'Octopus Wednesdays', heat pump 'flip-flops', and the power of innovation

James Murray
clock • 5 min read
'Octopus Wednesdays', heat pump 'flip-flops', and the power of innovation

The government is reportedly considering a major U-turn on crucial green heating policies - but Minister's wariness risks undermining investment and failing to account for the impact of innovation

Along with millions of others, I used to love 'Orange Wednesdays'. There are good reasons why the two-for-one cinema ticket deal became synonymous with the mobile network, ran for over a decade, and its demise in 2015 generated lamenting headlines. It has subsequently become a case study for marketing students, exemplifying how digital brands in commoditised markets can still build a strong connection with customers.

I was reminded of 'Orange Wednesdays' yesterday by Octopus Energy's update to its 'Octoplus' reward scheme, which is clearly informed by the success of Orange's marketing tie-up, and not just because it also features cinema chain Odeon.

The reward scheme offers customers who sign up 'Octopoints' if they submit meter readings, refer friends to the company, and, crucially, take part in 'Saving Sessions' where they get paid for curbing energy use during periods of peak demand. The points translate into money off energy bills, but those signed up to the scheme also qualify for a free hot drink once a week at Greggs and two for £10 cinema tickets at Odeon from Monday to Thursday, including, you'll note, Wednesday. 

The scheme is evidence of how the new breed of challenger energy companies are finding ways to build brand loyalty and connections with customers that extend far beyond the traditional price competition that defined the market - connections that will be critical as they increasingly offer sophisticated energy services, such as smart tariffs, solar panels, and heat pump installation.

The approach also further underscores the hypothesis that has underpinned the success of Octopus Energy, OVO Energy, and other challenger brands over the past few years: the energy industry underinvested in innovation for decades and is therefore ripe for disruption. That innovation comes in the form of technology and data, but also extends to marketing and customer services. 

All of which brings us in a roundabout way to the news the government is considering dropping the Clean Heat Market Mechanism (CHMM) and the system of heat pump targets and fines that was set to be imposed on boiler manufacturers. 

Just a few weeks ago, Energy Security and Net Zero Secretary Claire Coutinho argued the recent price hikes from boilermakers amounted to 'price gouging, pure and simple'. Now, Coutinho is said to be considering punishing these alleged sharp practices by giving the boiler industry precisely what it wanted and axing the fines they would face if they miss their heat pump deployment targets.

The arguments for and against the CHMM are well versed. The boiler industry maintains the targets - four per cent of installations to come from heat pumps in the first year of the scheme, rising to six per cent in the second year - are too demanding and the fines are too high. The demand and the skills base simply isn't there and therefore, with much regret, they must act pre-emptively to protect their margins and increase the price of new boilers by £120. 

Campaigners counter that this is, not to put too fine a point on it, scaremongering nonsense. Heat pump grants have just been increased by 50 per cent and new rules effectively banning gas boilers in new builds are about to come into effect. As such, the market is projected to grow sufficiently over the next two years to ensure manufacturers should be able to meet the targets and avoid any fines. The targets are then due to be reviewed anyway, to ensure what costs there are remain manageable and the market is on track to meet the target of 600,000 installations a year by 2028. The surcharge on new boilers is premature at best, and blatant 'price gouging' at worst. The 'boiler tax' is nothing more than egregious lobbying from polluting incumbents that do not want to invest properly in the clean energy transition. 

Meanwhile, investors in the wider clean tech ecosystem will once again take note of how the current government's decarbonisation policies simply cannot be relied upon. 

Worse still, the boiler manufacturers lobbying against the CHMM may come to regret what they wished for, given demand for heat pumps is going to keep growing, just as it has across the rest of Europe. Consumers will continue to buy heat pumps, it is just without the CHMM to push incumbent boiler manufacturers to invest in production capacity they will end up buying them from European factories - or from Octopus Energy.  

Which is why the energy giant's latest marketing campaign matters. It is about much more than a fun little reward points scheme. It is about building a relationship with clients that means when the company offers a heat pump at a cost-competitive price, customers are more likely to give it a hearing. It is also indicative of how much room there is for innovation across the energy market. Innovation that is advancing fast. 

Octopus and OVO Energy both now offer dedicated heat pump tariffs that promise to slash running costs and emissions. The two challenger brands and incumbent giant British Gas are competing hard to compete on the upfront cost of heat pumps. Aira has plans to become the 'Netflix of home heating'. Everyone is investigating heat pump financing packages. 

The idea heat pump targets will inevitably be missed fails to account for the pace of technology and market innovation already in the pipeline. Those lobbying against the CHMM are reminiscent of that old Simpsons meme: 'we've tried nothing, and we're all out of ideas'. 

In fairness, many of the boiler manufacturers are involved in various initiatives to drive heat pump adoption and are investing in new heat pump factories. But in lobbying against ambitious policies to accelerate the transition they are backing both horses and in the process attempting to lock in a new generation of carbon intensive technologies that will put the UK's emissions targets at risk, leave consumers more exposed to volatile gas prices, and potentially slow the heat pump cost reduction curve.     

It is an approach that has all the ingredients necessary for a high profile flop. And we'll all end up paying full price to watch a movie we've all seen too many times before reach its underwhelming conclusion.

A version of this article first appeared as part of BusinessGreen's Overnight Briefing email, which is available to all BusinessGreen Intelligence members.

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