Octopus signals plunge in UK taxpayer bill for Bulb rescue

Octopus Energy expects to repay the British government £1.2bn after its takeover of collapsed power supplier Bulb, as falling wholesale gas prices slash the final bill for taxpayers.

The Whitehall financial watchdog had predicted the government could lose up to £6.5bn as a result of Bulb’s 2021 failure, which prompted one of the largest state rescues of a business since the financial crisis.

But Stuart Jackson, chief financial officer and a co-founder of Octopus, said on Wednesday that the company had estimated the payback meant the cost to taxpayers would be just £260mn. 

“Our numbers are based on forward prices but our view is that the total cost of taking Bulb into government ownership and then selling it out will net out at around about £260mn lost to the government,” Jackson said. “That is materially better than any of the numbers that have been bandied around previously.”

Martin Young, analyst at investment bank Investec, said the figures “seemed very plausible with wholesale prices having moved favourably”, adding that “there should be a collective sigh of relief”.

The purchase of Bulb is part of an ambitious expansion plan for fast-growing Octopus, which was founded in 2015 and wants to become the “Amazon” of energy.

In financial results released on Wednesday the company reported cumulative liabilities of £393.1mn for the year to April 2022, up from £213.6mn the year before, driven mostly by widening losses in its UK household supply business.

But revenues doubled to £4bn from £2bn as it increased customer numbers to 3.2mn in 13 countries from 2.1mn the year before, buying energy retailers in Spain, Italy and France as well as launching a new supply business in Japan with investor Tokyo Gas.

As well as offering energy to households, Octopus provides electric heat pumps, solar panels and electrical vehicle leasing.

Its low-cost IT and billing platform Kraken has meanwhile been licensed to a string of rivals, including Eon and EDF, two of the UK’s biggest energy suppliers. Almost half of UK households are now on Kraken, whose profits grew to £110mn in the year to April from £66mn in the previous 12 months.

“Some have compared Octopus to Amazon in both customer service and the technology, and we think that’s fair,” said Jackson. “We don’t think there is any other business that has the combination of the technology, customer delivery and renewable generation at scale.”

The Bulb purchase has catapulted Octopus into Britain’s third-biggest retail supplier with 4.9mn customers, although rivals have launched a legal challenge to block the deal.

The sale was agreed despite a widening operating loss of £161mn at its British supply division in the year to last April as it took on customers from other energy suppliers that had collapsed as a result of soaring wholesale prices.

That included 600,000 customers from failed supplier Avro Energy, which Octopus said cost £150mn in reduced revenues and earnings. The company has submitted a claim to regulator Ofgem for additional support to cover the loss.

Octopus said the losses were also partly the result of its decision to charge standard tariff customers less than the maximum allowed by the government’s price cap for as long as possible, driven by the company’s belief that “doing the right thing by customers and society delivers long-run value”.

The company has high-profile backers including former US vice-president Al Gore’s Generation Investment Management, which has invested £286mn to acquire a 9 per cent minority stake in the group, and has pledged an additional £25mn in 2023. The Canadian Plan Investment Board also bought a 3 per cent stake for £106mn, with a further £106mn investment planned this year.