Octopus Energy Group Ltd. plans to spin off Kraken Technologies Ltd., a software platform that helps utilities manage the transition to cleaner energy.
Kraken has been key to Octopus Energy’s growth into the UK’s largest electricity supplier, leapfrogging industry incumbents to serve more than 7 million customers in the country. The software allows it to balance out power flows to households as energy-transition technologies like electric vehicles, home batteries, solar panels and heat pumps become more widespread.
The software platform is already being licensed to other energy providers such as Electricite de France SA, serving more than 70 million household and business accounts worldwide. Committed annual revenue has increased fourfold to $500 million in just three years and the spinoff will accelerate the expansion, Octopus said in a statement on Thursday.
“Kraken is now a globally successful business in its own right,” Chief Executive Officer Amir Orad said in the statement. “Completing our journey to full independence is a strategic and inevitable next step.”
Tim Wan has joined Kraken as its chief financial officer, the same role he previously held at US software firm Asana Inc., according to the statement. He was involved in Asana’s US listing in New York in 2020.
Kraken could be valued at as much as $14 billion, Sky News reported in July, citing a person familiar with the matter, who also said the spinoff could be part of plans for Octopus Energy to sell a stake in Kraken to external investors.
The demerger and any stake sale could “bring transparency to the value of Kraken,” said Martin Young, founder of consulting firm Aquaicity Ltd. He said that could be a precursor to further sales in the future, and possibly an initial public offering.
“Separation offers a cleaner structure and puts to bed the question: ‘Is Octopus a supplier with a tech arm attached, or a tech company that has a supplier as a shop window?” Young added.
Previous Moves
Octopus Energy itself followed a similar path when it moved from being wholly owned by Octopus Group to taking in outside capital to fund its rapid growth. In 2020, it agreed to sell a 20% stake in the power supplier to Origin Energy Ltd. in a deal that valued the company at more than £1 billion ($1.4 billion). It later attracted investment from Generation Investment Management, the sustainable fund co-founded by former US Vice President Al Gore.
Octopus Energy said in January that it had become the UK’s largest energy supplier just nine years after the company started, overtaking legacy providers such as Centrica Plc’s British Gas. The rapid decarbonization of the country’s electricity has transformed the business landscape for utilities, occasionally sending power prices below zero when wind power generation surges.
At times when renewable energy is abundant in the UK, suppliers can use Kraken’s software to offer cheaper deals to customers and incentives for them to ramp up demand, for example by charging their electric cars. This helps manage the fluctuations in electricity flows that come with a more renewables-heavy grid.
Kraken currently manages about 2 gigawatts of this type of flexibility in residential power demand and plans to grow further as electric vehicle penetration increases, in line with policy goals in the UK and Europe.
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