“We will create a cheaper, greener transformation if the world is able to solve this problem across all the geographies at the same time”: Greg Jackson on technology and providing cheaper, greener energy.
In this episode of Cleaning Up, Michael Liebreich talked to Greg Jackson, Founder and CEO of Octopus Energy.
The highly regulated UK energy market has been criticized for leaving little room for innovation. However, Octopus Energy has managed to combine new technologies and concerns for climate change to allow its customers to consume cheaper and greener energy. Greg told Michael the secrets behind the success of Octopus. He also argues that the example of Octopus can be scaled to other markets and sectors around the world.
Below is an abridged transcript of the conversation, edited for clarity.
Michael Liebreich: Greg, welcome to Cleaning Up. Our audience may not know everything about your company, Octopus. Can you update us, please?
Greg Jackson: Octopus was founded about five years ago by a group of people, led by me, who came from a technology background. Energy was a sector that served every customer in every advanced economy, but it was largely undisrupted because of regulation. Not only that, energy is at the forefront of the fight against climate change. So, there was this opportunity to use technology to drive down costs, improve service, and tackle climate change. We built a platform, Kraken, which is designed to be a global platform for running energy companies. We've around 2 million customers in the UK.
We've licensed our platform to Origin Energy and Hanwha in Australia. In the UK, we’ve licensed it to E.ON and Good Energy. We have also formed a joint venture with Tokyo Gas to launch Octopus Energy in Japan. And we have an office in New Zealand so we’re about to launch there. It's pretty exciting, Michael.
ML: Is the environmental aspect incidental or core to Octopus?
GJ: The green is core. Deep under the hood of the technology, Octopus is designed to make the transition to renewables positive economically and financially. Renewables behave different than fossil fuels. With fossil fuels, National Grid, for example, wake up every morning and there’s a predictable demand curve, and they'll just turn on and off fossil fuel stations to meet that demand. But in the renewable world you must invert the way you think. National Grid wake up in the morning, look at the weather forecast, and then you turn demand on and off to meet those needs. Now, the traditional energy system finds that a difficult idea, but if it’s really at the core of how you build relationships with customers, including the deep technology for it, then you can really start to match from consumption to time of generation.
Essentially, energy in the UK and in most competitive markets looks like God's plan. A sort of Soviet-era central planning system, where we may allow a tiny amount of entrepreneurial competition, right at the edge with a kind of clever consumer.
We don't want governments choosing how much battery storage we're going to have. Governments can be great, but it's all monopolistic. As an energy company, we should be asking, first, can we get our consumers to use electricity when it's abundant and when the system is empty? If we can't, then, for example, we might try and build some batteries at the end of the street that will soak up electrons when they're abundant, and they'll be available for our customers when they're not. Then you can scale that all the way back to generation. If we follow these price signals, then I think we can attract more investment into generation because more electrons will be monetized, so we can drive down the cost of electricity because we're using them rather than throwing them away.
ML: How difficult was it to pass information to customers regarding the changes in prices? Not everybody is trying to pass these price signals along. For fear of talk about energy poverty, the regulators have not been pushing you to do this, have they?
GJ: Our first dynamic tariff was a daily tracker, the idea was that customers never need to think about energy bills again, essentially, you're always following the market. It's a bit like with the stock market, instead of actively trading you can just have a tracker product. But a journalist said to us what about when prices spiked? And we showed that it’s not a big issue in the grand scheme of things. But she said that people worry about that. So, what we did with Agile [the dynamic tariff] is based upon that feedback, that question, we put a cap in, so the price will never exceed about £0.35 per kilowatt-hour. We've modelled it so we can take the risk on those rare spiky occasions.
ML: Now, I think we've established that you've built this platform because it enables the customer and the energy company to play these markets and to be very flexible. It sounds like it could be very expensive. I’ve worked in a business before where most of the board had written a maximum of a few hundred lines of code and were not very aware about tech. Do you see a lack of technical knowledge as a problem in business more widely?
GJ: corporate board made up of finance people, and maybe people who understand operations, there's no one in there that really knows whether the tech that you're building is going to scale, whether it's well architected, whether it's secure, whether you should delay a project, or whether you should keep the pressure up because entropy means that projects will always expand to fill the maximum time you give them. So, I think one of the things for me, and it doesn't just apply in energy, boards need to learn about tech.
Imagine running your finance function without people who are experts in finance. We expect people who are running companies to have good knowledge of finance. Yet, when it comes to whether a particular code is good or not, they will typically ask a senior person in their tech function, who will get a less senior person, who themselves will get a third party, who will then get another third party and so on. Then they say, “oh, they say the code is good“ or “it's not good,” but you’re not able to check yourself. You'd never do with your finance.
ML: I want you to talk about the role of machine learning. Embedding machine learning is also one of the secrets of how you've kept the costs down, is it not?
GJ: There's a machine learning algorithm that is continually looking at how many calls are coming in, how many emails are coming in. It's also looking at how long they're lasting. Then it's able to look at things like how many bills we've sent out, how many meter reading requests we've sent out, how many people are receiving a price change notice, et cetera. It takes all that data and then it generates a forecast for each sales team. The algorithm creates a forecast for every 15 minutes through the day of how many people need to be available, for example, to answer the phones. Now, today we would have about 20,000 interactions with customers by phone and email. So every single phone call is transcribed live, every email, every text-based interaction is already in text format. The machine learning algorithms then read the conversation, and they work out what it was about, they work out, the extent to which we've resolved it.
ML: Okay, so I think we've reached the point where we kind of get a picture of what you're doing. And it is it is revolutionary. There's no question. global domination. You've got 0.02% - 0.04% market share globally. What's the right market share? What's the target? You said 100 million by 2027 – it would still be around 2% globally.
GJ: I mean, this really just tells you what's wrong with energy, doesn't it? If you look at things like, ecommerce, or even transport with Uber. We've seen global platforms transform the way in which those sectors operate. What you're learning in one market, you can transfer to other markets at scale, instantly through global platforms. I think in energy we have to go that way. Today, even the biggest global energy companies typically have a completely different business stack. Everything is different from one country to another. That’s holding back the fight against climate change. We will create a cheaper, greener transformation if the world is able to solve this problem across all the geographies, roughly at the same time.