Octopus Energy: The Future of Electricity

By building virtual power plants based on demand response contracts, Octopus Energy has turned power consumption overseas on its head. Now the company is deploying its feelers to fix the downed power grid.

By building virtual power plants based on demand response contracts, Octopus Energy has turned power consumption overseas on its head. Now the company is spreading its feelers across Texas to fix the downed power grid. The future of the electric grid has arrived when your electric company wants to pay you to use less of the stuff it claims to sell. That’s basically what London’s $16.6 billion (revenue) Octopus Energy offers its customers. “When grid operators are busy, they pay big bucks to turn on backup generators. If you use less, we pay you,” said Octopus co-founder and CEO Greg Jackson. He emphasizes that at the heart of the future power grid is a new relationship based on incentivized nudges.

For example, Octopus enrolled 1.4 million customers in a program that sends them a message three hours before expected peak power consumption and insists they earn three times the average electricity rate for the power they don’t use. It works. Last year, Octopus paid customers $10 million to stop using $200 million in coal and diesel fuel for UK electricity. Complexity doesn’t deter customers. Since its founding eight years ago, Octopus has already grown to 8 million accounts, making it the largest electricity supplier in the UK and the second largest in Europe. Jackson attributes their popularity in part to the gambling of energy use — think a combination of Shopify, Robinhood and Uber, he says. Now they’re launching in the U.S., particularly in Texas, one of the few states where electricity market regulations allow for location-based variable electricity prices.

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In the electricity industry, when a customer agrees in advance to reduce electricity usage during tight supply, it is called demand response. If you, like Octopus, have amassed enough customers who have voluntarily given you the ability to remotely control their heaters and electric vehicle battery chargers, you can be called a virtual power plant. “Even if you don’t have solar panels or batteries, we can connect to your smart thermostat. You’ll get a real-time price of electricity to reduce your usage when electricity is most needed,” says Jackson. A so-called virtual power plant does not produce additional electrons to send to the grid, but it serves the same purpose by reducing demand at peak times. In the UK, Octopus now manages what is believed to be the world’s largest VPP, totaling 1 gigawatt – enough electricity to power almost a million homes.

“We’re at the end of the day where you pay your provider a fixed price for electricity,” says Michael Lee, president of Octopus’ US office. “We are moving towards a dynamic pricing network where 80-90% of all hours are free and the rest are very expensive.”

In 2020, Lee sold the company he founded, Evolve Energy, to Octopus for $5 million. He is now focused on penetrating the Texas market, which is fueling competition among retail electric utilities, many of which went bankrupt in 2021 after weather emergencies during winter storm Uri with huge price spikes. Lee is expecting brisk records. Called Zero Bills, the offering means Octopus promises you won’t pay anything for electricity as long as it controls all your power-hungry appliances, your HVAC system and your electric vehicle battery.

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The Electric Reliability Council of Texas estimates that the previous peak for electricity demand, which runs the grid for 90% of the state’s electricity needs, was 85 gigawatts last year. ERCOT has already said that the system cannot add enough new generation capacity to meet demand growth of 60 GW in less than a decade, much of which will come from AI data centers and cryptocurrency mining. This supports Lee’s claim that Texas is the best place to build a virtual power plant.

Text: Christopher Helman
Photo: octopusenergy

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