Octopus Energy use technological innovations to improve design and infrastructure of buildings

RICS COP28 Case Study

Octopus Zero Bills: Harnessing technology to drive decarbonisation and affordability in housing

Introduction

The combined energy and cost of living crises have brought the UK housing market to a standstill. There is a chronic undersupply of new homes, and those that are built conform to Building Regulations but often do not go any further, meaning they fall short of maximum energy efficiency standards. The UK’s existing housing stock is also some of the leakiest in Europe, with 14% of the UK’s total carbon emissions coming from home heating alone.

A step change in construction is needed to address the undersupply of homes and the cost of living, and to decarbonise at pace.

Local generation and decarbonisation of heat via electrical technologies are becoming increasingly affordable, but domestic customers aren’t always able to reap the benefits of these technologies as often their homes haven’t been built with electrification in mind.

When a modular housing developer created a zero-carbon product, it looked to Octopus and its world-leading Kraken technology platform to optimise the low-carbon devices and drive down running costs for residents. Octopus decided to take this one step further, matching zero carbon with a zero-energy bill guaranteed for a minimum term of five years.

Project overview

The Zero Bills proposition uses a combination of low-carbon tech in new homes – including solar, battery and heat pumps – to guarantee no energy bills for five years. Using Kraken and a smart meter, Octopus integrates devices to optimise a home’s energy consumption throughout the year.

First, Octopus established the critical requirements for a Zero Bills home:

• an all-electric house, i.e. no gas supply
• sufficient solar photovoltaic (PV) generation
• sufficient battery size
• sufficient thermal characteristics
• broadband connection and
• smart import and export meters.

Once these criteria are fulfilled, Octopus is able to use its Kraken platform to optimise the home battery and heat pump on site, while also prioritising the heating needs of the customer. As a combined import and export tariff, Zero Bills is scheduled to import energy from the grid when it’s cheapest and export energy to the grid when prices are highest.

Having successfully proven the Zero Bills concept with a 2022 pilot scheme in Essex, Octopus opened its world-first proposition to all housing providers and developers across the UK. It also set the ambitious target to deliver 10,000 Zero Bills homes across the UK and beyond by 2025, demonstrating that a greener world is also a cheaper one.

An early adopter of the Zero Bills concept was award-winning sustainable house builder Verto, supported by renewable energy and decarbonisation technical specialists Planet A Solutions.

Having created a proprietary Zero Bills model to assess the eligibility of a given home or house type, Octopus set out to test the eligibility of Verto’s zero-carbon smart home spec.

First, energy demand was modelled for each house type on a given development, and PV generation was designed and modelled for each home orientation according to predicted energy demand. Then, each home was specified a battery size and specifically designed remotely controlled inverters, enabling Octopus to predict net energy surplus for every home.

Upon receiving the Zero Bills accreditation on its zero-carbon design spec, Verto was given the green light to deliver 40 new homes in Pinhoe, Exeter – the world’s first fully Zero Bills development. The first homes were completed in August 2023.

Challenges

Octopus’ Zero Bills specification outlines key inputs of annual controllable load (heat pump) and uncontrollable load (everything else). The outputs of this specification are multiple options for battery configuration and minimum associated solar generation. If the homebuilder is able to satisfy these requirements, Octopus Energy will guarantee Zero Bills for the plot.

Aligning these designs and energy models to achieve the desired outcomes for all stakeholders can be challenging. Octopus’ focus is ensuring an electricity supply that generates surplus for exports, while developer partners like Verto focus on

home occupier satisfaction, build quality, cost of construction and project timelines.

In 2022 Santander research showed that buyers are paying 15.5% more for homes that meet high energy efficiency standards, and rank energy efficiency as one of the most desirable features of a home. In August 2023, Rightmove found that moving from EPC band D to C could increase a property’s value by an average of 3% (£11,000) and from EPC F to C by an average of 15% (almost £56,000). However, the ability to afford green home improvements continues to be a barrier to many when it comes to living in a more energy-efficient home.

Solutions

Zero Bills is, at its core, a customer or home occupier proposition. Having established that the affordability of an energy-efficient home is a significant barrier to a lot of domestic customers, Octopus set out to comprehensively work out the financial implications for new-build Zero Bills homes.

Compared to a new property built to current regulations, the additional cost required to install the necessary hardware for Zero Bills – PV, battery, heat pump – is around £20k. For new-build private and shared ownership, this can be added to the purchase price of the property. However, early data indicates that the cost uplift to meet the Zero Bills specification is rewarded by higher property valuations. On Octopus’ trial site in Essex, delivered in partnership with Gresham House and SOResi, Zero Bills properties gained a 10.7% higher valuation than their bill-bearing counterparts, covering the cost of the Zero Bills hardware.

For the homebuyer, even with the addition of a homebuilding and/or retailer margin, this represents a payback period of around 10 years. Mortgage lenders are also increasingly taking Zero Bills into account when making affordability calculations, meaning that homebuyers can afford a Zero Bills property without needing to earn a higher salary. Leeds Building Society currently offers a compatible green finance product, with a number of others on the horizon from January 2024. This indicates that property developers working alongside energy suppliers to guarantee Zero Bills is a compelling solution to customers’ concerns around the higher cost of an energy-efficient home.

Success factors

Octopus measured success in how stakeholders worked within each other’s requirements and boundaries, and showed willingness to adapt designs to

achieve the end goal. This wouldn’t have been possible without good communication between technical and commercial stakeholders.

One of the key lessons Octopus learned through collaborating with Verto was the necessity for plain, uncluttered roof design, and good orientation, to make optimal PV outcomes easier to achieve. It also became clear to Verto that inverter string limitations can hamper solar panel design when aiming for high generation volumes, so a wider choice of suitable inverters would be beneficial for future projects.

Outcomes

Residents of the new Verto homes in Exeter will enjoy free home electricity for at least five years via Octopus’ Zero Bills agreement. The 40 homes have zero scope 1 greenhouse gas emissions – and very low scope 2 emissions – which proves how Zero Bills is helping decarbonise the built environment.

Any surplus renewable energy will be exported from homes at times of maximum value to the electricity networks, which supports the UK’s continued transition towards a net zero electricity grid.

Conclusion

The Octopus Zero Bills proposition, and the guarantee of five years of zero energy bills, has been proven in the completion of Verto’s flagship development. We believe this should be the new home standard for all UK housebuilding going forwards.