Octopus Energy explores bid to wrap tentacles around Bulb amid sector crisis

25 September 2021, 08:56 | Updated: 25 September 2021, 15:57

Octopus Energy is exploring a move to take control of Bulb, its rival challenger brand, amid the crisis in Britain's residential energy market that has triggered a swathe of corporate casualties.

Sky News has learnt that Octopus Energy is among the parties which have requested access to a data room set up by Bulb's financial advisers in an attempt to secure new funding during the coming weeks.

This weekend, it was unclear whether Octopus Energy's interest would extend to mounting a formal bid to acquire Bulb, which has about 1.7 million customers, or whether it was merely exploiting an opportunity to learn more details of a competitor's financial position.

Octopus is regarded as one of the sector's best-run and most financially robust companies.

If it did take over Bulb, Octopus Energy would become a serious rival in terms of UK residential customer numbers to the biggest players in the market.

Adding Bulb to its own customer base of more than two million households would create a giant supplier to just under four million British homes.

That would mean Octopus Energy was still the sixth-largest player in the market, but it would be a much closer challenger in size terms to the likes of Ovo Energy and Scottish Power.

Lazard, which is advising Bulb, is understood to be seeking expressions of interest from financial investors within weeks about injecting capital into the company, although the timetable for any strategic bidder is likely to be more flexible, according to an executive at a rival power supplier.

Nevertheless, industry sources said that formidable obstacles remained to any attempt by Octopus Energy to acquire Bulb, not least the requirement to fund working capital and sector-wide renewables schemes in addition to the current financial pressures affecting the market.

Details of the possible structure or value of any transaction are not thought to have been worked out yet, while the names of any other prospective bidders or investors was unclear on Saturday.

Despite media speculation, Bulb is not in the same imminent financial danger as many of the market's smaller players, and has moved to reassure customers about its status in recent days.

In the past fortnight, half a dozen providers have ceased trading, including Avro Energy, Green, PFP Energy and Utility Point, affecting in aggregate close to 1.5 million households.

The industry regulator, Ofgem, is expected to reassign about 800,000 customers of Avro and Green to larger suppliers in the next few days under a mechanism known as Supplier of Last Resort (SOLR).

Sources said that Ofgem was also talking to restructuring firms about acting as special administrator - effectively temporarily nationalising - any company that is not able to be resolved through the SOLR mechanism.

A spokeswoman for the regulator said: "Ofgem and government prepare for a wide range of scenarios and have long standing contingency plans in place for any situation as needed. These processes include speaking to a range of organisations."

Combined with the panic buying that has gripped motorists in recent days and the supply chain crises which have left retail chiefs warning of reduced availability of many items in the run-up to Christmas, the energy supply crisis has posed a massive headache for the government.

Ministers have, nevertheless, retreated in recent days from the idea of providing a multibillion pound funding package to subsidise the transfer of customers from failed suppliers.

There are now widespread expectations that the energy price cap, which will rise to £1,309 for prepayment customers at the start of October, will have to be hiked substantially again when it is reviewed next in the spring of 2022.

Octopus Energy was founded little more than five years ago by Greg Jackson, who found himself frustrated by the pricing tactics of existing large players.

The company, which supplies electricity and gas generated entirely from renewable sources to more than two million UK homes, has also expanded into Germany and the US.

Its energy technology - or entech - platform, Kraken, uses advanced data and machine learning to support more than 17 million customer accounts around the world, and has set a target of 100 million accounts on the platform by 2027.

Octopus Energy did not respond to a series of telephoned, texted and emailed requests for comment about the nature of its interest in Bulb.

Mr Jackson tweeted this week that while there were "real issues in energy caused by global gas and shortfalls in UK nukes…the idea of 'crisis' is being pumped up by the former Big 6 in order to try to bounce [government] and regulators into restoring the cosy oligopoly they used to enjoy".

A Bulb spokesperson said: "From time to time we explore various opportunities to fund our business plans and further our mission to lower bills and lower CO2. Like everyone in the industry, we're monitoring wholesale prices and their impact on our business."

Bulb, which like Octopus Energy is lossmaking, was established in 2015 and grew rapidly by offering competitively priced deals.

E.ON Next, the new brand which combines customers from E.ON and npower, has around 5.2 million residential customers, while Ovo Energy, which absorbed SSE's retail customer base nearly two years ago, has 4.5 million.

British Gas, which is owned by Centrica, remains the market leader with seven million customers, and is expected to take on substantially more through the SOLR system between now and the end of the year.

EDF Energy, the French state-owned supplier, and Scottish Power make up the remaining members of the former 'big six'.