American homes are filling up with batteries, EVs, and smart thermostats that could be coordinated to make the grid cheaper and more reliable — but almost none of them are. To understand why, it helps to watch what happens when the company best in the world at this tries to do it here. In Britain, Octopus Energy has built a giant virtual power plant out of its customers' devices. In the US, it has spent six years running into walls. Now it’s bought Uplight, which runs customer programs for 85 utilities. I talked with Nick Chaset, who runs both, about what's in the way and whether distributed energy can ever scale with US utilities … the way they are.
Distributed energy (rooftop solar, home batteries, EVs, smart thermostats) is accumulating in American homes. In theory, all of it could be coordinated to help the grid, shaving peaks and delaying expensive new infrastructure investments. In practice, very little of it is. Why is that?
One useful way into that question is to look at a company that’s very good at that kind of coordination. In Britain, Octopus Energy is the single largest household electricity supplier; it has turned hundreds of thousands of its customers’ EVs, home batteries, and other devices into a giant virtual power plant. It came to the US in 2020 intending to do something similar. Six years later, it still sells electricity only in Texas.
So it has adapted. It sells flexibility services to utilities, supplies residential capacity to aggregators chasing data-center money, puts batteries in homes for a monthly fee, and, as of September, owns a majority of Uplight, which runs customer-side programs for 85 utilities. Is this all a clever way of routing around America’s dysfunctional market structures? Or is it just an elaborate holding pattern until those structures change?
That’s what I’m going to discuss today with Nick Chaset, CEO of both Octopus Energy US and Uplight. What’s it going to take to scale distributed energy in the US from this kind of random bric-a-brac to an actual, substantial contributor to US electricity? Let’s get into it.
Chapters
00:00 – Introduction
02:02 – Octopus’s past year and the Uplight investment
05:18 – What makes the UK market work for Octopus
11:12 – Texas: fast growth, flattened volatility
14:57 – Will flexibility put itself out of business?
19:16 – Why Octopus stays out of Pennsylvania and New York
22:17 – Does residential retail competition have a future?
24:41 – Why utility programs trail Octopus on participation
32:17 – The demand stack and what planners can count on
39:11 – Kraken, Uplight and the overlap
46:04 – Consumer protection and the aggregator model
51:17 – Data centers and the social license to operate
55:11 – Do we need dynamic pricing?
58:30 – Five years out
Resources
People & Organizations
Volts (Apple Podcasts - Spotify - YouTube - Instagram - LinkedIn)
Nick Chaset (LinkedIn)
Other orgs mentioned: Smart Meter Texas
Company & Industry News
Books & Articles Discussed
Brattle Group - Utilities Can Grow Demand-Side Capacity by 60% with a Demand Stack Approach
EnergyHub - Building Trustworthy Virtual Power Plants: The VPP Maturity Model
Related Volts Episodes
The case for using prices rather than VPPs to coordinate distributed energy
Making sure smart devices can talk to each other and the grid
Sooner than you think, electricity is going to be cheap, abundant, and boring
Transcript
David Roberts: All right then. With no further ado, Nick Chaset, welcome to Volts. Thank you so much for coming.
Nick Chaset: Great to be here, Dave.
David Roberts: Okay, Nick, let’s start here. We talked a year ago about several things. A lot’s happened in the last year. You said some things last year about what Octopus is gonna do and not gonna do. We’re gonna revisit some of those. But maybe start just by catch us up on what’s happened over the last year for Octopus. It does seem to be spreading its tentacles into all sorts of areas. So catch us up with the last year.
Nick Chaset: Yeah. So in March, very beginning of April, we announced an investment in Uplight, which is a provider of flexibility management solutions to utilities, really under the premise that, you know, as you said, Octopus wants to go and engage with millions of US electricity consumers and enhance flexibility, open up flexibility, give greater customer experiences, help them save money, all that great stuff. But we really can’t go direct to consumer outside of Texas-
David Roberts: Mm-hmm...
Nick Chaset: given market structures and rules. Some of those are evolving. But so much of the electric customer experience is run through the wires utility-
David Roberts: Mm-hmm...
Nick Chaset: who are either fully vertically integrated or partially vertically integrated, but they own that billing experience, and they are exclusive providers to most US electricity customers. And so we want to work with those utilities to still achieve the end goal, which is to save customers money and give them a great experience and connect all that flexible load to accomplish those first two things. And so that’s the core thesis of Uplight.
Uplight has these relationships, so they have landed, and now it is time to expand the scope of what Uplight is doing with its utility partners to significantly accelerate the adoption of flexibility management and engagement with customers. Today, a great utility demand response program might see somewhere between 5% to 20% participation rates, depending on if it’s one where customers sign up themselves versus one where devices are auto-enrolled. That’s still very small overall participation rates. At Octopus-
David Roberts: Yeah, we’re gonna get back to that.
Nick Chaset: we see 60% rates. So the question ahead of us, and I think are we accelerating or are we just expanding but still in a holding pattern, the test of whether it’s the first or the second, obviously our hope indeed is that it’s the first, is our ability to go and significantly expand the participation in these flexibility management programs that Uplight runs for a utility to get closer to the levels of participation we see within Octopus.
David Roberts: Okay. Before we get to that, maybe just to level set, you know, I threw this out online and several people came back saying, “Octopus is amazing in the UK.” You know, just on and on about their experience with Octopus in the UK, where it seems like the market is set up to just let Octopus rip. So maybe let’s start with just, like, what is Octopus doing in the UK, and what are the features of the UK energy market that are allowing it to do what it’s doing there?
Nick Chaset: So the UK first and foremost has forced choice. Consumers must choose a supplier.
David Roberts: Hmm.
Nick Chaset: And so every customer at the end of a contract is gonna go select someone. So that’s one of the core conditions, and that is a condition you actually see in Texas as well. But in many of the states in the Northeast, you don’t have forced choice. I think a stat I saw recently was something like 97% of residents in the state of New Jersey have a choice but don’t choose.
David Roberts: They just go to the default. There’s a default provider.
Nick Chaset: There’s a default provider, and they just go to the default provider. That’s right. So that’s one. Two, the UK has robust markets for monetization of flexibility.
David Roberts: Hmm.
Nick Chaset: So if I’m a supplier and I have lots of connected electric vehicles or connected heat pumps or batteries, I am effectively able to fully realize the value of that flexibility in my cost stack, which becomes how I translate that value back to the consumer. And so contrast that as a for instance with most of the US where if you’re a residential consumer with a battery, you’re only able to realize the coincident reduction of demand from that battery. But you think about a battery might be a 3, 5, 7 kilowatt battery. The average home peaks at 2 kilowatts. You’re never gonna get the export value of that battery-
David Roberts: Mm...
Nick Chaset: from a flexibility management perspective. And thus, you know, the battery is potentially able to deliver 10 kilowatts of load flex, but I only am able to realize 2 and a half kilowatts of value. There’s a huge mismatch there.
David Roberts: Yeah.
Nick Chaset: Thus making it hard to justify making that investment in the underlying battery. And that’s not the case in the UK.
David Roberts: Right.
Nick Chaset: And frankly, actually Europe generally. And I would say that the Octopus story definitely most well known in the UK where we’re the largest supplier, but we have businesses in Italy and Germany that are now over a million households.
David Roberts: Hmm.
Nick Chaset: Fast-growing businesses in Spain and France, but also actually a very fast-growing business in Japan.
David Roberts: Interesting.
Nick Chaset: And we’re seeing to the degree that those markets start to adopt more open access for load, we’re seeing the ability to deliver similar results in those markets that we have in the UK.
David Roberts: And then maybe one other thing to mention is that the UK meters household electricity use, like every 30 minutes. It does not estimate or project or model, it meters. So actual timed reductions can actually be metered and rewarded and paid for in a way, which is not true, I think, in a lot of US markets as well.
Nick Chaset: That’s right. And so it’s not estimates, it’s not using measurement and verification frameworks.
David Roberts: Mm.
Nick Chaset: It’s actually metered benefits, which is also a really significant unlock. And so the UK, because of the broad deployment of smart metering, and actually data access, and I think this is actually one of the other important points, and we actually see a commonality in Texas, is Texas has, with Smart Meter Texas, what I would say is the best in class meter data access platform in the US. That's something that we have in the UK. It's what we have actually in a lot of European markets — not Germany. Germans, for some reason, are quite anti-smart meters. It's more of a cultural thing than a policy, but that's a whole other conversation.
David Roberts: Meaning in the UK, a competitive retail electricity provider can get access to that meter data.
Nick Chaset: That's right, and it's seamless access to the meter data. Actually, it's a similar dynamic in Texas. It’s very easy to get access to meter data. Obviously you need consumer consent. But you contrast that with PJM, where it is very, very hard to get meter data.
David Roberts: Yes. We’ve done a couple of pods on that. So if you were importing one feature, I mean, it does kinda seem like the UK, whatever its other difficulties at the moment, does kinda have the electricity markets dialed in. If there’s one thing you could import, which of those features do you think are the sort of highest value for consumers and for Octopus? Is it the forced choice thing? Is it the-
Nick Chaset: I’d say it’s the meter data access more so than forced choice.
David Roberts: Mm.
Nick Chaset: And I say that because-
David Roberts: That’s interesting...
Nick Chaset: there are going to be markets in the US that are not ready for retail competition or for a variety of reasons. That’s not the thing that is going to unlock the benefits to the consumer fastest. And so under the OctopusUplight partnership, fundamentally we wanna be able to work either direct to consumer through an Octopus retail business that we have in Texas or through the utility, but inability to access customer data becomes a hindrance to acceleration of customer signups and flexibility programs. So if you have robust access to data, Octopus can then operate as essentially a customer-facing channel-
David Roberts: Mm-hmm...
Nick Chaset: to identify which customers are most likely to benefit from flexibility, and then move those customers into programs that Uplight manages for that utility quickly and seamlessly. Without meter data access, settlement becomes more challenging, targeting becomes more challenging.
David Roberts: Yeah, yeah. Okay, let’s talk Texas then, ’cause Texas, I guess, is, as you’ve said a number of times now, the closest approximation to the UK’s kind of open competitive model. How is it going in Texas? That’s kind of your foothold. What are the kind of numbers in Texas? What’s the level of participation? How fast are you growing? What’s the Texas situation?
Nick Chaset: So from Octopus’s business perspective, growing very quickly. We’ve doubled our customer base in the last 12 months, starting from a fairly low starting point, just given some previous prioritization. What we’re seeing though in Texas today is-
David Roberts: Sorry to interject, but do they have forced choice in Texas?
Nick Chaset: Forced choice in Texas.
David Roberts: They do. Okay. All right.
Nick Chaset: Yep, exactly right. So the business, underlying business is going well. We’re not seeing as much active participation in flexibility programs as we have in other markets.
David Roberts: Hmm.
Nick Chaset: Interestingly, because Texas energy market has been so liberalized and there’s been so much utility scale solar and storage deployed, Texas volatility has essentially been destroyed.
David Roberts: Yes. This is such a fascinating story. This is such a... I’m gonna-
Nick Chaset: Really over the last 12 to 18 months. And so flexibility, especially in an energy-only market and one like in Texas where transmission and distribution rates for residential customers are essentially charged on a flat volumetric rate, the whole value prop of flexibility is intraday price arbitrage, right?
David Roberts: Yeah.
Nick Chaset: Cheap prices in the middle of the day, expensive prices in the evening. I wanna flex my load from the expensive into the cheap. That’s essentially what all the batteries have done.
David Roberts: Yes.
Nick Chaset: The utility scale batteries. And so it’s actually great for consumers because prices have been depressed, but it’s not great for the flexibility component of our business. It’s actually been great for the standard part of our business. So we’re growing very quickly in just the, “Hey, we’re signing customers up for 6, 12, 18-month contracts.”
David Roberts: Mm-hmm.
Nick Chaset: And, you know, from a flexibility management standpoint, that’s fine because at some point in time when we start to see volatility on the horizon, we’ve built this relationship with a customer, and then we will start engaging with them around flexibility management because it’s Texas, so everybody has air conditioning.
David Roberts: Mm.
Nick Chaset: We are now starting to sell batteries to consumers on a relatively small scale.
David Roberts: We’re gonna get to that too.
Nick Chaset: Mostly because of the economic dynamics for residential. So I think the big policy in Texas that we would like to see changed is greater ability for at least the retailer, if not the individual residential customer to manage their TDSP or transmission and distribution costs through flexibility.
David Roberts: Hmm.
Nick Chaset: So if you’re a medium commercial customer, say a 50 kilowatt customer or greater in Texas you are subjected to your 4 coincident peak-based demand charge. And so then batteries start to pencil again because you have some price volatility, but you have these 4 demand charges that you’re trying to manage against. And so suddenly batteries are able to monetize both energy and, you know, essentially avoided distribution costs.
David Roberts: Right. Right.
Nick Chaset: So allowing residential customers to benefit from that is something that we think is an important market modification that we’d like to see.
David Roberts: This is such an interesting story. I mean, I think maybe in the short term or medium term, data centers flooding into Texas might bring some of that volatility back, at least short term.
But this is something I’ve asked every flexibility provider of every stripe on Volts for years now and never really get a good answer, which is, if you succeed, you’re gonna put yourself out of business. Are you not? Like, if enough flexibility is available, prices are gonna flatten out, and the grid is gonna get sort of reliable and boring, and then you’re not gonna be able to monetize flexibility, right? I mean, that’s kind of like, who knows the time horizon, but that’s kinda what’s gonna happen, isn’t it? You sort of see it happening in Texas.
Nick Chaset: I think actually there’s a great story of what’s happened in Australia.
David Roberts: Hmm.
Nick Chaset: And you’re actually now seeing rates go down because you have such mass adoption. I think there’s 2 things, particularly when you think about batteries, but actually all residential flexibility. So the marginal cost of flexibility for the devices we already have in the home should, over time, go down to zero-
David Roberts: Right...
Nick Chaset: because we should functionally eliminate sign-up friction. We should compete away API fees.
David Roberts: What are API fees, briefly?
Nick Chaset: So an API fee would be if Octopus is seeking to manage the thermostat in one of our customer’s homes or frankly, when Uplight is doing this on behalf of a utility, we have to pay a fee to the hardware company-
David Roberts: Oh...
Nick Chaset: to be able to access the device. It's a gating fee. And as you get towards more open access, like a Bluetooth-like protocol, in principle those should be competed away.
David Roberts: Yeah. Right. Right.
Nick Chaset: In principle, those should be competed away, but today we don’t have a single open source protocol to access all devices, and so you have to pay to access the device. So the marginal cost of that, at least some amount of that flexibility should go to zero because charging an EV overnight should be massively flexible. You just want the car fully charged when you get up in the morning, and when exactly that car charges between 6:00 PM and 6:00 AM-
David Roberts: Right...
Nick Chaset: you should be largely indifferent to. So we should compete down the marginal cost of that flexibility to essentially zero. We should compete down a big chunk of thermostat flexibility to zero, and really it’s only when you’re asking someone to experience a perceptible temperature change in their home in response to an extreme grid event might you say we need to pay people. The day-to-day pre-cooling of the home-
David Roberts: Right...
Nick Chaset: while people are at work should be imperceptible, so that should cost zero. And then you’re left with the battery asset class, and battery prices will come down. Installation costs must come down. And we look at the rest of the world. I’ll actually take an example of our Spanish business, where we have a robust solar and battery installation. A 5 kilowatt solar system paired with a 10 kilowatt hour battery fully installed in the home 9,000 euros.
David Roberts: Hmm.
Nick Chaset: Contrast that with the US, right? That’s gonna be $25,000–30,000 after tax credits.
David Roberts: Yeah. So then what does this do to flexibility businesses? What does this do to Octopus then if you’ve competed basically all the flexibility value down to almost zero?
Nick Chaset: Well, Octopus fundamentally is a customer business, right? So we’re going to compete down flexibility, lower bills, and still have a lot of, actually, value that we can create for transmission and distribution deferral. We might compete down energy prices, like we’ve seen in Texas, increasingly across the country, but we still have a tremendous amount of transmission and distribution deferral to compete down. And so if our job is to continue to do that and we continue to drive down costs such that in 10 years we’ve put ourselves out of business, well, then we’ve done what we’re supposed to do, and we will move on to do something else.
David Roberts: So moving beyond Texas, so there is, like, retail competition, say, in some northeastern states, but you’ve not moved into those states in any kind of concerted way. So, like, what would have to change in a state like Pennsylvania or New York for Octopus to go in and set up a business there? What’s holding that back?
Nick Chaset: I’d say the single biggest thing that has held us back to date is consolidated billing.
David Roberts: Hmm.
Nick Chaset: The bill is really so much of where the customer relationship with their supplier sits because it’s the thing that the vast majority of people only care about, right? You don’t think about your electricity unless it’s out or it’s too expensive. And so if you don’t own the bill, you don’t have the ability to communicate, you know, what’s going on with the consumer around their consumption, help them think through ways to reduce their consumption, fundamentally, and it’s something that Octopus has spent a tremendous amount of time and effort refining. How we present the bill, how do we communicate with customers about their bill?
And in Pennsylvania, the bill does not come from the supplier. It comes from the transmission, the wires company, and you're just a line item — similar, actually, to what the CCAs have in California. And so you just don't have that same ability to build brand and build trust and build that customer relationship.
It also means that when you don’t own the bill, the first call when the customer has a problem tends to be to the billing utility. And again, we differentiate ourselves on customer service. And if their first call is to someone else’s customer operations team, we can’t guarantee that they’re gonna get the level of service that we want them to get. So that has historically been why we have not wanted to operate in those markets.
David Roberts: Interesting. It’s not the forced choice thing or anything about-
Nick Chaset: Yeah, I mean, that certainly makes customer acquisition more-
David Roberts: And meter data.
Nick Chaset: Yeah, I mean, those things are not nontrivial, but I think fundamentally it’s been we don’t feel we can give customers the type of experience-
David Roberts: Mm.
Nick Chaset: that we feel is a prerequisite of Octopus operating in some of those markets. Now, with Uplight, we’re rethinking the level of engagement, not necessarily as a retailer, but, like, engagement with customers in those markets. And so you take New Jersey as an example. There is choice. Most customers in New Jersey don’t choose a supplier.
David Roberts: Right.
Nick Chaset: But PSEG, the biggest utility in New Jersey, is an Uplight customer-
David Roberts: Mm.
Nick Chaset: for both home energy reports, so some customer engagement, and flexibility management. And so we’re now having a very active conversation with PSEG around how do we bring some of the special sauce know-how that Octopus has around customer engagement, particularly flexibility customer engagement, and integrate that know-how into the solutions that they already have with Uplight.
David Roberts: Right. I wanna get to Uplight in one second, but one more question about retail competition, which is, I think outside of Texas, retail energy providers have, let’s say, a mixed reputation, I think. Probably because they’re all buying from the same wholesale pool. They’re all sort of access to the same energy, and so it tends to be end up, like, the only differentiation they can offer consumers. And as you say, they can’t really directly interact with consumers ’cause they’re just a line item on a bigger bill.
So kind of the only thing they can offer is sort of slightly scammy deals, which means there isn’t a lot of, like, will or political energy to expand retail competition. Do you think residential retail competition has a future in the US? Do you think it’s gonna spread?
Nick Chaset: So what we’ve seen in Europe, and what we’re seeing in Texas, is competition for the customer does drive innovation around how you acquire resources, how you manage load flexibility that benefits the customers in terms of lower costs. And, you know, particularly when we’re thinking about PJM and the capacity deficit, that seems pretty structural, and they’re just not gonna be able to build their way out of that capacity deficit anytime soon because of limited access to turbines, unwillingness to allow grid batteries to be fully counted as capacity, you do need to start to engage on the demand side. And load flexibility is the way to get there.
I think there’s a strong argument that in states where they already have the regulatory frameworks in place for retail choice, there are some fairly no regrets changes that could be made that enhance customer protection, but also make it easier for customers to choose their supplier. That would undoubtedly attract companies like an Octopus-
David Roberts: Right...
Nick Chaset: into those markets and start to unlock significant load flexibility. And actually, we’re seeing it happen in C&I. C&I customers are starting to monetize their load flexibility in meaningful ways.
David Roberts: This is commercial and industrial.
Nick Chaset: Commercial and industrial. And if anything, the challenge right now is we’re locking residential customers out of those benefits.
David Roberts: Right. Okay. Well, let’s talk Uplight then. So Uplight’s doing these customer-facing flexibility programs for 85 utilities now, but their utility programs, as I understand it, are getting in, like, the single-digit customer participation numbers, whereas Octopus, where it is allowed to just rip, gets, like, 60, 70% customer engagement on these flexibility programs. And I guess what I most wonder about is what explains that gap? Is it something that the flexibility provider is not doing right that you could do better, or is it utility incentives? The old utility incentive problem in which those flexibility providers are embedded, and it’s thus structural and difficult to move much. What’s your take on that?
Nick Chaset: I think it’s multiple parts, right? So one of the reasons Octopus has had such great success enrolling our customers in flexibility management tariffs is we make it extremely easy to do so.
David Roberts: Mm.
Nick Chaset: We offer very clearly articulated benefits for flexibility. Save 25% on charging your electric vehicle if you sign up for our overnight flex tariff.
David Roberts: Yeah.
Nick Chaset: Okay, I wanna save 25% on my vehicle, and, you know, one, two clicks in an app, and the device is connected, and then I don’t have to think about it anymore. That is what we view as best in class and what drives great levels of participation. It’s done in our voice. We’re constantly iterating how we’re talking to customers.
David Roberts: Mm.
Nick Chaset: Compare that with a utility-driven program where there might be one or two mass emails sent out without lots and lots of iteration on, like, micro changes to messages. We’re gonna send out 50 versions of the same email to cohorts of customers. Some of that’s happening, but I think oftentimes that is not, you know, the ultimate mindset of the utility. And I guess somewhat rationally, utilities tend to wanna control lots of the direct marketing, right? So they’re not allowing a company like Uplight to just take total ownership-
David Roberts: Yes...
Nick Chaset: of engagement with their customers.
David Roberts: Is that going to change is my question.
Nick Chaset: I think there will be some utilities that are going to be increasingly open to allowing Uplight, particularly with the credibility that Octopus brings, to have more say in how and where to engage with customers, and there are gonna be some that are not as comfortable with that. I also think there’s some of the enrollment journey and experience is one that can be significantly improved. So today, if I’m a customer in most utilities and I have an EV, a thermostat, a battery, heat pump, you know, multiple devices, I’m gonna experience four different enrollment journeys-
David Roberts: Yeah.
Nick Chaset: for each respective device.
David Roberts: Yes.
Nick Chaset: And while you might see significant participation of one asset class, you see significant reductions in follow-on assets because the enrollment journey is not optimized. And so at Octopus, we are bringing multi-device enrollment journey to bear into the Uplight channel through the Octopus app. That is a version of the app that millions of Octopus customers, direct customers use. We’re building a version of it that can be productized and used by a utility to engage with their customers as well. So that’s another part of it.
David Roberts: Do you have a target or a number in mind for how high you can drive participation in one of these markets where you are a tool the utility is using?
Nick Chaset: I think let’s think about by different asset classes, right? I think there’s no reason why any battery that’s out there today should not be enrolled in some sort of a flexibility management program, unless of course the customer definitively says, “I prefer to have my two Powerwalls sitting in reserve constantly.” And there’s gonna be a subset of customers who that is a definitive choice that they make, and, you know, that’s fine. But let’s say that 70, 80%. Similar with EVs. In principle, every EV should be enrolled in some sort of flexibility management initiative because there’s no utility loss associated with it. Like, I don’t lose functionality of my EV-
David Roberts: Yeah, right...
Nick Chaset: by managing when it charges within a certain set of parameters. I think when you start getting into heating and cooling, there is the comfort dynamic, so it may not necessarily be just as many. But I think what we see actually with our heat pump products in Europe is it’s a selling point. Saving money on your bill by buying an Octopus heat pump is a selling point for the heat pump.
David Roberts: Right.
Nick Chaset: So again, I think two, three X the participation rates — 50, 60% participation rates — are totally reasonable.
David Roberts: Well, and this is all sort of in a perfect world, but like you are an app within a utility. You don’t necessarily own the whole customer experience. Like, there are some... It’s not a perfect world, right, that you’re operating in. Practically speaking, do you think you can get to those numbers within this context?
Nick Chaset: I think what we need to endeavor to do is focus on working with a couple utilities that are highly motivated to enroll significantly more capacity.
David Roberts: Just to show it can be done.
Nick Chaset: That’s right. This is one of the things that’s so exciting about this investment we’ve made in Uplight, is that we now have active relationships with a whole load of utilities, and there are definitively a couple that are coming to us saying, “We need to do this for our customers. We need to do this because of the stressors that we’re facing related to data center build-out-
David Roberts: Mm-hmm...
Nick Chaset: or rate pressures, or just we feel like this is now possible, and we wanna do this because our customers will benefit from it.” It's usually some version of all three. And we just have to show what's possible. It's actually the Octopus story, right? If all Octopus did was tell you, “This is all the amazing stuff that it can do,” I think no one would have believed us. The reason why the Octopus story is so unique, frankly, in this space is Octopus has always heavily oriented on the do side of the say-do ratio.
And that’s sort of our approach now in the US, is working with all of our utilities, but really going really deep with a couple of them to demonstrate that if you apply a different approach to customer engagement, the sign-up journey, the digital experiences, you can massively increase participation, and then everything becomes more cost-effective. That DERMS platform that they’re licensing is suddenly a really good investment because I have so many more devices connected to it.
David Roberts: Right, right, right. Uplight commissioned a Brattle, a study from Brattle to sort of figure out a fully coordinated residential demand stack, what it could do for the utility’s peak shaving. It found that it could take peak shaving from about 3% now to about 5%, which, like, I guess just on its face doesn’t sound like that big of a deal. Do you think that’s a peak of what is- can happen through the demand side, or do you think you can beat that?
Nick Chaset: So I think there’s a couple of things to think about, right? There is how do we drive more peak reduction with the asset base that we have today? So most of the assets out there today in most service areas, put, say, a California aside, where you do have a lot of batteries, are gonna be thermostats, right? And so yes, there’s some incremental peak reduction we can get, largely driven by more participation. If you think about 20% of thermostats today are gonna go to 50%, all right, that’s your 3% to 5% peak reduction.
I think the thing that is most exciting to me about the demand stack theory is not just the peak reduction potential, it is the fact that that peak reduction also comes with the potential for everyday cost reductions for consumers. And that’s really the premise of the demand stack, right? It’s you start with daily shifting from the peak or from the high-cost period to the low-cost period. You know, that’s a pre-cooling strategy or a managed EV charging strategy, and that’s the thing that’s gonna lower people’s bills every day.
And then the next step is on an event day, the 10, 20 days a year when there’s some sort of a stressor, you can then call on those devices, shift them from what might have been a simple pre-cooling strategy to a more dynamic strategy around we’re gonna pre-cool the house and then really focus on reducing that air conditioning unit’s draw from the grid for an hour of highest price or most constraint. Or for an EV, it’s the distribution feeder is constrained at 10:00 PM, so we’re not gonna charge any EVs in this particular area from 10 to 11 PM. We’re gonna shift it all to 12, 1, 2, 3 o’clock.
So that’s the second order, more event-based. But because you’re saving people money every single day doing the more simplistic demand stack management, we’ve now acquired all these devices at essentially no marginal cost for event-based demand response.
David Roberts: Hmm.
Nick Chaset: And this gets back to the scaling effect and the cost effectiveness, right? Is if we treat these assets as things that can do the thing that people care most about, which is lower their bill without impacting comfort or utility, suddenly I can acquire loads of devices to then solve peak reduction challenges at a very low cost.
David Roberts: Mm-hmm.
Nick Chaset: And that’s the power of the demand stack. That’s the power of flexibility that we really need to go out and harness.
David Roberts: Well, let me ask you how the utilities view that. So Uplight says it manages about 8.5 gigawatts of flexible load. I’m just curious, how much of that would a utility planner actually count on the way they count on, say, a gas peaker. I did a pod with EnergyHub about these sort of maturity levels of VPPs, you know, like how much like power plants are they in the view of utility planners, and they said the most advanced VPPs were like a 2 out of 4 or something like that. So like-
Nick Chaset: Their version of the Turing test for VPPs. I think it’s a really cool idea, yeah.
David Roberts: I love that pod. But they’re not there yet, so like how much of that 8.5 gigawatts is really, is a utility planner really viewing as available to them?
Nick Chaset: Not enough, and some of that is because the way we manage those assets today is very formulaic and tied to the program that they were acquired into that is not necessarily a program tied to market operations or distribution operations, right? So many of the assets that we manage, that EnergyHub manages, have been acquired to fulfill a regulatory obligation associated with a specific program.
David Roberts: Right.
Nick Chaset: And that program has specific parameters.
David Roberts: Yeah, right.
Nick Chaset: And those parameters are not necessarily parameters that the distribution planning team or the trading teams set ... So what I would say is a fair amount of the legacy asset base was not acquired or designed to fulfill the sort of new needs that these operators have. But a significant portion of the go-forward asset base that we are acquiring on behalf of our utility customers is very much oriented towards meeting the operational requirements of our customers.
David Roberts: And Uplight or Octopus can guarantee to a distribution utility operator that it will be available in the same way a power plant would be available. You’re confident in your ability to sort of-
Nick Chaset: So on Uplight, you know, what we find is 97% accuracy-
David Roberts: Hmm...
Nick Chaset: between our f- the forecast and the actuals. So in some sense, that might be better than a power plant because a thermostat doesn’t have the same kind of unplanned outage. A subset of thermostats, if you have 10,000 or 100,000 thermostats, on any given dispatch, some thermostats are not gonna respond because, oh, there’s a Wi-Fi issue in the house-
David Roberts: Right, right, right.
Nick Chaset: or what have you. And so there you just have to apply sort of a statistical normalization. So to say, “All right. For every 100,000 devices, I need to assume 2,000 devices or 5,000 devices at any given point may have an issue.” The challenge with a gas plant is when you have an unplanned outage, it’s the entire thing. It’s all out.
David Roberts: Yeah, yeah.
Nick Chaset: So that is, I think, a fundamental difference. But what I will say is for thermostats, in particular, we are still, I would say, improving how we think about measurement and verification, and I think this is where batteries become such a massive unlock. You don’t meter the thermostat reduction. It’s still kind of a statistical analysis-
David Roberts: Right...
Nick Chaset: of what didn’t happen. When you start deploying batteries at scale, it’s metered. The willingness of, say, an Uplight or an Octopus that may be deploying batteries to stand behind a service level agreement for distributed battery fleet is gonna be fundamentally greater-
David Roberts: Yeah.
Nick Chaset: than you might be willing to do with a thermostat, where at Uplight we don’t own the thermostats, right? It might be it’s our vendors, and so there’s always a little bit of tension there, whereas with a battery, it’s, it either worked or it didn’t. We can’t argue about it. There’s a meter.
David Roberts: Let me ask you about, last year you told me that Octopus was spinning off Kraken, and Kraken is sort of like the software layer that utilities can use to run their operations. You told me you’re spinning off Kraken so that utilities didn’t view Octopus as sort of a conflicted vendor or a competitor. Now Octopus owns Uplight, and it seems like there’s some overlap here, like KrakenFlex and Uplight AutoGrid software both orchestrate devices basically. So if like National Grid, for instance, wants device orchestration, does it buy it from Kraken or buy it from Uplight? And like, which one would you prefer, and are they now competing? How do you see the relationship between Kraken-
Nick Chaset: Gosh, great question. This is something that people ask me about internally all the time. So-
David Roberts: What is the relationship?
Nick Chaset: I’ll be careful with how I answer it. No, I’m gonna be, as usual, pretty blunt about it. So I think my view fundamentally is that Kraken is most differentiated when you think about it as an end-to-end stack, billing all the way to flexibility management, right? And that is where it really is an unbeatable solution because of its integration into that core billing system. This is what’s been such an unlock for Octopus, being able to seamlessly and quickly spin up new customer tariffs and then make sure that that connects very quickly down to the device. So the time in which it takes Octopus to think about, we wanna introduce some new variable rate based on a market dynamic we’re seeing in a specific area-
David Roberts: Mm-hmm...
Nick Chaset: is fast, right? If we see a distribution constraint that we think pointed electric vehicle managed charging can go and solve, we can move on that extremely quickly because our billing system is Kraken and our Flex management is Kraken.
David Roberts: Right.
Nick Chaset: When you don’t have that core billing s- modern billing system, the ability to sort of move on the creation of that new dynamic rate is going to fundamentally be slower, less reliable. So if you’re trying to do that in SAP or Oracle, I might say, “Well, it might take me 18 months,” or you know, I’ve heard a story of a utility here on the West Coast that is not able to implement any new rates without deprecating an old one, because their system can’t handle any new rates. I don’t understand how that works, but okay, fair enough.
So the way I think about it is KrakenFlex is built to fundamentally unlock flexibility at scale when you’re using the Kraken customer solution. And so you take National Grid as an example. I think as a general matter, I would say National Grid should absolutely be thinking about replacing its grid DERMS, which is not Uplight, but a different vendor. It should absolutely be taking a very hard look at KrakenFlex because they’re implementing the Kraken customer solution. And we at Octopus know that when those 2 things are together, it’s magic.
The reality is there are very few utilities in North America, you know, only one announced, hopefully more soon, that operate on Kraken. And so we’re talking about the vast majority of customers that are operating on a legacy system that is not designed for nimbleness and not designed to enhance flexibility at its core. And I think that’s where we feel like the Uplight solution is really built to suit that particular set of use cases. And then the exploration is around how do we blend aspects of the KrakenFlex product, where appropriate, into kind of the Uplight platform to try to bring the best of both worlds.
David Roberts: Is it fair to say that a utility that’s not using Kraken, it’s gonna be faster to adopt Uplight than it would be to adopt the full Kraken suite? Like you can do Uplight as, let’s say, a lower bar to clear, a faster, an easier decision maybe?
Nick Chaset: I mean, a flexibility management platform is definitely gonna be a lower bar to clear than ripping out your billing system.
David Roberts: Right.
Nick Chaset: So absolutely right. It is a lower bar to clear. I would also say that the KrakenFlex solution has a lot of powerful components to it, but for the most part, it’s a solution that is deployed at massive scale outside of the North American market too.
David Roberts: Hmm.
Nick Chaset: So I do think there’s something to be said for being able to go to these customers as a starting point and say, “This is a product that 20 other, 30 other, 50, 80 other utilities in North America are already using,” and then really think through how and where Kraken fits. In the end, we would love at Octopus, putting my Octopus hat back on, we would absolutely love it if every North American utility operated their core systems on Kraken, ’cause we think it would deliver tremendous outcomes to the customer, unlock flexibility in a way that-
David Roberts: But that would, to be clear, if that happened, it would put Uplight out of business, right? Like, if that happened, there would be no market for Uplight.
Nick Chaset: I think before we even got close to that, we would be very much sort of evolving the business model. I think it’s a problem that I’m not worried about because of the sort of realistic timescale on which utilities make big software decisions.
David Roberts: Yeah. It would be a nice problem to have if you were selling too much Kraken and then had to modify Uplight.
Nick Chaset: But to be clear, Kraken now is a separate company from Octopus, and so I say that less from a financial interest perspective because, yes, Octopus does have a small minority position in Kraken, but more from a fundamental perspective, that I see these legacy billing systems as the single greatest hindrance to the energy transition, lowering costs for consumers, giving them better experiences.
David Roberts: Yeah.
Nick Chaset: And so more utilities operating on modern billing platforms will unlock lots of opportunities for flexibility and maybe in that world, the Uplight solution shifts away from selling DERMS to be more consumer-facing in working with Octopus around how do we develop the customer propositions and engage with the consumer. So I’m fundamentally not worried about that being an existential risk to the Uplight business.
David Roberts: Okay. Several questions left, and we’re running out of time. This is story of my life, so we’ll have to hurry a little bit, but I do wanna ask, and I’m, I have been trying to make it a point to ask every sort of VPP provider, everybody who’s in this flexibility business, which is...
Well, like, there was a commentary that came out in Nature Energy, the journal, the other day, basically raising the flag, warning about the enshittification risks of this kind of software. And I think everybody at this point kind of is familiar with this concept where you, the platform lures you in with benefits, locks you in, then starts exploiting you, et cetera, et cetera, traps you. You know, so a lot of people, I think, are worried that, like, if I buy a device from one of these companies, and then they go out of business, is it gonna get bricked? Am I gonna have a useless device?
Or if these people have access to my home devices, my HVAC system, the EV in my garage, are they gonna be responsible with my data? Are they gonna start serving me custom ads on my EV screen because they’ve locked me into a platform where my EV is stuck with them? Et cetera, et cetera. I’m sure you’ve heard versions of these worries.
How do you think about this subject generally, what protections do consumers have once they’re letting these companies into really very intimate household home and hearth type stuff? What protections do they have now, and how do you think about that going forward?
Nick Chaset: So one, I don’t think they have adequate protection, and I think this is one of the reasons why I am not generally a huge fan of aggregator-led models-
David Roberts: Hmm...
Nick Chaset: say, as compared to retail or utility-led models, right? So when I’m the retailer, I have a fundamental obligation to serve.
David Roberts: Right.
Nick Chaset: And so much of the value-
David Roberts: A regulatory structure you’re embedded in that has that built in already?
Nick Chaset: Well, when I’m the retailer, like I’m servicing that customer, I have an obligation to serve per the terms of the contract that we’ve signed, and then when they leave, I have to let them leave, and I have to like let them disconnect their devices and take those devices to the next supplier they may sign up with.
David Roberts: Right.
Nick Chaset: Similarly, in a utility context, there’s a fundamental obligation to serve. Like they must serve these customers. They can’t not serve them. And in that relationship, there are far more opportunities to insert regulations and safeguards, and there’s a more clear alignment of incentives. What we’re finding ourselves actually in a lot of places in the US is because the utilities have not had the tooling, the regulatory constructs, in some cases really the capabilities to do that customer engagement, we’re heavily reliant on third-party aggregators who are trying to figure out a way to capture as much of the value of that flexibility themselves as they possibly can.
David Roberts: That’s the basic business incentive is they want to capture-
Nick Chaset: And it is the basic business, and the value stacks often are just gonna be too thin, right? So the question then becomes like if you have a dollar that needs to be split. When it’s the retailer or the utility and the consumer, you know, you’re splitting it, say, 2 ways, and when it’s the utility, that split is usually gonna be set in regulations. And when it’s the retailer, it is subject to sort of fundamental competition.
David Roberts: Right.
Nick Chaset: So both should derive, you know, some more sort of optimal setup around, like, what that split is. When you have an aggregator that’s able to intermediate doing something that consumers don’t really fundamentally understand, there’s a lot more potential for rent-seeking, let’s say. I don’t know, I don’t wanna say that there is, but there’s more potential for rent-seeking behavior.
David Roberts: Yes. And it wouldn’t take much to tar the reputation of the whole enterprise, right, of the whole market.
Nick Chaset: That’s right. So again, getting to the core thesis of the investment we made in Uplight is we feel like that relationship with the utility and the consumer is the right locus of engagement. And so we wanna build tooling and capabilities and services to work with the utilities to help them do it better, as opposed to disintermediating them as an aggregator and kind of operating in this gray area of customers don’t really understand what they’re signing up for, but when they sign up, we have control.
David Roberts: Do you think Octopus would support sort of new legal regime governing this stuff, governing these aggregators, or just governing flexibility in general?
Nick Chaset: So I also think that it’s hugely different in residential than commercial. I think when you’re talking about commercial customers, there is a level of sophistication-
David Roberts: Right.
Nick Chaset: that those customers have wherein they are better able to mediate between, you know, multiple potential aggregators, and I think that’s why commercial aggregation market has actually worked fairly well. I think for residential, we just have to think about consumer protection, but also not use consumer protection as a way to fundamentally block innovation, and I think that’s our tension, right? The flip side of that coin on a- the aggregator model is without aggregators sort of pushing the envelope, would we have made no progress?
David Roberts: Right. Right. Speaking of aggregators, data centers, you’re seeing more and more of these, you know, data centers wanna get online. They need capacity. They’re starting to sort of gather the capacity themselves through these kind of partners and then sort of present it to the utilities saying, “Hey, I’m gonna bring my own capacity.” Is Octopus involved in any of those deals? Do you see data centers, their need for speed to power, their giant bags of money, their urgency? Do you see that as a viable route to scale for this kind of flexibility stuff, or does it make you nervous?
Nick Chaset: I mean, it certainly is a valuable route to scale. I think one of the things we’re struggling with today is the market structures in, say, a PJM do fundamentally advantage large load flex over residential load flex. The battery example is sort of case in point, right? Is if you put a large battery behind a large commercial facility, you’re much more clearly able to manage that battery without ever having to export it, so you’re gonna get the full value of the battery. And whereas in a home, you’re not going to. So there’s just not as much of an economic rationale to deploy batteries in residential as there are in commercial. So that is a current blocker.
I do, though, think that where things are changing, I think they must change, and this is potentially gonna be benefiting consumers. And in the end, this all only works if customers are seeing benefits and lowering their bills. But it’s some sort of the interplay between bring your own capacity and the social license to operate.
So today, you know, there’s a huge debate around community opposition to data centers, and there are a variety of drivers of that opposition, but I think one of the important ones is consumer perception, actually, and real lived experience that my electric bill is going... These things are being built and my bills are going up.
David Roberts: Yeah, right.
Nick Chaset: So the question becomes: how do you actually turn the data center into something that is gonna lower the bill? I think there’s a lot of conversation on, well, data centers are gonna increase utilization and that over time, but that doesn’t actually give bill relief right away.
David Roberts: Yeah.
Nick Chaset: This gets to sort of an interesting concept in the social license to operate, which is should a data center be partnering with a utility and a company like Uplight to offer subsidized load flexibility measures across every customer in a specific geographic area?
David Roberts: Yeah.
Nick Chaset: Should a utility and a data center figure out a way to fund highly subsidized batteries, highly subsidized EV chargers, highly subsidized smart thermostats?
David Roberts: Those deals are starting to pop up, like Rewiring America just signed one with PG&E and Google. It’s starting to happen.
Nick Chaset: That’s right. I think the key there just becomes you have to have mass distribution for it to work, right? You have to be able to credibly go to every resident in Ashtabula County, Ohio, and say, “If you sign up for Octopus powered by Uplight, you will get $20 off your bill.”
David Roberts: Right. Right.
Nick Chaset: And not everyone might sign up, but I think sort of view that, “Hey, I can benefit, and I’m gonna benefit in a way that it tied to the thing that I’m anxious about, which is the higher electric bill,” helps to shift some of the community concern. One of the other big community concerns is, and I would be concerned certainly, is if a data center’s going in and they’re gonna build 200 megawatts of reciprocating gas engine behind the meter that’s gonna be pumping out NOx, I’m not happy about that. And so to the degree that load flexibility can help to push back against this trend of behind-the-meter fossil, that’s just a good thing.
David Roberts: Yeah. One other question about VPPs in general. I had a guest, Bruce Nordman, a few months ago, and his whole thesis is we could take out these middlemen entirely if you just had time and location-specific rates communicated every 15 minutes or 5 minutes or whatever, and you had devices that were smart that could receive that price signal and respond in the way that is best for the residences in which they are sitting. If you just had real-time prices and responsive devices, you wouldn’t need all these elaborate products that go and gather this stuff up and then skim off some of the value.
Do you, I guess, agree fundamentally with that proposition, and do you think eventually we’re gonna evolve in that direction where there’s just sort of an automatic communication between utility prices and devices, and all this elaborate layer in between is gonna disappear? Do you think that could ever really happen?
Nick Chaset: So I agree with part of it, and I disagree with part of it. I don’t actually fundamentally buy into the need for dynamic pricing because so much of the consumer value of load flex, it should be in more simplistic shifting from the daily high cost to the daily low cost period.
David Roberts: So you don’t think you need that kind of granularity?
Nick Chaset: I don’t think you need that granularity to get a significant amount of the consumer utility. And some of that is because you don’t need hugely dynamic shifting of loads to achieve distribution benefits. In energy, that may be right, that there are 5 or 10 hours a year, 25, 30 hours a year from a price perspective that are the ones you have to capture.
But increasingly, so much of the value of flexibility is increasing load utilization on the network, which allows you to slow some of the CapEx build, and I don’t need that level of dynamism to capture that. So we tend to drive towards very complex dynamic pricing and rates, and that might solve the tail part of the problem, but I think you can get a hell of a lot of devices connected and delivering value without dynamic prices.
Where I do agree, though, is that seamless connection and how do we make it such that these devices seamlessly connect into that core utility system. Again, this is the part of the bet with Uplight, is Uplight is that layer. It’s the single pane of glass for the utility that connects into every type of hardware. And then the question is, what signals do we wanna give? Is it a dispatch signal, or is it just a signal that is tied to the time of use rate that that customer may have?
Ideally, it’s both, and there’s some sort of co-optimization that is occurring. So the idea that we create seamless layers of connectivity is important, but even in a world where you have dynamic rates, you still need to find a way to connect the device to the dynamic rate signal. Establishing that connection is the expensive part ’cause that’s the customer acquisition.
David Roberts: Okay, wrapping up, let’s look 5 years out. So insofar as you have any sort of clear view, I wonder, 5 years out, what would you like to see? What levels of participation would you like to see? How many sort of gigawatts under management would you like to see? Do you have sort of like 5-year goals despite the kind of short-term volatility in all this?
Nick Chaset: I think 5 years from now, there’s no reason why 20, 30 gigawatts or connected. And I almost don’t think about it in terms of, well, like 20 gigawatts versus 25 versus 30. I think more in terms of every electric vehicle will be connected. I think Tesla’s announcement this last week that go forward all new Model 3s and Model Ys will have bidirectional charging enabled is a great indication that-
David Roberts: GM made a similar announcement. All their new models will be-
Nick Chaset: And so you just think about this, right? That in 5 years we should be able to sell and install fully all in a battery into a household for less than $5,000. Every electric vehicle will be seamlessly bidirectional without significant home electric upgrades required. I mean, those 2 things alone will mean millions of homes will have a battery or potentially 2 batteries ’cause they’ll have their EV battery, and then they’ll have their low-cost home battery as well.
David Roberts: Maybe one in their stove, maybe one above their refrigerator, maybe one embedded in their air conditioner.
Nick Chaset: And that’s exactly right. And so I think that world is the world we will see in 5 years, and I think that will be a world that is better for consumers. I’m optimistic. I think rates are gonna go down for consumers in the next 5 years because we’re gonna see tens of millions of consumers able to actively benefit from the load flexibility in the things that they have in their homes.
David Roberts: Well, let’s hope. Your lips to God’s ears, as my grandfather used to say. All right. Thank you, Nick. Thanks for taking so long. This is super fun. I appreciate it.
Nick Chaset: Always fun. Yeah. Cool. Thank you.
