Why Octopus Investments is banking on green 'transport as a service'

Madeleine Cuff
clock • 5 min read

The alternative investment group reveals plans for a new product to help companies decarbonise their fleets without the worry of a large upfront cost

As its name might suggest, Octopus Group has tentacles that spread into many different sectors of the economy. Driven by the idea that it can generate value by offering better service in areas traditionally boasting poor customer experience, it has made major plays in spaces such as healthcare, financial services and, yes, the world of clean energy.

Its investment arm, Octopus Investments, has invested billions in energy infrastructure with a strong renewables tilt. Its clean energy assets are now worth more than £2bn and earlier this year Octopus Investments closed a new £300m fund dedicated to investing in more operational renewable power projects in the UK. Alongside this, it set up Octopus Energy in 2016 to challenge the Big Six with an offer promising green energy tariffs and superior customer service.

But while it still has ambitions to scale its energy investment activities - including a strong focus on developing unsubsidised renewable projects across the UK and Europe - it's also waking up to the opportunity the smart energy and clean tech revolution poses for the transport sector.

Speaking to BusinessGreen on the sidelines of the BusinessGreen Leaders' Summit earlier this month,  investment director at Octopus Investments Simon Pickett offered some insights into the company's latest offering, a plan to help firms decarbonise their fleets via a 'pay as you use' service.

"If you're a customer and you say that you want to decarbonise your fleet of vehicles, you might want to do it, you might need to do it for compliance reasons, but either way that's a big capital cost," Pickett explains. "We can finance the cost of those vehicles, any charging infrastructure and any grid network reinforcement that's required, we'll wrap that up as a pounds per mile simple cost for corporates that's comparative to what their existing solution is."

"We think that is a solution that really works," he suggests. "You pay for it as you use it, and we take some of the risk."

The offering, Pickett explains, is a service play rather than a traditional lease model. Funds under management will invest in all the assets required - including the charging infrastructure and the cost of any network reinforcement, as well as the electric cars or vans - with the customer paying a cost per mile, which Octopus Investments aims to ensure is comparable or cheaper than running a petrol or diesel fleet.

The scheme, soft launched earlier this month, looks like a canny entrance to a market that is set to be disrupted by the rapid fall in the cost electric vehicles (EVs), the importance of charging stations to the emerging smart grid, and growing demand from corporate clients for services and technologies that can cut carbon emissions and air pollution. At the same time, the likelihood of tougher emissions standards and stricter road charging, such as London's newly introduced T-Charge, means it could soon become more expensive to run a fleet powered by fossil fuels.

One of the main selling points of Octopus' service is its offer to simplify the process of going electric. Despite falling costs and ultra-low running costs, the upfront price tag of most electric vehicles is still enough to put off many corporates, even before you consider that the UK's charging and grid infrastructure is still relatively unprepared for mass EV use.

Octopus Investments promises to not only fund the upfront cost of an EV fleet, but also provide the infrastructure to charge the cars and upgrade any of the systems needed to handle the extra strain on the power grid. It can already provide long term fixed price electricity from identifiable assets to ensure the electrons are green, and it even suggests customers could in the future generate extra revenue from their fleets by using EV batteries as grid stabilisers when they are not in use by employees.

"Our service pays for the vehicles and infrastructure over an extended period, matching the repayments to the vehicles' actual usage, helping both cash flow and budgeting," Octopus explained in a blog post earlier this month. "In return, we ask for a cost-per-mile driven for a set number of miles before transferring ownership or replacing the vehicles."

The same offer is also on the table for companies that want to switch their fleets over to hydrogen or gas vehicles. "Our business is about bringing together all the right people and finding a smart solution to the problem," Pickett says.

Fleet sizes could range from 50 to 10,000 vehicles, he says, with the main target markets being commercial vehicle fleets, buses and taxis.

However, the wider market for corporate fleets is also starting to cotton on to the opportunity in green motoring. Earlier this month LeasePlan Corporation announced plans to launch an EV pilot programme for corporates across Belgium, France, Germany, Netherlands, Norway, Portugal, and the UK from December. Like Octopus, the service will also help customers with the installation of charge points and, where possible, offer renewable electricity for zero-carbon refuels.

Meanwhile, the recently launched EV100 campaign has underscored how a growing number of corporates - albeit mainly those with hefty balance sheets - are now working to transition their fleets to electric power under their own steam.

But according to Pickett, the opportunity presented by the EV revolution is big enough for everyone to get a slice of the action. "Transport is a huge opportunity for everyone in the market," he says. Octopus Investments hopes to nail down its first investments under the service in early 2018 and build quickly from there.

It is still early days for the new offer, but encouraging signs over the summer - falling technology prices, improved policy support, and sustained growth in EV purchases - suggest its decision to go after the green transport space is a gamble that could well pay off.

Octopus Investments, part of the Octopus Group, was a sponsor of the BusinessGreen Leaders' Summit

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