Mitsubishi Corporation is taking a 20 per cent stake in fast-growing UK electricity supplier Ovo Energy, as the Japanese industrial group seeks growth and a foothold in the digital energy transition.
The deal values Ovo Energy at about £1bn, making the 10-year-old start-up one of the UK’s “unicorns”, and the cash injection of around £216m will help fund its international expansion.
Stephen Fitzpatrick, chief executive, said that Ovo was already in Germany and would launch in France in July, followed by Spain and Australia.
“Our ambitions go far beyond the UK,” said Mr Fitzpatrick, referring to Britain’s energy sector as a “very difficult business”.
He said Ovo, currently the seventh-largest energy supplier in the UK, plans to branch out from energy retail and invest more in services such as software that helps homes keep their electricity bills down.
The stake sale, which will still leave Ovo’s founder Mr Fitzpatrick with a majority share, comes at a challenging time for UK energy suppliers, given the recent introduction of caps on how much suppliers can charge 15m households.
The independent companies outside of the “big six” have attracted considerable interest in recent years from new entrants wanting to gain a foothold in the UK market. Royal Dutch Shell bought Ovo’s rival First Utility last year.
In contrast, some of the traditional big six, which have higher cost bases and want to quit the challenged market, have struggled to secure an exit.
In December, FTSE 100 company SSE scrapped the planned merger and spin-off of its UK domestic supply business with that of Npower after failing to reach an agreement over the financial support that would be needed to support the new company.
Mitsubishi has been active in renewable energy generation in Europe, particularly offshore wind, but said the stake acquisition would “strength its operations in the services sector and in [the] downstream business”.
The conglomerate will appoint a director to sit on Ovo’s management team and said it was particularly attracted by the Ovo’s technological expertise.
The funding will also support the development of a new technology division at Ovo, called Kaluza, which will focus on “demand control” services that can assist households in using less energy at peak times.
Technology is expected to transform the way households use, pay for and even generate their energy in coming years — for example by using electric vehicle batteries to store electricity and release it when there is high demand.
Ovo has been investing heavily in technologies such as energy storage and electric vehicle charging. It last year launched a domestic vehicle-to-grid charger that allows EV owners to sell electricity that is stored in their car battery and is surplus to requirement back to the grid.
Ovo also last year embarked upon an international expansion, buying a stake in the German supplier 4hundred.
Mr Fitzpatrick said Ovo had been talking to Mitsubishi for about a year, initially about a potential partnership in Japan, and said the Japanese conglomerate had a “very similar shared vision in terms of the future of the energy transition”.
It is only the second time Ovo has sold an equity stake. It sold a 15 per cent share to Mayfair Equity Partners for £31m in 2015, although the private equity firm is understood to have been slightly diluted by the latest deal.