Octopus Energy to spin off $8.65bn tech arm Kraken.

Octopus Energy, the rapidly expanding British energy giant, is poised to spin off its highly successful Kraken Technologies division into a standalone company, a move that follows a significant investment deal valuing the AI-powered platform at a staggering $8.65 billion (£6.4 billion). This strategic demerger marks a pivotal moment for both entities, enabling Kraken to pursue independent growth and potentially embark on a stock market flotation in the coming years, while fortifying Octopus Energy’s financial position and allowing it to redouble focus on its core energy supply operations.

The catalyst for this spin-off is the sale of a $1 billion stake in Kraken to a consortium of investors, prominently led by the New York-based private equity firm D1 Capital Partners. This substantial investment not only underscores the immense value and potential of Kraken’s proprietary technology but also provides a significant cash injection that will be instrumental for both its continued development and Octopus Energy’s broader expansion plans. The majority of this $1 billion investment is earmarked for Octopus Energy, bolstering its balance sheet and funding its ambitious growth trajectory. Kraken itself will receive the remainder, providing capital for its independent operations and technological advancements. Other notable investors participating in this landmark deal include Fidelity International and a unit of the Ontario Teachers’ Pension Plan, further solidifying the global institutional confidence in Kraken’s innovative capabilities. Despite the spin-off and external investment, Octopus Energy will retain a significant 13.7% stake in Kraken, ensuring a continued vested interest in its future success.

Kraken Technologies is at the forefront of revolutionising the energy sector through its sophisticated, AI-driven platform. Initially developed internally to enhance the efficiency and customer experience for Octopus Energy, it has evolved into a global force, providing automation for customer service, billing, and advanced energy management for a growing roster of utility clients worldwide. Its innovative capabilities extend to intelligently managing customer energy usage, employing smart tariffs and demand-side response mechanisms to incentivise consumers to reduce consumption during peak times. This not only optimises grid stability but also rewards customers for their flexibility, aligning with the broader goals of energy efficiency and sustainability.

The platform’s reach is impressive, now serving an astounding 70 million household and business accounts across the globe. Beyond its foundational role within Octopus Energy, Kraken boasts a prestigious client portfolio that includes major industry players such as EDF, E.On Next, TalkTalk, and National Grid US. Its ability to streamline complex utility operations, improve customer engagement through automated and personalised interactions, and provide real-time data insights has made it an indispensable tool for energy companies navigating the complexities of modern grids and evolving consumer expectations.

Greg Jackson, founder and chief executive of Octopus Energy, articulated the strategic rationale behind the demerger, telling the BBC that there was "every chance" Kraken would list its shares "in the medium term." The exact location of this potential flotation, he noted, would be "between London and the US," a decision that carries significant implications for the UK’s financial markets. Within a few months, Kraken is expected to operate completely independently of Octopus, a move designed to grant it the necessary "focus and freedom" to accelerate its growth. Kraken chief executive Amir Orad highlighted a key advantage of the spin-off, explaining that the company had previously encountered challenges in securing business from Octopus’s rivals due to its ownership structure. Operating as an independent entity eliminates this potential conflict of interest, opening doors to a much broader market of utility providers eager to leverage its transformative technology.

The debate over the listing venue for Kraken underscores a broader trend in the global financial landscape. While Octopus Energy maintains a strong commitment to the UK, having created 12,000 jobs domestically, with 1,500 attributed directly to Kraken, the choice between London and the US for a tech firm of Kraken’s scale is a pragmatic one driven by market dynamics. Jackson emphasised that for a large tech firm with a global investor base, stock exchanges must actively demonstrate their suitability. "One thing about Kraken is we’ve got this global investor base… and so really the stock exchanges have got to kind of show why they are the right one for business," he stated. A successful London listing for Kraken would be a significant reversal of the recent trend where many UK-founded technology companies have opted to float in the US, drawn by deeper capital pools, higher valuations, and a more extensive investor base with a greater appetite for tech stocks. Jackson reiterated his desire for a London listing if the conditions were right: "If London can be the right place to list, I would love that. But it’s down to be where you’re going to get the most investor support and the most support from the stock exchange." This sentiment highlights the ongoing challenge for London to compete effectively for major tech IPOs.

The demerger and substantial investment in Kraken arrive amidst a period of rapid growth and significant milestones for Octopus Energy itself. Earlier this year, Octopus surpassed British Gas to become the UK’s largest energy supplier, now serving an impressive 7.7 million households. This ascent reflects its innovative approach to customer service, often lauded for its transparency and use of technology (powered by Kraken) to offer competitive tariffs and flexible energy solutions.

However, Octopus Energy’s expansion has not been without its challenges. The company confirmed earlier this year that it was one of three retail energy firms that had not yet fully met regulator Ofgem’s stringent financial resilience targets. These targets are designed to ensure energy suppliers can withstand market shocks and protect consumers in the event of business failure. The $1 billion cash injection from the Kraken stake sale is therefore critically timed, as Octopus stated it would "almost double Octopus Energy Group’s already strong balance sheet," significantly enhancing its financial stability and addressing the regulatory concerns. This strengthened financial position provides a robust foundation for Octopus to continue its aggressive growth strategy, both in the UK and internationally, particularly in the renewable energy sector.

The deal was announced concurrently with Octopus Energy’s financial results for the year ending April. These results revealed a pre-tax loss of £260 million, a stark contrast to the £78 million pre-tax profit recorded in the previous year. This loss occurred despite a robust increase in overall sales, which rose by a tenth to £13.7 billion. Several factors contributed to this downturn in profitability. A significant impact came from lower energy demand, primarily attributed to unusually warmer weather conditions. Octopus reported that the UK’s hottest spring on record since 1885 led to a substantial reduction in gas usage, with a slump of 11% in March and a staggering 25% in April, directly hitting profits by an estimated £103 million. Furthermore, the cessation of government-backed energy crisis allowance payments in 2024 also removed a crucial financial support mechanism that had buffered suppliers during a period of extreme market volatility. These external factors highlight the inherent challenges and sensitivities within the energy retail market, where weather patterns and government policies can have a profound impact on financial performance.

Looking ahead, the spin-off of Kraken Technologies represents a bold strategic move by Octopus Energy to unlock and maximise the value of its technological innovation. It positions Kraken for independent growth as a leading global energy tech platform, capable of driving efficiency and smart energy management across the industry. For Octopus Energy, the demerger provides a substantial capital injection to support its continued expansion as a major energy supplier, particularly in renewable energy, while strengthening its financial resilience. Both entities are now better poised to contribute significantly to the ongoing global energy transition, with Kraken providing the intelligent infrastructure and Octopus delivering the sustainable energy solutions of the future.