As part of The Kākā Project of 2026 for 2050 (TKP 26/50) and When The Facts Change ,I interviewed Octopus Energy Zero Bills Technical Director Nigel Banks from the UK about this week's launch in New Zealand of a partnership with Classic Homes to build new homes in Auckland1 with enough solar panels and batteries that can sell enough power back into the grid that the homeowner doesn’t have to pay a power bill for at least five years.
The British-based new retailer Octopus Energy has developed a software platform called Kraken2, which they also license to other retailers, that buys and sells electricity generated from solar panels on homes and other buildings and stored in batteries. Octopus work with the home builders to ensure the new homes are properly insulated and heated to optimise for zero bills. It has accredited over 1,000 homes from builders in the UK such as Lloyds Living, SNG and Clarion Housing Group and is aiming for over 100,000 zero bills homes by 2030.
Octopus arranges the supply in bulk of the cheapest panels and batteries for the builders to buy and then include in the purchase price of the home. The homeowner owns the panels and batteries and then agrees the ‘zero bills’ contract with Octopus Energy.
(This article and interview is being made available to all subscribers immediately and in full as part of ‘Gravy Day Fortnight,’ which is our pre-Christmas promotional period. We welcome new subscribers to support this kind of public interest journalism about housing, climate and poverty being made for and available for the public, regardless of means.)
The key points from the interview:
Octopus Energy was founded in the UK nine years ago by entrepreneur Greg Jackson with the aim of using technology with open electricity trading markets to lower bills and improve service along with being profitable enough to grow.
Octopus also now generates electricity and operates in another 17 countries, including New Zealand. It has over 10,000 workers and generates revenues of nine billion pounds per year.
Banks says solar panel prices have fallen 90% over the last 10 years, including a halving of costs in the last year. He says China is producing more than four million solar panels a day.
British home buyers are able use a 4.5% mortgage rate on a 25-year mortgage to borrow 10,000 to 15,000 pounds to buy the panels and batteries for a two to three bedroom and save 1,500 to 2,000 pounds per year. Over 25 years, the 30,000 to 50,000 pounds saved dwarf the initial costs.
Banks says landlords were able to charge an extra 30 to 50 pounds a week in rent to cover the cost of the panels and batteries.
Key quotes:
“The majority of the cost is now the installation, the labor, the accreditation, the permitting and the paperwork that goes with that. In a new home, you can do that in a much more effective and cost effective way.” Nigel Banks.
“The energy bill is your second biggest outgoing after your mortgage. When you do your mortgage calculation to work out how much money you can borrow, if you've got guaranteed zero energy bills, you could put that money towards your mortgage payments and be able to borrow the extra capital.” Nigel Banks
“The economics actually of installing some of this equipment is some of the best investments you can make from a financial return perspective, if you can get that initial cost to a sensible level.” Nigel Banks
“Five years ago, lot of this didn't make financial sense. Now, with the cost of that equipment coming down, if you can get that delivered cost effectively to your home, then the finances really do make sense.” Nigel Banks
“Your point about sort of perpetual energy machine — we have one in the sky that's there every day — the sun. We've got this now fantastically cost-effective way of converting that light energy into electricity and storing it in a very cost-effective way. Solar and battery are one of the most cost-effective interventions to lower bills and address poverty or fuel poverty in a home there is now.” Nigel Banks
“The challenge in New Zealand is partly how to do that, and scale that up so it's cost effectively delivered. And that's around getting good supply chains and getting going. But new build housing is a fantastic route to market because you've already got all the people you need on site — electricians and roofers.” Nigel Banks
“This is the standard that all new homes around the world could or should be being built to. And it's economically viable now. Five years ago, it probably wasn't. But in a year or two's time, it's going to get better as the costs continue to fall, particularly on batteries.” Nigel Banks.
In my view
The economics to justify this sort of ‘zero bills’ approach is now do-able with the 4-5% interest rate that a bank can provide through a mortgage over 25 years, or a Government can fund through bond issues at 4%. Banks have tended to want faster payback periods and rates have been higher than 4-5% until now.
The question is how fast and how wide any Government would want ‘zero bills’ houses to go. It could just leave it to the market, but that has so far struggled in New Zealand where independent retailers have been unable to secure enough affordable supply from the wholesale market and buyers and banks are yet to grasp the long-term economics.
There’s also no compulsion for builders and buyers to do it this way and banks prefer the loans to be paid back within a couple of years, rather than just be added to the 25-year loan.
One other handicap is that home buyers of new homes are often forced to skimp on the capital cost of the new home, having paid proportionally more for the land. The leveraged, risk-adjusted and after-tax benefits from land price inflation are way above those for the capital values of the home itself, so it makes sense to overload on land costs, rather than build costs.
For short-term ‘buy and flick’ owners, they also find it hard to justify frontloading the extra $30,000 to $40,000 in costs to the build costs. The collapse of SolarZero may also spook many buyers.
The bigger final issue is the much higher installation costs and risks for retrofitting Aotearoa’s existing 2 million homes, which is where the biggest benefits lie, especially the homes rented out, where the bill payer has no ability to invest in the capital cost for the panels and batteries. Landlords more attuned to the leveraged and tax-free gains on land are less interested in ‘over-capitalising’ any new build for rentals, simply because of the short-term and land-focused nature of their investment.
Ultimately, accelerating the solar panel and battery revolution to enable large scale and fast growth of the sorts of independent tech-focused competitors to the gentailers will require some form of financing and building standards intervention.
Also: the best way to change the incentives on investing land versus housing is to remove the tax advantage on leveraged investment in land over pension savings that are invested in real businesses.
The Kākā Project of 2026 for 2050 would propose a low annual tax on the value of all residential zoned land, with the rate escalating for second, third etc homes, and land that is unbuilt on. That revenue could be collected and distributed to the Government and councils build and run the water, housing and public transport infrastructure needed to build these sorts of low-cost and low emissions homes.
The Government’s own balance sheet could be used to finance the retrofitting of solar and batteries on all its own homes, let alone new homes. The Reserve Bank could also regulate to encourage lending for such low-emissions investments, which are likely to reduce the risks of default and ultimately reduce the Crown’s national emissions liabilities.
I welcome your suggestions, challenges and suggestions for further questions, interviews and policy ideas in the comments below.
Chapters in the video above
00:00 Introduction to Octopus Energy
05:33 Optimizing Energy Consumption for Consumers
10:48 Addressing Capital Costs for Solar and Batteries
16:24 The Future of Home Energy Solutions
The homes pictured were built by Classic Homes on Richardson Rd in Mt Roskill in Auckland.
Kraken. From an Octopus. Geddit?
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