One of Canada’s largest pension funds is to inject at least $300m into British energy group Octopus as part of a deal that will push the six-year-old start-up’s valuation close to $5bn.
Canada Pension Plan Investment Board (CPP Investments) is in return taking a 6 per cent stake in Octopus, which supplies electricity and gas to more than 3m British households but has also built a reputation for its technology platform that it licenses out to rivals domestically and abroad.
Octopus, which also owns solar and onshore wind projects in Europe, has continued to attract investment at a time when the rest of the British energy retail market has gone into meltdown.
More than 25 rival suppliers have gone bust since the start of August, affecting nearly 4m British households, as a surge in wholesale gas and electricity prices has exposed deep vulnerabilities in many companies’ business models.
In September, former US vice-president Al Gore’s fund, Generation Investment Management, agreed to plough up to $600m into Octopus to support its growth. Octopus also last year struck a deal with Japan’s Tokyo Gas.
Greg Jackson, Octopus’s chief executive and co-founder, told the Financial Times that his company differed from other British energy groups given its technology platform as well as the level of funds it had raised since being founded in 2015. It has now raised $1.5bn of equity investment in total.
Some suppliers that have gone bust since the summer such as Avro Energy, whose 580,000 customers were later rescued by Octopus, were found by administrators to have had no access to external investment.
Half of Octopus’s valuation is attributable to its technology platform, Kraken, which it licenses to companies including Eon UK, EDF, Origin Energy of Australia and South Korea’s Hanwha Group, Jackson said.
“UK energy retail is less than half of our business,” he added.
Octopus said the deal with CPPIB would form part of a long-term partnership that would probably see the C$541bn Canadian fund “grow the level of committed capital over time” to support the British company’s expansion.
The initial $300m will be invested in the Kraken platform, in Octopus’s renewable generation capacity and in services that help balance electricity grids more efficiently. Currently 25m energy customers globally are on Kraken, and Octopus intends to increase this to 100m by 2027.
Deborah Orida, chief sustainability officer, at CPP Investments, said the agreement was “a perfect example of how investors can work with leading tech-enabled energy companies to digitally disrupt the global energy system”.
Octopus remains lossmaking, however. In the year to 30 April 2020, the last accounts available, it made a net loss of nearly £47m on revenue of £1.2bn although it attributed that to “continued investment in rapid growth”.