“It’s only when you see 49-ton trucks in China running on batteries that you realize how serious electrification is”: Octopus Energy CEO Greg Jackson on Europe’s incumbent problem

“We started making mirrors with very large frames,” the founder of Octopus Energy (the UK’s largest energy supplier) told me. “And in a photo (on the Internet), we suddenly had a mirror that was different from everyone else’s. And they sold like hot cakes – and that transformed the business.”

Approaching a business from a different perspective is an essential ingredient in the quest for innovation. Jackson’s essential idea for mirrors was that, online, all products looked the same. This is what the customer saw. And he realized that if the customer saw something different (a mirror with a large frame), he might buy it. Which they did.

Not seeing something that is obvious to an outsider is the “ownership cost” of doing business, rooted in the habitual behavior of doing the same thing tomorrow as yesterday. This is one of the most important obstacles to the capacity for growth.

“I think the most important factor affecting Europe – and a problem the United States is not immune to – is the power situation,” he told me. “China and the Gulf are not held back by incumbent industries. Instead, they are, at a breakneck pace, creating the new world. If I take electric vehicles as an example, there is no auto industry in China that is struggling to manage the transition to entirely new technology. But if I look at Europe, European governments and consumers want electric vehicles, but European automakers have not yet been able to compete in their construction.”

Sales of Chinese electric vehicles in Europe are growing rapidly. Chery tripled its sales in Europe over the past year, BYD doubled, Geely grew by a third and SAIC grew 23%. Taking China’s four major automakers together, their electric vehicle market share now stands at 14.6%, up from 9.6%, according to the latest figures from the Association of European Automobile Manufacturers. In response to allegations of state-subsidized dumping from China, the European Union has applied duties of up to 35% on top of standard import duties of 10%. Chinese cars are still 20% cheaper to buy.

“Incumbents are crowding out innovators in many industries and markets,” Jackson said. “It wasn’t the Post Office (the UK’s public postal service) that invented email. The music industry held back streaming and digital music for 10 to 20 years. What you need are routes to market for new technologies, and I think that can be a challenge in Europe because a lot of the big industries essentially have a political stranglehold.

“Economists have said that almost all productivity growth comes from new businesses. If we want more growth, we must allow creative destruction so that new businesses can deliver the productivity we need.”

Jackson said Europe has a number of thriving sectors it can learn from. For example, the continent benefits from a vibrant and innovative fintech sector, while in the US, “they take my card from the back of the bar because their terminals and processes are so outdated”. Few have seen a check in Europe for more than a decade.

Octopus was born from the need for a new way to manage energy supply and demand. Jackson initially tried to convince traditional businesses that they would be much more efficient with a completely revamped technology platform, but, after making little progress, he decided he could build a team that could modernize more quickly.

“The idea was that through technology we would be able to reduce costs because we would be more operationally efficient,” he said. “We would be more agile, allowing us to integrate technologies like electric vehicles, solar panels and batteries directly into the energy system very efficiently. It would also help clean up energy, because you can use more renewable energy more cost-effectively if you are more agile. We started building this business in 2015, and nine years later we have become the UK’s largest energy company, surpassing all the incumbents.

“We come from outside of energy, we come from outside of technology, and just like the people who built Uber didn’t come from personal transportation, and the people who built Airbnb didn’t come from hospitality, and the people who built Amazon didn’t own bookstores. What we’ve been able to do is build an energy company not based on industry assumptions, but using technology to meet customer needs.”

The brute force of market dynamics is pushing the world toward a different energy mix. In the European Union, wind and solar power produced more electricity than fossil fuels for the first time last year, according to Ember, the energy think tank.

“Electricity technologies are improving exponentially, but hydrocarbon technologies are not,” Jackson said. “A car engine costs about the same today as it did 20 years ago. They are not particularly more efficient. Meanwhile, an electric vehicle battery today costs 10 times less than 15 years ago. Solar panels cost 200 times less than 40 years ago. The price of wind turbines has fallen by two-thirds in the last 20 years.”

Jackson was in China earlier this year and said electrification was continuing at a brisk pace, with battery swapping stations rather than charging stations, reducing drivers’ wait times to between three and five minutes. “It’s only when we see 49-tonne trucks running on batteries in China that we realize the importance of electrification. Drivers don’t care about the price of diesel.” Which could give Donald Trump pause as he contemplates both the US midterm elections and rising fuel prices in the US.