By Nick Toscano
Australian power giant Origin Energy’s stake in Britain’s Octopus Energy has gained hundreds of millions of dollars in value after the fast-growing UK electricity sector disruptor secured new backing from superannuation funds, including Australia’s Aware Super.
In deals announced on Tuesday in London, existing Octopus shareholders Generation Investment Management, chaired by former US vice-president Al Gore, and the Canada Pension Plan Investment Board ploughed an additional $US370 million ($560 million) into Octopus Energy.
Origin Energy’s part-owned Octopus Energy has risen to become the UK’s biggest electricity provider
Aware Super and an unnamed US pension fund were the backers of Generation Investment Management’s increased investment, Octopus said, adding that the funds would help accelerate its plans to continue building its presence in international markets and developing clean energy products.
At a joint investor briefing in London, Octopus and Origin said the new investments would push up Octopus’s valuation by 15 per cent from its prior estimate just six months ago to $US9 billion.
It comes as the London-based startup continues its rapid ascent in the eight years since it was founded.
This month, it overtook British Gas as the nation’s top home power supplier with 6.8 million customers, and ranks as the second-largest gas retailer. Its Kraken technology platform, meanwhile, is now licensed to utilities across the globe to manage 52 million customer accounts in 18 countries, and the company is pushing deeper into renewable energy generation projects, electric vehicle leasing and electric heat-pump installation.
Greg Jackson, Octopus’ chief executive and one of its founders, said the additional investment announced on Tuesday would help grow its global footprint into more markets, and accelerate its expansion of low-carbon technologies, such as heat pumps.
“2023 saw us launch into heat pump installation and manufacture our own models – we now need to drive real scale,” Jackson said.
ASX-listed Origin Energy, which owns 22.7 per cent of Octopus, has the exclusive licence to the AI-enabled Kraken energy tech platform in Australia, and has completed the migration of its customers. The software enables energy companies to manage millions of accounts more efficiently, as well as shift household energy consumption to periods of low demand and pricing, and offer financial incentives for customers to allow their home solar and battery systems or electric car batteries to be called upon to feed the grid at critical times.
The stunning rise of Octopus and Kraken in such a short period and its growth outlook contributed to questions among some Origin Energy investors about whether last year’s $20 billion takeover bid for Origin by North America’s Brookfield and EIG had undervalued the Australian company. Origin investors ultimately voted down the proposal.
‘We continue to believe Origin’s investment in Octopus will be an important driver of future growth.’
Origin CEO Frank Calabria
Origin chief executive Frank Calabria said Octopus was unlikely to have been the “sole determining factor” for investors to query the valuation, but acknowledged it would have been challenging given the sheer speed of Octopus' growth from the time the takeover bid was first unveiled.
Calabria said Origin, from the outset of its involvement with Octopus, had held a deep conviction in the potential of its unique capabilities and its Kraken technology, supported by its highly capable management team.
“We are pleased to see a similar confidence from both existing and new investors, with their investment and profile providing for Octopus’ growth ambitions in key markets,” Calabria said. “We continue to believe Origin’s investment in Octopus will be an important driver of future growth.”
UBS analysts said Octopus had reached “significant scale” in the UK market, through both the acquisitions of its key competitors and strong continued organic growth. Octopus last year completed its purchase of Shell Energy’s retail customer portfolio in the UK and Germany. Previously, it also acquired the customers of failed rival Bulb, which had been one of the largest energy retailers to collapse in 2021 amid Britain’s soaring wholesale gas and power costs.
Macquarie analyst Ian Myles described the newly announced secondary sale to third-party investors as a “strong signal of value”.
“Growth in the valuation at approximately 15 per cent over five months reflects the Shell customer win, delivery on additional Kraken customers, and we suspect progress in winning the next wave of customers,” he said.
Although Kraken was dominant in the UK and strongly positioned in Japan and Australia, Octopus would need to win greater market share for the platform in Europe and the US to achieve its ambition of 100 million customer accounts by 2027, Myles said.
The reporter travelled to Octopus Energy’s investor briefing in London as a guest of Origin Energy.
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