Octopus Energy CEO Sells System Change

Greg Jackson wants "zonal pricing" for electricity—to help speed decarbonization

How can we support business leaders promoting (good) system change? (JE via Artiphoria)

How often do CEOs—or other business leaders—talk about the need for system change? When a group of us founded Volans back in 2008, with the declared mission of promoting system change, the answer was precisely zero.

Over time, however, a small but growing number has become more aware of—and willing to speak out about—aspects of the system constraints they face. But rarely has one done so quite as clearly as Octopus Energy CEO Greg Jackson in an open letter published this weekend.

By way of background, Octopus Energy has gone from a newcomer in the energy market to the UK's biggest electricity supplier in just nine years, according the consumer watchdog, Which? It now serves 7.3m customers, or 1 in 4 households. It works to transform the energy industry with tech and invests in renewables, installs heat pumps, smart home tech and leases electric vehicles—including, as it happens, the one that I drive.

Electricity market is broken

Now, in full-page ads placed in the major Sunday newspapers—I saw them today in The Observer and The Sunday Times—Octopus declares that “the British electricity market is broken.”

Addressing British bill payers, it begins: “You know you are paying too much for your energy. And for reasons so ludicrous they could be a dark satire.” By way of illustration the ad then notes that “Some of our biggest, newest wind farms are paid more to turn off than to generate.”

Indeed, the closer you look the greater the urgency of the need for system change. “The more I’ve learned about it,” Jackson says, “the more shocked I’ve become.” When he shared the facts with a renowned industrialist recently, he says, “by the end all he could say was ‘it makes me want to cry’.”

The key problem: outdated regulation and “the insidious gaming of the system by big companies.” He goes on to say: “We can’t change the system. But the government can.”

If it’s minded to do so—and for that it probably needs to come under a lot more pressure.

Market reform offers few photo opportunities

Intriguingly, Jackson’s open letter notes that:

Market reform doesn’t offer appealing photo opportunities—like hard hats to visit expensive (and often wasteful) infrastructure—but it’s the real change we need, and the only tool that will bring down bills quickly.

Little for the paparazzi to focus on with market reform (JE via Artiphoria)

So, what is zonal pricing?

If you want to know more about Octopus Energy’s proposals for “zonal pricing” a great place to start with this short video of Greg Jackson’s take on all of this. A more detailed account of how the new system might be brought into play can be found here.

A critical part of the problem is that the electricity system “was designed decades ago—back when the nation was powered by a few giant coal stations. It's not fit to support the wind turbines and solar farms we have today. As a result of the mismatch, [we're] being charged billions for absurd waste: paying clean wind power to turn off and overpaying gas stations to turn on”

The solution is clear, Octopus concludes: “Britain needs its energy priced locally through a zonal pricing system. The government is considering this reform right now. Zonal pricing would make the system more efficient and stop us wasting so much wind. The best independent analysis reveals it'd save everyone upward of £3.7 billion on energy bills every year, give places with lots of renewables like Scotland some of the cheapest bills in Europe, and cut system carbon emissions by 17%.”

Zonal pricing would divide the UK into different zones, each with its own electricity price based on local supply and demand. “For example, areas with abundant renewable energy sources (like Scotland) might have lower prices due to increased local supply, while areas with high demand and limited local generation might have higher prices.”

Octopus Energy argues that zonal pricing could “lead to lower overall energy costs, especially for energy-intensive industries, by incentivizing businesses to locate or operate in areas with cheaper electricity. This could also reduce the need for costly infrastructure upgrades to transmit electricity across the country.”

The company is urging the government to adopt zonal pricing lower energy costs, improve market efficiency, and support the transition to a decarbonized energy system.

Things are unlikely to be impossible if they already exist

Critics raise concerns about potential increased costs for some regions, reduced competition, and the complexity of implementation. Some businesses in areas with high demand and limited local generation could also face higher costs under a zonal system.

Clearly, there would be complexities involved in ensuring a smooth transition, but none of it likely to beyond the abilities of moderately competent governments—if we can work out how to develop and sustain them.

Ultimately, I have long argued, something is unlikely to be impossible if it already exists—as zonal pricing does in countries like Norway and Sweden.

Congratulations, meanwhile, to Greg Jackson and Octopus Energy both for championing this aspect of system change in electricity markets—and for modelling how other business leaders can help promote and deliver system change more generally.

John Elkington is Founder & Global Ambassador at Volans. His personal website can be accessed here. The soft-launch version of his new Countercurrent site can be found here. His latest book is Tickling Sharks: How We Sold Business on Sustainability (Fast Company Press, 2024). Available on Amazon and through good bookshops: