Origin Energy Joins Hands With UK’s Octopus Energy
Established power giant, Origin Energy has announced its move into the shores of Europe. More notably, Origin will be partnering with UK retailer and technology firm, Octopus. The move will come at a hefty cost of $507 million to obtain a 20 per cent ownership in Octopus Energy. Specifically, the deal will yield an upfront payment of $134 million with the remainder to be made over three years.
Origin will adopt Octopus’ state-of-the-art customer technology program known as the Kraken platform. The benefits of adopting this technology are two-fold. Foremost, Origin is expected to benefit as the firm currently witnesses a decline in customer accounts. Secondly, while implementation costs are forecasted to reach $100 million, Origin is in a strong position to cover for these expenses. This is because savings are expected to reach $70-$80 million between 2021 and 2022 and rising as high as $150 million before 2024.
Since Octopus was first established in 2016, the company has grown tremendously within the UK. This is evident in its ability to capture close to 5 per cent of the market share and a steady growth of 40,000 consumers monthly. Nevertheless, the solid growth was facilitated by reputable brands such as Arsenal Football Club as well as notable local retailer, Marks & Spencer. Additionally, Octopus’ aim of allowing its platform to gain a reach of 100 million customers globally will be facilitated when Origin shifts its 3.8 million retail accounts to the Kraken platform within the next 2-2.5 years.
From a broader point of view, the partnership also provides Origin with a gateway of opportunities now that it has an indirect entry into the UK energy sector. Specifically, this sector is undergoing tremendous growth as close to three million accounts have been set up since 2016. Moving forward, the UK is expected to witness continued growth in its customer base alongside potential market deregulation.
From the standpoint of the firm, the partnership could not have emerged at a better time. This is because Origin’s March quarterly results revealed the existing gaps in which Octopus is capable of filling. In terms of its integrated gas operations, Origin reported a 12 per cent decline in revenues from the December quarter. Additionally, within the energy markets, retail electricity volumes witnessed an 11 per cent decline, reflecting the combined effect of several factors. These include lower customer numbers whose contracts have since expired, adverse weather conditions and lower solar usage.
Amid current market conditions, the impact of the pandemic of demand is broadly in line with the firm’s guidance. Despite making early cuts to its capital expenditure, Origin has proven to be resilient as earnings guidance for its core energy market operations has been maintained. Nevertheless, the partnership is likely to be the start of a wonderful relationship as the past successes of both firms are expected to yield meaning synergies.
By Caroline Wong
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