In the quiet confines of a courtroom in the City of London, the future of the government’s biggest bailout since the financial crisis could be determined on Tuesday.
A decision on rubber stamping Octopus’s takeover of the collapsed energy supplier Bulb takes place in the Rolls Building, where commercial disputes are settled. A judge will decide on timing of the energy transfer scheme, effectively deciding how and when Bulb’s 1.5 million customers will find a new home.
The deal has been at the centre of a wrangle in which rivals claimed a lack of transparency from Octopus and the government. If the deal is approved, rivals may attempt a judicial review. If it is kiboshed, champions of the takeover argue Bulb’s value could fall and costs to taxpayers could rise even further. A dispute over the true cost of Bulb to the government is well under way, after it was revealed that the bill has hit £6.5bn. The government’s spending watchdog is also scrutinising the deal.
Bulb flickers into life
To rewind: Bulb was the brainchild of co-founders Amit Gudka and Hayden Wood. Before its collapse last year, the latter was a regular fixture on the public circuit, evangelising about how Bulb would shake up the lumbering energy supply market with slick tech and renewable energy. Wood, a privately educated Tottenham Hotspur fan and self-confessed “music geek”, began his education in the energy sector by advising some of the Big Six power firms, including npower, when working as a management consultant for Bain.
He met up after work with fellow music fan Gudka, a gas and electricity trader at Barclays and DJ, who ran the Man Make Music record label and club night. In their evening sessions, the pair would rant about how they believed large energy companies were ripping off consumers and offering poor service. The timing of Bulb’s launch, in 2015, was impeccable: energy regulator Ofgem had launched a shake-up to encourage competition, which was later followed by a price cap pushed by the former prime minister Theresa May.
Wood and Gudka’s fledgling venture took off, quickly attracting customers with lucrative referral payments and green energy boasts that would later be questioned. Investors, including the US hedge fund Magnetar Capital, bought into their vision and, in 2018, Wood and Gudka were able to cash out £4m of shares each as part of a fundraise. Their stakes would later be valued at more than £100m as Bulb grew to become a £350m entity, but much of their fortune was ultimately wiped out by its collapse.
Bulb became Britain’s fastest-growing energy company, gaining 1.5 million customers and considerable political attention. In the summer of 2021, it even hosted Boris Johnson at its central London Bishopsgate headquarters, where the then prime minister sported a white mask with Bulb scrawled in pink upon it. As a member of the government’s Council for Sustainable Business, Wood advised the Department for Environment, Food and Rural Affairs on making companies greener. He is understood to have used the role to brief against rivals. He has since left the position. Bulb’s connections to Westminster were aided by Hanbury Strategy, a lobbying and public relations firm set up by David Cameron’s former director of strategy Ameet Gill.
The founders built a team of “Bulberinos”, as the firm called its employees, a youthful workforce with a mission to lower bills and carbon emissions. However, Wood later admitted the company’s breakneck growth led some employees to become unhappy, amid claims of a “toxic” culture and long hours.
Ultimately, Bulb’s demise echoed that of many of the 28 other energy suppliers to have collapsed, with those other failures costing billpayers £2.7bn. A sharp rise in wholesale gas prices in 2021 left suppliers desperate to pass on costs to consumers; however Ofgem’s price cap largely prevented this, pushing companies to the wall. For Bulb, its ineffective hedging policy resulted in it becoming the largest supplier failure to date. So large, in fact, that the government effectively nationalised it – appointing the advisory firm Teneo to run an administration process and enlisting investment bank Lazard to find a buyer. Wood was condemned for retaining his £250,000 salary during the administration.
The process dragged on for a year, with six players – including France’s EDF – initially interested. British Gas owner Centrica and Masdar, Abu Dhabi’s clean energy company, submitted bids before later dropping out. After months of negotiations, Octopus confirmed the acquisition late last month, fending off a last ditch tilt by Ovo. The Octopus founder, Greg Jackson, has said it represents a “fair deal” for taxpayers, and is subject to a profit-share agreement. But questions are mounting over the price, structure and terms. “We’re concerned there has been some form of sweetheart deal with the government,” says one rival. Bulb is rumoured to have cost Octopus £100m to £200m and will make it the third-largest UK energy supplier behind British Gas and E.ON, with 4.9 million customers.
The lengthy sale process appears to have cost Bulb – and the taxpayer – dear. The Office for Budget Responsibility this month estimated the cost of running Bulb had increased by £4.6bn since March to £6.5bn, exceeding the gloomiest forecasts of around £4bn. It threatens to add £200 each to household bills, on top of £94 for other supplier failures. The government disputes the OBR figure.
Ironically, given hedging appears to have been Bulb’s original downfall, the then business secretary Kwasi Kwarteng deemed the strategy of trying to lock in its energy needs in advance “very risky”. However, as Russia’s weaponisation of gas pushed up wholesale prices, the risk of not hedging appears to have weighed heavy.
The decision not to hedge has since been criticised. However, one former insider at the Department for Business, Energy and Industrial Strategy defended the move: “Companies hedge to protect themselves in case they are unable to repay the cost. The government does not have this issue. The market has been so volatile and gas prices have come down, so Bulb may have been making a profit recently. It’s much more nuanced than has been portrayed.” Bulb’s Trustpilot score, a lowly 1.2 out of 5, indicates customer service has been poor of late, and a cascade of consumers have vented their frustration on the review site.
Sources close to the Octopus takeover still expect it to be approved. Even if it is given the green light, the dust has not settled on the administration process. A high court judge is scrutinising the £25m of fees charged by Teneo, the company appointed by Ofgem to run the process.
Running simultaneously to Bulb’s administration, restructuring experts from Interpath were appointed to its parent company, Simple Energy, by Sequoia Economic Infrastructure Income Fund, Simple’s sole secured creditor. Sequoia was owed £55m, and £10m had been paid back by June.
Work in recent months has focused on carving out Bulb’s IT arm, Simple Energy Technology (SET), which employs about 50 people in London. Bulb’s tech was seen as slick, but Octopus has its own platform, Kraken. The hope is now that Bulb’s tech can be licensed. SET’s chief executive, John Marshall, said it would “now focus on bringing our technology to energy companies and consumers in the UK and around the world”.
Interpath said it expect a dividend to be paid to unsecured creditors “although the return may be modest”. As shareholders, Wood and Gudka would only receive any returns after unsecured creditors had been paid in full.
Simple also held a minority stake in Virmati, the battery storage venture Gudka set up after leaving Bulb. It was later rebranded Field, and Gudka told the Guardian he planned to expand the fledgling business overseas.
Wood has remained largely away from the limelight, becoming a partner at London-based venture capital fund Giant Ventures, which counts the former BP boss Lord Browne and the former foreign secretary David Miliband as advisory board members. Giant has invested in Field, as well as healthcare and financial services businesses.
Wood has also signed up to the Founders Pledge, a commitment to donate “a meaningful percentage of your personal proceeds at the point of liquidity to the non-profits of your choice”. There will be plenty who argue if this comes to pass, the government should top the list.
Gudka, Bulb and Giant declined to comment. In a rare public comment, Wood told the Guardian: “I’m very sorry for the way things turned out. I’m disappointed in the outcome, and did everything I could to avoid it, and protect consumers and taxpayers. While I was still at Bulb, I worked extremely hard with my team to minimise costs to the taxpayer, protect jobs and continue serving our customers.”