in the UK, were the steelworks where they were? That was where you had access to coal and to iron ore. And industries move to where the resources are. That's what we need to do in renewables with electricity.
Julia: So, where do you see the company in ten years’ time? It's been a remarkable journey and the growth has been phenomenal, the consumption rate, and the consumer experience has been phenomenal. But it strikes me, in terms of the level of disruption for this ultimate purpose, you're only just getting started, aren’t you?
Greg: Yes. So our strategy is fairly simple, right? We're now the biggest power company in the UK. So in the UK, we'll continue to grow organically, but our main job now is building what we call low-carbon technology business. So about 5% of UK homes have got some form of low-carbon tech, solar panels, battery, heat pump, electric vehicle, EV charger. And so we're building a very big business now to increase that 5% to 75%. We won't do it all, but I think by being leaders in that and by combining the technologies we have to provide really cheap electricity with our ability to bring great solutions for homes using technology, we can drive down the cost whilst building a valuable business here.
Julia: So, my final question. You've expanded very rapidly. You're got a very high-quality engagement with your consumers. You're bringing on a lot of people all the time. How do you build and maintain that culture for an organisation that has grown so fast? It has this amazing purpose behind it, but is increasingly also international. How have you kept that sense of who you are as an organisation?
Greg: Yes. That's probably one of the things I think about most and things I work hardest on with our team. You look at how organisms grow through cell division. They can grow very rapidly but maintain their coherence. And we kind of thought of it like that. So we still don't have an HR department. And the reason for that is not that we don't like HR, but from the beginning we wanted managers to manage so that we made it an important part of the training and the culture that a manager isn't just handing out tasks and ticking them off, but they're actually coaching and managing the personnel side of their team. As a result, for example, it's much easier to grow. We call it freedom and responsibility, which is, most people come to work to do a good job, I don't know, 95% of the people. In fact, it's really interesting. If you listen to people in the pub or whatever, around dinner tables, a lot of the time when they complain about work, what they're complaining about is that the company prevents them doing a good job.
Julia: Yes. So a system is being put on them rather than the job they actually want to do.
Greg: I've seen it myself, right? I once had a job where this company recruited people on their leadership and creativity and their ability to work with others. And when you arrived, there was just this enormous list of processes. And suddenly, all you were doing was being a sort of process robot. And once you become a process robot, there's a couple of issues. One of them is that you stop caring because you can't make a difference.
Julia: You've lost your connection to the purpose of why you're there.
Greg: You’ve lost your connection to the purpose. You've lost your agency. This company is like, you've got a lot of freedom to make decisions. Whether it be our teams that deal with customers, there's no scripts. We just make sure they know all about energy and we provide them with Kraken, an astonishing system that enables them to put their effort into helping a customer rather than becoming a human robot. One of the bits of feedback I always get is, even if we can't help someone's problem… And we really should, but the team… It's like it's a breath of fresh air compared to talking to anyone else because they know they're having a conversation with someone. And, as a result, we still learn and take responsibility as much as we did when there were ten people in an office in West London.
Julia: Well, thank you. This has been fascinating. I thought I knew a fair chunk about what you did, but, actually, just being able to talk through the specifics and the detail and realise how transformational what Octopus Energy and Kraken is doing, it's wonderful to see. We call the series Be Inspired and I think you've summed it up and given us reason and purpose behind our title for this session. So thank you very much indeed.
Greg: Honestly, thank you for actually what was a really enjoyable discussion for me and the chance to talk about it.
Julia: Good.
Greg: So, thank you.
Julia: Thank you very much indeed.
