This is the transcript of Episode 12: Octopus Energy (Mini) of the How to Make a Difference podcast. Go to the episode page to listen to this episode and for the show notes. Furthermore, we encourage you to read our blog post on green electricity.
Elisabeth Ignasiak: Hey everyone!
Chinmai Gupta: Hey everyone!
Elisabeth Ignasiak: In our previous two episodes, number 10 and 11 we discussed green electricity. And we would suggest that you pause here and listen to those two first if you haven’t listened to these yet. But let’s just give you a quick recap of some of the terms we used. Let’s start with guarantees of origin.
Chimai Gupta: A Guarantee of Origin, or GO, is an electronic document which provides proof of the environmental attributes of the generation of one megawatt hour of electricity produced by a renewable source like wind or solar. So while GOs are traded electronically in the voluntary market they are not linked to the physical supply of electricity, which means they can be sold separately.
Elisabeth Ignasiak: And the other term we used was power purchase agreements.
Chinmai Gupta: A Power Purchase Agreement, or PPA, is a long-term contract under which a business agrees to purchase electricity directly from a renewable energy generator. Power Purchase Agreements provide financial certainty to the supplier which is a huge help for them in planning and building new renewable facilities. PPAs, therefore, help to deliver more renewable energy and also in saving CO2.
Elisabeth Ignasiak: And we explained that there are multiple models how green electricity suppliers are set up. And today we’re speaking with the CEO of a company that is pursuing the GO-only route, that means they buy the electricity from the market and match that with the guarantees of origin without a power purchase agreement – but there’s a twist – so without further ado – here is the interview.
Interview with Andrew Mack: 2:17
Chinmai Gupta: So today we’re talking to Andrew Mack, who is the CEO of Octopus Energy Germany. Welcome, Andrew!
Andrew Mack: Thank you very much.
Chinmai Gupta: Could you perhaps start by telling us a little bit about yourself and what you do, please?
Andrew Mack: Certainly. So, as you said, I’m the CEO of Octopus Energy Germany. As you might tell from my accent, I’m not native German. I moved over here four and a half years ago, to start my own energy company. And we ran that for three years before being acquired by Octopus Energy in 2019.
Chinmai Gupta: Oh, right. As you know, today, we’re talking about green energy. And talking to our listeners about why they should switch to a green energy supply. The question for you is:
is there a difference between a 100% green energy supplier, like yourself, and my local supplier?
Andrew Mack: Absolutely, yes. So the way in which you prove to customers that you’re supplying them with clean electricity, is that you buy what are called guarantees of origin. Those are certificates that are produced whenever a unit of renewable energy is generated. Now, those certificates are traded separately from the electricity itself. And now certificates come in lots of different shades of green. But some of the greenest are what’s called time-stamped. So those not only tell you that a unit of electricity has been generated, but it tells you the time of day, and the time of year when electricity was generated.
Chinmai Gupta: Right.
Andrew Mack: The analogy I like to use is one of a swimming pool. So as a consumer, you are taking water out of the pool. The pool is the electricity network, it’s shared among everybody, and everything gets mixed in the pool. But what matters is: what are you putting into the pool to replace the water you’re taking out? So if you’re a green energy generator, you’re effectively putting clean water into the pool. But then in order to prove to the people who are buying from the pool, that you’ve contributed that clean energy, there are certificates. And each certificate says I’ve put a unit of clean electricity into the grid.
Elisabeth Ignasiak: Yeah. And can you expand on why that timestamp component is interesting? Why is that?
Andrew Mack: If you buy the cheapest form of green certificates, the electricity can be produced at any time of day, and it may… it is possible even that it isn’t used. Buying timestamp certificates, requires more work from the energy supplier, because they need to calculate what their customers are using, and then buy certificates to match that profile perfectly.
Elisabeth Ignasiak: So basically, rather than saying, okay, on average, over the year, I’ve used up so much electricity, and I produce so much electricity, you’re making sure that at every time of day, we have the exact same supply as demand.
Andrew Mack: That’s correct.
Chinmai Gupta: So I understand that you buy guarantees of origin for the electricity you supply to your customers. But where do you get your physical electricity supply from? Do you produce your own renewable electricity?
Andrew Mack: Historically, we haven’t. We just started to do that in the UK. So Octopus in the UK now owns two wind turbines. Octopus Energy buys its energy in the market, as we do here in Germany, buy certificates.
Chinmai Gupta: Okay, so one of the arguments or criticisms that we’ve had around this topic is that the supply is what it is. So x percentage coming from renewables and y percentage coming from non-renewable sources. So my question to you is: since all electricity comes from this common pool that you even spoke about earlier – does that mean that my switching to a green energy supply leads to someone else consuming more coal or gas through their supply?
Andrew Mack: Yeah, it’s a good question. I think what’s important is… is what you are putting into the pool. When we are supplying our customers with 100% renewable electricity, we’re making sure that somebody out there is producing that, and they’re getting paid a premium because we are buying the certificates from them. So they get paid the standard market price for their electricity. But then we also pay them a premium, because we’re buying those tradable certificates. So that creates an additional incentive for people to set up renewable energy generation projects. So it may not change the economics fundamentally, for many projects, but it provides a little additional incentive to help get projects that would be at the margin across the line. So I think yes, it does help encourage more renewable generation.
Elisabeth Ignasiak: So if I understand correctly, basically we’re saying okay if I switch today, it doesn’t mean I save CO2 directly tomorrow, but maybe in a year, that means projects will have been built that otherwise wouldn’t have been. So overall, I increase the demand. And that’s why it’s still good for me to switch. So long term and I am saving that CO2, just maybe not right today.
Andrew Mack: Yes. Yeah, I think exactly. There’s a direct impact in that way. But then there’s also the indirect impact. Which is if you are an energy supplier, you will see that consumers increasingly want green electricity. And so if your generation portfolio is heavily fossil fuel-based, you will find actually that it’s harder for you to grow, it’s harder for you to maintain that customer base because customers are looking around because they don’t want to buy coal that’s been dug up from a forest in eastern Germany.
Elisabeth Ignasiak: Yeah.
Andrew Mack: You know, they recognise that that just fundamentally daft idea, in this day and age, to be cutting down forests, to dig up high carbon fossil fuel beneath the surface in order to burn it in a power station to waste most of the heat into the atmosphere and produce electric electricity out of it – just doesn’t make sense.
Elisabeth Ignasiak: Yeah.
Chinmai Gupta: Going on to my next question: Are green energy contracts on par with normal energy contracts? Are they more expensive? How do they compare?
Andrew Mack: Yeah, so I think this, this is a really exciting area because the simple answer is green energy is more expensive. Because we’re buying certificates. And if we didn’t buy the certificates, we wouldn’t be paying quite so much for the energy. Because there’s a market price for the electricity. And that is what it is. So the certificates just add an extra cost and mean that a tariff backed by certificates is more expensive than a tariff that has no green certificates.
Elisabeth Ignasiak: Makes sense.
Andrew Mack: But and a big but: That assumes that we’re not doing anything other than just buying electricity from the pool and using it in the way in which we’ve always done. If you think about renewable energy, you’ll have times like a Sunday morning, for example, in the winter, when it’s typically windy. There’s a lot of power being generated, but very few people using it. Now in the old world, you would just simply waste that electricity, you wouldn’t store it, you wouldn’t do anything with it, and it would be lost. And as a result, the value of electricity at that point in time is often zero or even negative.
So if you have a green energy tariff that actually allows consumers to take advantage of those low price periods, and helps them to shift their energy consumption to those times, then you can create a green energy tariff that is actually cheaper than the alternative.
Chinmai Gupta: Okay, but to confirm, as of today, our green energy contracts more expensive or on par with other tariffs.
Andrew Mack: As of today, typically slightly more expensive.
Chinmai Gupta: But hopefully we’ll go down in the future.
Andrew Mack: So we are already looking at bringing in what are called time-of-use tariffs into the German market. And that will allow us, we think, to offer electricity at a cheaper price than our standard term.
Chinmai Gupta: Ok maybe can you answer the question: What impact am I making, by switching to green for our listeners?
Andrew Mack: I think for me switching is only part of the impact. Switching to a green energy provider is important. But I think, more importantly, it sets the stage for going further for moving to electrification of transport and heating. And I think if a green energy tariff only really has its full impact when it becomes a gateway to those other things.
Chinmai Gupta: We had another question: is it even possible to have 100% green energy supply at all times?
Andrew Mack: If you think about where renewable energy comes from, it’s principally from wind, solar, and hydro. Now of those three wind and solar are intermittent, so-called. So when the sun is shining, when the wind is blowing, electricity is being generated, and when it’s not, it isn’t. Now with wind and solar energy distributed around Europe, you actually get quite a lot of leveling out of that intermittency, because it’s generally it’s always windy somewhere.
There are some offshore wind farms and energy onshore ones off the north coast of Scotland, where in the winter, it’s windy for 95% of the time. Not even a coal-fired power plant or gas-fired power plant runs for 95% of the time. Actually, electricity coming from a Scottish onshore or nearshore wind farm is pretty much reliable throughout the winter months.
Elisabeth Ignasiak: Yeah. That’s really cool.
Andrew Mack: So you’re mixing technologies together mixing geographical locations together, and actually allows you to create a fairly… fairly reliable and green generation portfolio. And actually, I think within our lifetimes, a very, very tiny fraction of energy will be left coming from fossil fuels.
Chinmai Gupta: That is… that’s one of the most positive things we’ve heard, I think.
Andrew Mack: I think there’s enormous reason to be very positive and very optimistic, actually. Because we are now at a point where renewable energy is increasingly the cheapest form of electricity generation, cheaper than coal, in many circumstances, cheaper than gas in many circumstances as well. And it’s just getting cheaper and cheaper with every year that passes.
And actually, you know, we are at that tipping point now, where even without government subsidies, people will keep installing wind and solar around the world. And I think that gives me enormous reason to be very positive, actually, about the energy industry. Doesn’t mean there are challenges to come. And there are things we need to do. And there’s a lot of work, we’re doing at Octopus. But actually, that’s… that’s a process that will happen.
I think in 10 years, fossil fuel will be the exception. In terms of electricity generation
Elisabeth Ignasiak: I really hope your prediction is correct.
Andrew Mack: I said, I’m an optimist. So I think if we start thinking about a world where electricity is much cheaper… what does that mean in terms of people’s behaviour, in terms of the behaviour of businesses. And new business opportunities that appear? And actually, do we start finding even more creative ways to use clean electricity to improve our environment to improve our quality of life and to create exciting new businesses.
Energy has always been expensive and dirty, frankly. Since we first started chopping down trees to build campfires when we were hunter-gatherers. But that phase is coming to an end. So what do we do in a world of plentiful cheap energy?
Elisabeth Ignasiak: That’s a very nice vision to maybe end this interview on. Thank you so much for your time. That was very insightful.
Andrew Mack: You’re very welcome.
Chinmai Gupta: Yeah. Thank you very much.
Andrew Mack: Well I’m passionate about the space, and to be able to share it with you was a pleasure.
Elisabeth Ignasiak: What are your thoughts, Chinmai?
Chinmai Gupta: I am a bit conflicted here, knowing that there is a small or no link between physical electricity and guarantees of origin.
Elisabeth Ignasiak: Okay?
Chinmai Gupta: Yeah. While Octopus Energy plan to procure a green energy supply in Germany, as Andrew said, there are many companies that rely on just guarantees of origin to sell green energy contracts. So they simply buy GOs but the actual electricity delivered to our homes still comes from the power plants present in the country. If these power plants run on coal, then we end up with coal-fired power. Also, guarantees of origin are very low in cost – I believe they cost pennies – and they’re also easy to trade and so it’s really easy for a company to go down that route, without making actual green commitments.
Elisabeth Ignasiak: So it sounds like you’re more critical towards the GO-only model?
Chinmai Gupta: Hm… unless a company has good intentions that they speak about openly – which is the reason why we invited Octopus Energy for this episode. What about yourself?
Elisabeth Ignasiak: I do actually think there is value in buying GOs. Because even without the power purchase agreements buying GOs will increase the demand in green electricity. Which is a good thing. And Andrew did say that it might give projects at the margins of profitability that small extra push they need to get funded.
Also: I thought the time-stamp aspect was really interesting. This is also something that Janet mentioned in our last episode, that people should look out for this.
Chinmai Gupta: True. I’d say in conclusion, that the one thing that is clear is that what matters is new renewable capacity being built preferably without subsidies. Our goal was to present all angles as neutrally as possible so we can help our listeners make their own decisions. And I hope we were able to do that today.
Elisabeth Ignasiak: In our next Mini-Episode we will introduce some green electricity labels that focus on ensuring investments in new renewable energy infrastructure. So stay tuned!
Chinmai Gupta: And while you’re waiting for the next episode: We want to know about your electricity supplier?
Elisabeth Ignasiak: Who is your current supplier?
Chinmai Gupta: Would you pay more for electricity if it was greener?
Elisabeth Ignasiak: How much more would you be willing to pay?
Chinmai Gupta: And what are your thoughts on GOs and the fact that they can be sold separately?
Elisabeth Ignasiak: Send us an e-mail! That’s: hey at hey-impact.com. And that’s it for today! Bye-bye!
Chinmai Gupta: Bye-bye!