Octopus Energy is planning to spin off Kraken Technologies, its software division, as an independent company. Valued at up to £10 billion, this move marks a significant milestone for both Octopus and the utility software industry.
Octopus Energy’s journey began with the vision of its founder, Greg Jackson, a tech entrepreneur who launched the company in 2016. Jackson believed that technology could democratise and decarbonise the energy sector. His frustrations with unpredictable energy bills inspired him to create a company that drives transparency, affordability, and sustainability for consumers through technology. His philosophy is clear: the energy sector’s transformation must be powered by digital innovation, not just policy or infrastructure changes.
Kraken began as an internal tool to enhance Octopus Energy’s operations but quickly evolved into a global SaaS leader. Its platform now manages over 70 million customer accounts worldwide, supporting major companies like EDF Energy, E.ON, Tokyo Gas, Australia’s Origin Energy, and the US’s National Grid.
The software handles customer billing, smart grid integration, and device management for heat pumps and electric vehicles. It processes billions of data points daily, helping utilities improve their efficiency and service quality.
Financial firepower and strategic rationale
Kraken’s impressive growth reflects the platform’s broad reach. For the year ending April 2024, Kraken Technologies saw a 483% increase in profits to £35 million, while recurring revenue rose 70% to £89.6 million. Meanwhile, Octopus Energy reported group revenues of £12.4 billion and a net profit of £83 million. It has established itself as the UK’s largest energy supplier, with 7.5 million retail customers and a 24% market share, following the acquisition of Bulb and Shell Energy Retail.
The rationale for spinning out Kraken is straightforward. By separating its software division, Octopus aims to showcase Kraken’s true potential—a value often obscured by the retail energy segment. The demerger will likely result in Octopus retaining control, with up to 20% of Kraken potentially sold to external investors to support its £10 billion valuation.
Major investment banks, including Citi, Goldman Sachs, JP Morgan, and Morgan Stanley, have reportedly been invited to pitch for the mandate, highlighting the significance and scale of this deal.
Technology at the core: How Kraken and Octopus Energy innovate
Kraken’s technological edge lies in its modular, AI-driven architecture and advanced data analytics. The platform comprises:
- Kraken Customer: An integrated operating system for customer management, allowing agents to access all customer data in one place and deliver rapid, personalized service.
- Kraken Asset (KrakenFlex): AI-powered, real-time optimisation of distributed energy resources, such as batteries, EVs, and solar panels, enabling grid flexibility and demand response.
- Kraken Field: A solution for engineers to manage and install smart devices, supporting the rollout of heat pumps, solar panels, and EV infrastructure.
This technology stack enables utilities to automate up to 40% of their digital communications, forecast demand with precision, and launch innovative tariffs, such as “Intelligent Octopus Go,” the UK’s largest innovative EV charging product. Kraken’s flexibility allows it to serve not only energy providers but also water utilities, such as Severn Trent, and telecom operators, like Cuckoo.
Broadening horizons and a competitive edge
For potential clients, Kraken’s independence could be a game-changer. Many utilities hesitate to license software from direct competitors; however, as a standalone company, Kraken aims to expand its reach beyond the energy sector. It already has contracts with water utilities, such as Severn Trent, and telecom providers, like Cuckoo. Its recent major deal with National Grid in the US, upgrading customer service and billing for over 6.5 million Americans, demonstrates the broadening scope of Kraken’s ambitions.
Kraken’s competitive edge lies in its ability to handle the entire range of utility operations, from billing and smart grid integration to delivering operational savings and high customer satisfaction. Its main competitors include SaaS giants such as Salesforce, Oracle, and SAP, as well as energy-specific challengers like Ovo’s Kaluza and Centrica’s Ensek.
However, Kraken’s quick scalability and proven success in helping Octopus rapidly onboard millions of customers set it apart from competitors.
Leadership, ambitions, and the road ahead for Octopus Energy
Leadership signals Kraken’s strategic direction. The appointment of Gavin Patterson, former BT chief executive, as chair, highlights the company’s global ambitions. Kraken aims to reach 100 million managed accounts by 2027 and plans to expand into sectors such as water and telecommunications. The platform has helped Octopus reduce costs by up to 40% while maintaining top industry service scores, even as it scales rapidly.
As the energy sector advances its digital transformation, Kraken’s spin-out is attracting significant attention from investors and industry insiders. Supported by leading investors like Generation Investment Management, the Canada Pension Plan Investment Board, Galvanise Climate Solutions, and Lightrock, Octopus Energy’s valuation has surged to £9 billion. This spin-out could potentially double the group’s value, positioning Kraken among the UK’s most valuable tech companies.
The evolution from an in-house tool to a potential £10 billion standalone tech giant exemplifies the rapidly changing energy industry and the leadership vision of Octopus Energy. As Kraken sets out on its path, the utility sector is preparing for a new era driven by smart, flexible, AI-powered platforms. Kraken has truly been unleashed, and global attention is keenly focused.
