Will electricity merger provide power for wholesale market?
Griddy, the electricity seller from California, shook up the Texas residential power industry three years ago when it convinced Texans to buy wholesale power on the spot market.
Although many consumers were stung when wholesale power prices rocketed to $9,000 per megawatt hour in August 2019, wholesale power sales may be gaining some traction as the memory of high prices fades and more consumers consider electric vehicles.
Last week, Octopus Energy, an English-based wholesale power seller with 1.7 million customers, announced plans to enter the U.S. marketplace and pledged to spend $100 million building new markets and improving technology. Octopus, which recently expanded into Germany and Australia, plans to start its U.S. expansion in Texas by buying wholesale power seller Evolve Energy of California for $5 million.
Evolve has been selling wholesale power in Texas for the past year to residential customers who pay a $10 monthly fee. Customers can check online to see the times when power is less expensive to run appliances while cutting back on power when electricity is expensive.
Octopus, a 4-year-old startup, is betting that as more consumers buy electric vehicles and put solar panels on their roofs, they’ll gravitate to a company that lets them charge their vehicles overnight when power is cheapest and agrees to buy back their excess solar energy. Texas is the fifth-biggest market in the United States for electric vehicles, with nearly 12,000 registered in 2018, more than double the 5,400 electric vehicles in 2017.
The expansion, Octopus officials say, is tied to growth in electrification demand that will make consumers more focused on electricity prices. The power industry in competitive areas — such as Houston and Dallas — is ripe for disruption, much like the airline industry was years ago when discount airlines challenged the legacy carriers.
Legacy power companies don’t have the technology or vision and that’s reflected in their lagging stock values, Octopus founder and CEO Greg Jackson said. “They’re struggling,” he said.
But will the deal shake up a staid retail electricity market whose last big marketing invention was free nights and weekends?
Earlier efforts to get customers focused on electricity prices haven’t been too successful because fewer than 20 percent of Texans regularly change power providers. And there’s still the hard feelings for many who tried buying wholesale but found it exposed them to the risks of commodity markets.
Griddy came to Texas to disrupt the electricity market, putting up billboards in July 2019 poking Reliant Energy, a retail seller owned by NRG Energy, and Vistra Energy’s TXU, for contract termination fees and other charges. The ad campaign was a big success, according to Griddy officials, but backfired
when power prices spiked a month later, leaving some Griddy customers with staggering bills. The company estimated it lost as many as 20 percent of its customers.
Since then, business is recovering, said Jason Huang, chief operating officer for Griddy. And this summer’s round of modest prices made Griddy customers more comfortable with wholesale electricity buying.
Growth is coming from younger customers who are skeptical of the old guard and are willing to try something new, Huang said.
And Texas may be the perfect place to try because everyone is on a smart meter, technology that gives consumers the opportunity to monitor their electricity use in real time. Fewer than one-third of U.K. homes are connected to smart meters, according to one power expert.
Texas also has among the highest electricity demand per capita in the world, reflecting the big houses, the area’s use of air conditioning and Texas’ heat, said Siddhartha Sachdeva, CEO of Houston-based energy analytics company Innowatts. One home in Texas uses more power than three to four homes
in Europe and twice as much as a similar New York home.
Only Sweden uses more power per capita, Sachdeva said. The higher-than-average demand makes Texas an attractive market.
Electricity shoppers who chat with sales agents online are interested in how the plan can provide cheap electricity, said Evolve founder and CEO Michael Lee, who will lead the U.S. expansion.
“Ninety-nine percent of customers,” he said, “have never heard of wholesale power.”