Cura and welcome to Shed Lunch, brought to you by Cheesy's. I'm Helen Mattison. Today we look at the perspective of the UK's fastest growing energy supplier, Octopus Energy. We ask what in roads has Octopus made since it's been here in New Zealand, does the electricity sector allow for fresh competition and how much will technical innovation helps solve our power problems. In a moment, I'll be joined by Octopus
Energies Chief operating Officer, Margaret Cooney. But before we get started, here's some important information.
Investing involves the risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Welcome Margaret, love you to have you in the studio.
Thanks for having me.
Now, before we dive into who Octopus it and what you're doing here in New Zealand, let's look at your background from what I can gather. For about twenty years now or probably more, you've been in the energy sector and various guys. As I think you started off as an analyst in the market and regulatory scene. You've worked for Meridian, Powershop Electric, I think you consulted for in the like and obviously a big stunt in the UK.
What is it that fascinates you about the electricity sector or the energy sector.
Look, I think that electricity sector is really interesting and obviously underpins our economy, so I think that's you know, that's important to me that it's a really well functioning sector. But also we're in this phase of significant change, so the economics of energy are changing significantly. The need to decarbonize our economy is really important, and I think it's a fantastic growth opportunity. So it's a really interesting sector to be a part of, and I feel really fortunate
that I've had some amazing opportunities in the sector. So, you know, early on in my career I was involved in setting up power Shop, which was a very innovative company and really bought the benefits of smart meters that have just been put into many New Zealand homes, brought those benefits through to consumers for the first time. But I think that early experience of doing things differently, of driving change, you know, that's something I've tried to continue
in my career as well. So that leads us to Octopus.
So give us an idea of how long you've been here and really what's your point of difference.
Yeah, so Octopus has been in the New Zealand market since twenty twenty. We initially set up here to service a bunch of technology projects in the APEC region. So we've actually we've got a team of about one hundred and fifty in New Zealand and the vast majority of them don't work on anything to do with New Zealand. They're actually providing support to our operations globally. Or there's a team KRACKN that's increasingly separate from Octopus now who
are helping transform energy businesses in the APAC region. Some of them are working on the Meridian project close to home. So yeah, we have a few things going on. We have a small retail business as well of seven thousand customers. We would love to grow that, but we've been very clear that the current market settings don't work for us to grow that. So it's been experimental, I guess today.
So we look at the backers of the company to it's a private company. The parent being obviously in the UK, you've got some big backers like Origin Energy, which is out of Australia. There did You've got Tokyo Gas, who I think you're working with to deploy octopercentergy in Japan?
Is that right?
Yes, that's right. We've got a joint venture with Tokyo Gas in Japan. Their market got liberalized a few years back, and so we've got entrant retailer that we're doing with them, and then we've got our technology going into the rest of the Tokyo Gas business as well.
So let's look at krack and then, because that is what you're famous for, what does it do? You know for the lay person? You know what's so amazing about it?
Look, I think one of the big benefits of Kraken is that it's modern, a modern technology stack, and there's accessible data and the platform is very user friendly. So it's the combination of those things that allow retail businesses
to operate more efficiently but also develop new products. So, you know, we're all familiar with electricity as kind of bills ending up in your email or in the post, but increasingly there's this opportunity to help consumers shift their demand around and drive down the cost of energy for those consumers. And in order to be able to offer those types of products, you need a level of sophistication
in terms of your technology stack. You need deep data and you need tools that allow you to offer that in consumer ways of engaging and ways of managing their devices within the home. And that's really what Kraken underpins.
And if we look at cracking in terms of its competitors, the technology I'm talking here, I mean it's the likes of gen Track, who also work with energy companies and utilities for the smart.
Tech that's right. Gen Track are called SAP. All of these big big names are the competitors for krackin so cracking is really a B to B products. So Kraken is sold to large utilities around the world. So the likes of edf or as you mentioned, Origin Energy in Australia er gone in Australia, So that's a product that helps them operate their their retail business really smartly. For us as an electricity retailer, there's an opportunity to use that platform to deliver really innovative products.
And if you look at the percentages of where the focuses for the business I mean, is the B to B are much bigger part than says you see, the retail is quite small.
So globally, Kraken is increasingly becoming separate from the Octopus Energy operations, and that's really because we're serving so many of our competitors through that technology licensing. But they're both really significant businesses in their own right. And Octopus Energy as a retail supplier supplies over about over eleven and a half million consumers around the globe. So we've got retail businesses in the UK, in most of Western Europe, the Japanese one which you mentioned, the US, and our
seven thousand very important customers in New Zealand. What about Australia, No, we don't have a retail business in Australia.
What about generation assets because obviously the competition here eighty five percent I think are the big four if you like, Contact, Genesis, Rominian Mercury, they've got kind of the line's share of the market and they are they've got the generation assets as well as the retail arm Would I know you've gotneration assets in other parts of the world. Would Octopus consider that here?
Look the New Zealand market is in the scope of the funds that we have for investing in new generations, so it's a possibility. Again, we've signaled to government and regulators that the current market settings don't work well for independent players, and so you know, we've got lots of great opportunities around the globe, but today New Zealand hasn't
been a priority. As a New Zealander, I would love it to be a priority, and I'm forever sending my UK colleagues different projects and things that they can invest in. But I think i'm you know, one of the things I'm hoping that government does is part of this package of reforms that they're looking at, is think about how they can mobilize all that investment and know how from companies overseas to come into the New Zealand market.
Before we dive into the dynamics of the market and what's happening at the moment, perhaps if you can give us an idea of what you think the demand is for electricity, I mean the likes of data centers and worldwide, not just New Zealand. You know, it just seems like we need more and more. But what sort of stats can you offer for that.
Yeah, so the global picture is quite interesting. So globally we've traditionally growing energy electricity demand by about two and a half percent per anim but over the past year that's really tipped up, so it's almost double that in a year.
AI.
It's a combination of a few things, So AI is definitely a driver, but also the cost of solar and the access to that, particularly in emerging economies, has driven rapid electrification in India. And then China is going gangbusters on electrifying and you know, is really an electro state now and a real pioneer of you know, rapid deployment of renewables. And also they manufacture so much of the of the products that go across the electricity supply chain
as well. So the global picture for electricity is growth. The New Zealand picture is more complicated. So, you know, most listeners will have been aware that over the past year we've had significant struggles in terms of security of supply, but on top of that, we've had really high prices since really about twenty eighteen they kicked up and as a result of that, you know, we've had quite flat demand.
So and even last year it declined because we were asking large consumers to curtail their usage, but I think we should be more optimistic about the about what future the future, and you know that if we can build enough generation to service the demand, then you know we should be realizing a significant increase in it. So we already know that there there's you know, between half a gig and a gig depends who you talk to. With the data centers sitting there to be built before twenty thirty,
so that's pretty soon. So when you think if we've got that much data center load, then in terms of the new renewables to match off, we need you know, if it's just a they're all an exact match, but if it's wind and solar, then we need about you know, four times the capacity of whatever's coming on to be built. So there's the opportunity to realize those that growth from data centers. We will continue to get some increase from the residential space, and that will be driven by the
rate of house builds. So we see, you know, every house that gets built that will edge consumption and the rate at which they electrified their transport. So yeah, if you buy an EV that will add kind of twenty to thirty percent more consumption onto your household. So I think if we get the clean car discount back that yeah, we saw that that when that discount was in place, we did see the rapid more rapid adoption of vbs, but that's really Plata's recently and I think also the
economic climate impacts that. And the other thing is we're also saying that many households are quite cost constraints conscious, so actual residential consumption on averages is pretty flat, but it's that new build that's adding to the system as well.
So Margaret, on a world scale, then how progressive actually is New Zealand when it comes to electrifying and putting money into renewable energy generation.
So if we look at the performance over the last decade, you know, New Zealand we've added on a per capita basis, so probably max about forty fifty watts per person. In contrast, Australia is about four times that. In contrast, again, China is probably about ten times that. Almost five hundred watts was in the last year alone. So we've been very modest in the way that we've scaled our system and I think that's our immediate challenge is really getting that uptick and new supply the.
Un residential though, I mean, are we a place in the world where if it's data centers all the like, where you know, we could be seen as somewhere where we could generate electricity and pass it on beyond our shores sort of thing. Yeah.
Look, I think the other thing I should have mentioned is obviously we've got this need to electrify industry that's currently using gas, and that's a really immediate need. So if you think about many of those large gas users like Fonterra or others, they've got a massive shift that they need to do very quickly in terms of New
Zealand being an appealing place to come and set up. Look, I think the Minister of Finance has talked about, you know, one of the most common complaints she has is the price of it in New Zealand and that that has
been prohibitive in recent years. But when we look at the cost of building new electricity generation, actually we should have some confidence that we should go after these opportunities and really our challenges getting ourselves into a position that we're building ahead of the ahead of the demand, so that we don't have the crazy prices that we have had.
Okay, let's look at the sector at the moment. We've got two reviews, a sort of parallel if you like. I think one of them is worth the Minister for Energy that was done by Frontier Economics, and that was focusing on the whole sector really in many things. And then obviously the Electricity Authority and the Commerce Commission have been looking probably more at competition and whether or not the big four, the four Gen tailors really have a sort of a dominance that they make it a bit
un fear. Are you hopeful that there will be some change with I mean, we've had reviews before and many of them.
Look, we're starting to see some change come through from the regulator. So we had some announcements last week about changes, which we think, you know, they're just announcements of consultation at the moment, so I'm lied to kind of put too much stock in them until we've seen the detail. Yes, but they signal. The signal is really positive. You know, we've had real problems with the contracts market that actually underpins the trading between the big gen tailors and between
independent players and large industrial consumers. That has not worked well and that's probably not a surprise when we've got so much vertical integration and such moments in the sector. But you know, it has been frustrating that these these are kind of well flagged issues, they're not new, but the regulatory response has been too slow. But you know, the electricity authorities moving at pace now and I think our job is to work with them to try and
make those rules as effective as possible. The frontier review, we're all yes, yet to know what's in there. We've you know, heard different snippets about, you know, this idea of thermal co or nationalizing some of the thermal assets. I think, though, you know, the priority needs to be on how can we get out of this current build after the demanding you know, we need to break that cycle. But also I think I think generally the sector has been resting too much on its laurels and been quite
complacent about a deteriorating situation. So there will no doubt be some well, I think there needs to be some changes in there around the governance of this of the industry and the monitoring of security of supply, because very scarily in a dry yet last year we got down to days of coal stock file left and for such a critical industry, you know, we can't. We can't run
it like this. We need to be making sure that we have that downside risk covered because that's what ultimately costs New Zealand businesses so much, either in the price that that that risk translates to in terms of higher prices in the market or having to down their production, which you know, it's bad if we don't. If we can't make stuff and ship stuff, we can't earn money to build the hospitals and roads and things that we need in New Zealand. What do you think of.
The four gen tailors have got together and sort of a backup, if you like, with coal through Genesis and they're thinking about they would have an agreement whereby there would be a backup using coal and it's got to have Commerce Commission approval and the like, but would supposedly open the door for retailers like yourselves to have access to something like that too.
Keeping the generation in market is really important because we absolutely need it, you mean coal that well. Keeping that hunting plant plan in market is really critical because we're losing all the gas generation that we have had, so we just can't afford to lose it. It's obviously not ideal that it's coal, but you know, we've got to
be pragmatic about these things. I think our preference would be for an arrangement that was more accessible for people, but I think we'll wait to see what the details of that are because there's limited transparency over those around those arrangements at the moment, so it's actually quite hard to comment on whether they're good or bad. But I think there is a comment to be made around the suggestions that contracting will happen off the back of it.
What we've seen previously is actually there's been ongoing issues around that contracting and continuous refusals to supply. So I think as part of the Commerce Commissions approval of that, assuming that happens, that they should be putting a conditions on it, that there's a commitment around the volume of trading that happens off the back of these arrangements, because I think, you know, otherwise it's a hollow promise that based on previous behavior hasn't borne out.
So do you mean that like at the moment, as a generation retailer, you can it would appear. I don't know if this is actually how it happens, but they would be able to sort of favor their own retail arm.
That plus, as some of the work from the electricity authority has picked up, there's been an ongoing issue of just refusal to supply, so refusal to engage in contracting, and very very low volumes of trading. So those are some of the problems that make it really unsustainable for independent generators and retailers to come into the market because you need a level of liquidity in the market to to make things work effectively to met Just still.
On the independent retailer generator or retailer question, I mean a lot of commentators, particularly Obseas, talk about New Zealand having about fifty Is that actually right? I mean, is that the amount of choice that consumers.
Really do have? No, it's not. It's I mean, there's fifty registered on the yahah, but like some of them are random people or you know, it might be a local airport that's just covering the shops in that airport. So I think there's the if you look at the level of available offers to consumers, that's actually declined significantly over recent years. So we've had we've you know, we've got about eighty seven percent of the retail market concentrated
in the Big four. We've had Flick going to Meridian Edge. We've had Energy Club got sucked up a few years ago, We've had Ecotricity acquired by Genesis. There's there's increasing contraction concentration and less options available for consumers as a result. And I think you that that bears out in the data around the offers available to consumers and how innovative
they are or not. And also, you know, we have seen that when when independent retailers come out of market, like last year when Electric Key we stopped accepting customers immediately, there was actually quite a significant increase in the prices from the Big four that were on power Switch. So I think there's a really important dynamic that that independent competition introduces that is around price, but it's also around
the innovation that delivers lower cost for consumers. So that would be things like if you look at the independence the pioneering things like hour of power, the use of hot water control, time of use, tariffs, each of these
can actually deliver material savings to the end consumer. And we want to we want that dynamic to continue because one of the biggest opportunities we have in driving down the cost of energy for end consumers is actually engaging that demand side more smartly, so that ability to if you think about your energy usage, there's probably about sixty percent of it that can be shifted to any time of day without it interrupting your lifestyle, and that at
the moment that doesn't happen, and it's how do we make that happen, Because if we could shift that into the times when we've got like an abundance of wind and prices are lower, it allows us both to reduce the cost of your bill is a household, but also it will help us accelerate the rate at which we bring renewables into the energy system. And equally, you know, a lot of the cost for consumers will be driven
from how much lines capacity we need to build. And if we can do things like avoid charging our vehicles at peak, this will stop us having to invest significantly in really expensive poles and wires and transformers and things. It will mean that we can use the existing infrastructure much more smartly. So that's part of the role of retailers is to bring more dynamicism in the way that doesn't put the burden on consumers in terms of mental overhead, but just makes it easier for them.
Is that not happening now? Then surely there is innovation going on. Given the competition even between the four dentators for example.
It's been limited. So as a result, we've seen that the electricity authorities actually regulated the large four to require them to offer time abuse tariffs. And you know they're not all the same, so some of them were quick to embrace things like hot water others that's taken them four years to enable that for consumers, and speaking as a retailer, that's not a hard thing to enable.
Just thinking too, then of investors here, given that that's our audience and the situation at the moment, I mean, there's a lot of enthusiasm about investing in energy. As you said it, you know, it's kind of the corners own of our lives and the economy to some degree. What would you say to retail investors when they're faced with the situation we have now there's a lot of change probably about to happen, or who knows really what
what that will end up being. But if they're looking our investors particularly, I really can on innovation and tech and you know, what would you say to them about thinking about where they put their money in terms of the sectors. I mean it's apart from some of the listed entities, is probably not that many avenues for them.
Well, it's interesting because the way our electricity system works ultimately impacts so many of the companies that your investors will be investing in. So whether it's you know, the refrigeration at Mainfrage, or the production costs for milk powder, the age two cells, or you know, the list goes on, is such a fundamental ingredient. I think you know, as
as investors, you have influence over these boards. So it's making sure that we're doing the right thing in terms of the New Zealand economy and building out the electricity sector. I think, you know, the fundamentals mean that it's a sector that will continue to grow ultimately, and you know, we should have confidence that would all be better off by having a larger electricity market and system and more diversity within that market. What about the.
Risks there's always risks with investment, I mean, particularly in the energy sector.
I think the risks in the electricity sector at the moment the biggest risk we have is continued de industrialization. That's not good for anyone, and that's the current trajectory we're on. So I look at the opportunity for change, as you know, fundamentally it should add to the possibilities for growth in the sector if we get the settings right.
What would be getting the settings right for Octopus to thrive and be a larger player, if you like, almost significant player in New Zealand.
Yeah. So in terms of what I think the New Zealand needs to focus on, it's one we need a strategy, you know, we should unlike many countries in the world, the economics of electrication should work for end consumers. So we don't have cheap fossil fuel here. We import huge amounts of fuel and the more quickly we can displace that, the more money we have in our wallets, and the more competitive we should be. So we should be really
focused on making that change happen quickly. I think what we've seen over the past, well over this decade, is that you know, investors in large infrastructure and naturally conservative because they've got large assets, you know, and that is legitimate. How do we motivate them and incentivize them to invest ahead of demand, and we've seen other countries have put in place mechanisms to encourage that demand to come, that
supply to come ahead of demand. So I think long term contracting arrangements, all of these types of things should be considered for New Zealand. I think then there's a question around how that market is working, and I think some of what the Electricity Authority is working on at
the moment should hopefully address that. And then we do need just better governance of the sector and coordination, especially at the moment because we've got a really complicated situation of fast declining gas and need to help those industries exposed switch quickly into electricity, and the need to immediately scale electricity. So I think, you know, there's only so much different actors in the market can do to resolve that, but it actually requires a bit of facilitation from government.
You know, if we were head confidence about the market settings and the ability to grow with be more of a mass market player. And we've got some great products that we no have appeal with the general customer. We've seen the success of them in other markets and are excited about the potential to offer better choice to New Zealand consumers.
What's an example of one of those innovative products.
Yeah, so we've got we've got one of these news land as well, so a zero bell home. So we are working with property developers in the UK. Basically the cheapest time to put much of this technology into homes is when they're getting built. But you get this incentive issue, like if a property developers building homes, they're really cost conscious, and how do we incentivize those builders to build homes
that are more energy smart? And so what we've done is we've provided a five year guarantee that if a new home is built and it meets a bunch of criteria so it's got solar and battery and heat pumps, that we can give a guarantee that we would there will be no bill for that house for five years. Obviously assumes normal consumption, but no bitcoin miners in these properties. But you know, that is a really compelling proposition and it's a fantastic one for social housing developers and things.
So we've been doing lots of these in the UK. We're working with a bunch of property developers here around the concept. It always takes quite long, yeah, you know, go from concept of building properties. But that's an example where we think, you know, a simple solution that delivers great outcomes for the consumer. Another one is where we
have a product called Intelligent Octopus. We have actually about ten percent of the UK's EV fleet and managed using this product, and basically it helps if you on your app use sele I need my car by X time in the morning, and then we will determine when that car is charged based on what's happening in the market and deliver you a much lower price and return for having control over charging it. And really excitingly, we're starting to see vehicle to grid capable cars come into the
market at quite accessible price point. So then you imagine that functionality with the ability to export into the grid, the energy market starts looking quite different. It would only take tens of thousands of these vehicles to totally nail the peak problem that we have. So I think there's these really exciting opportunities to use technology more smartly and that will hopefully lower the cost of supply for all of us.
Well, great chat, Margaret. We could go for hours, but we'll leave it there. Thank you for coming in. Thanks so much for having me. Really enjoyed talking to you and thanks everyone for tuning in. You can watch shed Lunch on YouTube or follow us on your favorite podcast app, leave us a race sting, or tell us what you'd like to hear next. Matowa mm hmm