Octopus Energy chief defends failure to meet new capital targets
Greg Jackson insists it is ‘implausible’ for his company to comply with Ofgem rules and maintain contract with Shell
The boss of the UK’s largest domestic energy supplier has defended its failure to meet the industry regulator’s new capital buffer targets, insisting it was currently “implausible” for his company to comply with the “crude” regime.
Greg Jackson, founder and chief executive of Octopus Energy, said the rules brought in this year by Ofgem were introduced “in a hurry”, and failed to take into account measures to mitigate risk, such as his company’s supply contract with Shell that made it “more resilient” than rivals.
Octopus, which last week announced plans to spin off its Kraken software unit, at a potential $10bn valuation, is one of three companies yet to met the capital thresholds meant to prevent a repeat of the wave of UK energy supplier collapses in 2021-2022, when wholesale energy prices surged.
Octopus has publicly stated its position, but the other two companies have not been publicly identified. Of the other big suppliers, EDF, E.ON, British Gas and Scottish Power have all said they have met the requirements, while Ovo Energy has declined to confirm either way.
Those who have not met the targets have agreed plans to do so — meaning they are not in breach of any rules. But rivals are angry, arguing they have an unfair advantage and are potentially less resilient to financial shocks.
British Gas owner Centrica has said that offenders should be banned from taking on new customers.
“It’s completely unsatisfactory,” said an executive at one supplier. “We need to make sure we have these funds locked away.”
Jackson declined to give details of how Octopus would meet the capital targets, but stressed the importance of its “ironclad” deal with Shell to buy gas and electricity.
“We pay for a multiyear insurance policy and Ofgem is very comfortable with that,” he said, explaining that Octopus was not liable for collateral, or the cash calls that put huge pressure on companies during the energy crisis.
“We have a $200bn balance sheet [of Shell] behind us.”
When it would be able to meet the buffer would depend on how long the Shell contract stayed in place. “It would be implausible to switch to Ofgem’s way of doing it at the same time,” he said. Shell declined to comment.
The new Ofgem rules, announced in 2023 and introduced in March, state that companies must hold enough cash or other assets to be able to withstand shocks in the market such as surges in wholesale prices. The more customers they have, the more they need to hold.
But Jackson said they were “introduced in a hurry and are too crude”, and focused on the wrong areas.
“The problem during the energy crisis was the lack of hedging, but Ofgem refuses to regulate this,” he said. “Instead, they’re regulating capital adequacy as a crude proxy for financial resources, without looking at the measures a company has in place to mitigate financial risk.”
Jackson, 54, has become an increasingly influential figure in UK business as one of its most successful entrepreneurs. He became a non-executive director to the UK government’s cabinet office board last month, and was on the guest list for last week’s Windsor Castle banquet with visiting US President Donald Trump.
Octopus, which has more than 7mn customers and is backed by investors and utilities including Generation Investment Management and Australia’s Origin Energy, is the most successful of the challenger companies set up to take on the Big Six energy suppliers such as British Gas.
In July, as Ovo unveiled plans for a renewables generation arm, its chief executive David Buttress said it would help “strengthen our balance sheet”, though it would have made the plans even without the new capital requirements.
Ofgem noted the increasing resilience of the UK energy sector, which has moved from net negative assets during the energy crisis to £7.5bn of adjusted net assets now.
This “protects consumers by acting as a buffer to absorb losses”, the regulator said, adding that it expected all suppliers to adhere to its capital requirements.
It also said that it monitored suppliers’ hedging strategy, including through monthly data requests and regular stress-testing.