Octopus Energy wades into battle for Thames Water’s future
The energy supplier’s technology arm, Kraken, has struck a deal to partner with
Covalis Capital and Suez in a consortium that would inject about £1bn of equity
into the debt-laden water company, Sky News learns.
City editor @MarkKleinmanSky [http://twitter.com/@MarkKleinmanSky]
Tuesday 11 February 2025 11:30, UK
Octopus Energy Group is wading into the battle for the future of Britain’s
biggest water company as part of a consortium which includes the French
infrastructure giant Suez.
Sky News has learnt that Octopus Energy – which recently overtook British Gas as
Britian’s biggest household gas and electricity supplier – has struck an
agreement that would see its technology arm managing Thames Water
[https://news.sky.com/topic/thames-water-6491]’s 16 million customers.
The deal with Kraken would provide Covalis Capital, the infrastructure investor
spearheading the consortium, with critical technology expertise as it seeks to
manage one of the UK’s most complex utilities – and one with a long-standing
reputation for poor customer service.
Earlier reports said that Covalis would inject about £1bn into Thames Water,
with £4bn more raised from asset sales, refinancing and a stock market listing.
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Some industry sources have expressed doubts about the feasibility of such a
plan.
The emergence of Octopus Energy’s involvement in the Thames Water crisis
underlines the scale of Kraken’s ambitions as it further extends its reach
beyond the energy sector.
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Earlier this week, TalkTalk became the first major broadband provider to join
the Kraken platform.
Wholly owned by Octopus Energy, Kraken now manages more than 60 million customer
accounts globally, of which roughly five million are water company customers.
The consortium comprising Covalis, Suez and Octopus Energy was among fewer than
a handful which tabled indicative offers to help Thames Water raise roughly £3bn
in fresh equity ahead of a deadline on Monday.
CK Infrastructure Holding and Castle Water are also understood to have submitted
proposals, while the private equity behemoth KKR remains interested but did not
lodge an offer, according to insiders.
This week’s deadline was in any case regarded as arbitrary and meaningless
because two other crucial determinants of Thames Water’s future have yet to
become clear.
One is the outcome of a court battle between the water company’s class A and
class B bondholders, both of which have said they want to lend a further £3bn to
help Thames Water survive.
The company has backed the class A plan despite the fact that it will saddle
Thames Water with higher interest payments at a time when its creaking balance
sheet has left it on the brink of temporary nationalisation.
The second major uncertainty is whether Thames Water plans to appeal against an
Ofwat ruling that it can increase customer bills by 35% over the next five-year
regulatory period, rather than the 53% it had requested.
Thames Water must decide within days whether to formally appeal to the
Competition and Markets Authority.
Prospective equity investors regard both those events as material to their
investment case, with a preferred bidder not expected to be chosen by the
company and its advisers at Rothschild until April.
Thames Water was plunged deeper into crisis last year when its existing
shareholders – comprising a combination of sovereign wealth funds and pension
funds – declared the company “uninvestible” and reneged on a commitment to
provide billions of pounds in new funding.
The government has said it does not regard a special administration regime (SAR)
as a desirable outcome, although an adverse outcome from the bondholders’ legal
fight or inability to secure additional equity could render the company
insolvent.
Laden with £19bn of debt, Thames Water has already warned that it will run out
of money next month.
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The only other major example of a SAR process was that involving Bulb Energy,
which collapsed in 2021.
Its 1.5 million-strong customer base was bought by Octopus Energy, with their
accounts transferred onto Kraken within six months.
Kraken, which works with UK water companies including Severn Trent and
Portsmouth Water, says that it reduces water leakages, and reduces costs for
both companies and customers.
Octopus Energy declined to comment on Tuesday.
