21 October 2025
Iliana Portugues
A founder recently asked me to review their Series A deck, showcasing a €50 billion European market and impressive pilot results. However, their financial projections were off. They budgeted €10,000 for grid connections and €25,000 for regulatory compliance; however, the actual cost of grid studies ranges between €50,000 and €500,000, and compliance costs vary from €200,000 to €2 million. Sales cycles in utilities typically last 18 to 36 months, accompanied by the need to establish a presence in utility databases as a preferred supplier.
This pattern of underestimating costs by 3 to 10 times among founders in the energy tech sector is something I briefly touched upon last week and will focus on in this week's post, based on feedback. To achieve this, I will analyse Octopus Energy and provide some insights that are of value to you.
Successful founders aren't the ones with the best technology. They're the ones who, like archaeologists, dig deep into their costs before their competitors. They're the ones who do the cost archaeology.
Consider two startups I have mentioned in the past for various reasons. Better Place: estimated battery swap stations at $500,000 each, actual cost $2-4.4 million—an 880% overage [2]. Solyndra exceeded projections by 300% [3]. These aren't outliers; they're warnings.
The Anatomy of a Multi-Million Mistake
Let's imagine. As a Seed to Series A founder developing a smart meter, you might budget for,
Hardware: €100 per unit
Installation: €50 per unit
Software platform: €50,000 annually
Regulatory Requirements: €50,000
IT systems: €200,000
OPEX: €500,000
Congratulations, you've just budgeted for approximately 6% of your actual costs.
Examining the actual costs in Octopus Energy's own documentation reveals they budgeted £10 million just for UK regulatory compliance before launching [10]. Yes, Octopus Energy launched as a utility provider in 2015 as opposed to a technology company, but the comparison is still revealing. So, breaking down Octopus' actual costs vs. typical founder assumptions:
Let's decode what the line items actually mean to you - because this is where the cost archaeology gets real.
Requilatory Requirements
Let's consider German regulatory archaeology across Europe's largest markets, starting with Germany in detail.
According to BMWi's Renewable Energy Act Reform Impact Assessment [9], a battery storage project in Germany requires not only approval under the BImSchG. It needs:
Grid code compliance (VDE-AR-N 4110/4120): €50,000-100,000 [9]
Primary reserve market prequalification: €100,000-200,000 [9]
Environmental impact assessments: €75,000-150,000 [9]
Building permits (state-level variation): €25,000-50,000 [9]
Fire safety certification (VdS 3103): €50,000-100,000 [9]
Insurance association approvals: €30,000-60,000 [9]
Local community consultations: €20,000-40,000 [9]
Total: €350,000-700,000.
France's CRE (Commission de Régulation de l'Énergie), Spains CNMC (Comisión Nacional de los Mercados y la Competencia) and Italy's ARERA (Autorità di Regolazione per Energia Reti e Ambiente) have similar approval layers to those of Germany, only differing in requirements and cost profiles. Hence, to cover Europe alone, multiply by 27 member states.
The truth is that this pattern is a global issue, not only a European feature. Globally, you can do the calculations.
According to McKinsey, 70% of energy tech projects exceed their budgets by 50% or more due to unforeseen integration needs [1]. This isn't a matter of founder incompetence but rather structural invisibility.
IT Systems and Infrastructure
The €200,000 founders typically budget covers basic software. The €3.46 million Octopus spent included critical infrastructure that hardware companies cannot avoid. "Wait," you're thinking, "I'm just installing smart meters. Why do I need trading systems?" Here's the reality, energy markets operate on half-hourly or hourly settlement. Your batteries, smart meters, etc. generate data that flows into these settlement systems:
Utility Integration & Legacy Systems (€700,000-2,200,000): Connecting to 20-30 year old utility IT infrastructure requires extensive custom integration. Each utility demands €200,000 for testing your meters against their back-end systems [4]. Add cybersecurity certification (€150,000) for NIS2 Directive compliance [5],interoperability testing (€100,000) across meter manufacturers [6], and hange management support (€200,000) for utility staff training [7].
Pan-European Market Interfaces (€1,200,000-1,600,000): European markets aren't unified—they're coupled. You need systems interfacing with ENTSO-E platforms, Single Day-Ahead Coupling across 61 bidding zones, and national balancing platforms in Germany, Spain, and France [6]. Each has different settlement rules.
Imbalance & Settlement Systems (€1,600,000-2,200,000): European balancing markets are unforgiving—imbalance prices spike to €10,000- 15,000 per MWh during stress [6]. You need real-time forecasting, portfolio optimization, automated bidding systems, and multi-country settlement infrastructure. The grid operator doesn't care about your scale—you need utility-grade systems from day one.
Pre-launch Capital Requirements
This one blindsides founders completely. European energy markets require you to demonstrate financial viability through:
Performance bonds posted to grid operators (typically €500- 2,000 per connection point, so even a 500-meter pilot = €250,000-1,000,000) [4]
Working capital deposits with utilities for data access (€100,000- 300,000 per utility relationship) [10]
Insurance reserves that underwriters won't cover until you have operating history (€300,000-500,000) [6]
Credit facilities to cover 90-120 day payment terms from utilities while you maintain daily operations [7]
Regulatory escrow accounts in some jurisdictions to guarantee consumer protections (€200,000-400,000) [6]
This capital just sits there. It's not funding growth. It's not building technology. It's the price of market entry—dead money that founderstechnology. It's the price of market entry—dead money that founders never budget for because it's invisible until you're trying to sign your first commercial contract.
Your Series A investor sees this as "working capital" and expects it to come from your existing raise. You thought €2 million would fund 18 months of operations. Actually, €2.3 million of it is locked up before you begin, leaving you with negative runway.
Energy Supply Licenses and Compliance
Now we reach the section that I find the most demoralising in this conversation. I suspect because I was not prepared for it in my frist Energy Startups: supplier-grade regulatory compliance. If your equipment affects energy billing, settlement, or grid operations, you need supplier-grade compliance — even if you're partnering with an existing licensed supplier.
For example, Germany's BNetzA doesn't mandate fixed capital reserves like UK's Ofgem, but requires demonstrable financial resilience through the Finanzielle Leistungsfähigkeit (financial capability) assessment. This isn't locked capital you set aside—it's equity capital at risk that must be demonstrable to BNetzA.
The rest of Europe is no different. Spain's CNMC and market rules also have strict requirements on supplier and France has the CRE on top of their regulations mandates.
Operating in multiple European countries doesn't give you economies of scale—it multiplies your compliance costs, which as I argued in a previous article can be your moat if you manage properly:
Legal entity requirements in each jurisdiction
Separate financial guarantees per country
Country-specific audit and reporting systems
Multi-jurisdictional tax and VAT compliance
A three-country European rollout (e.g., Germany, Spain, France) requires:
€600,000-900,000 (Germany) + €400,000-600,000 (Spain) + €500,000-800,000 (France)
Total: €1.5 million - €2.3 million just for financial compliance across three markets
Pre-Launch Operational Costs
European regulators demand robust operational systems:
Risk management frameworks: Documented hedging strategies and stress testing
Governance structures: Compliance officers, risk committees, board oversight
Financial reporting systems: Real-time capital monitoring, quarterly regulatory submissions
Consumer protection mechanisms: Complaint handling systems, dispute resolution processes
Data protection compliance: GDPR implementation for customer data handling
These aren't optional nice-to-haves. They're regulatory requirements that trigger enforcement action if absent.
What Winners actually do
To succeed, you need to plan for these costs and prepare for proper timelines.
Octopus Energy budgeted £10 million just for UK regulatory compliance before launching [10]. They spent two years in preparation, not six months. They assumed a 24-month customer acquisition, not a 6-month one. They didn't rush but grew sustainably. They treated regulatory compliance as an essential infrastructure, not an overhead. They budgeted for it, just as they did for software development.
The result: €9.8 billion in funding raised, 7 million customers, and one of the fastest-growing energy companies in European history (with the coolest mascot).
Northvolt allocated €150 million of its €2.75 billion funding specifically for regulatory and compliance costs [11]. That's 5.5% of their total funding just for paperwork. They didn't discover these costs; they anticipated them.
Most startups allocate 0.5-1% of their budget for regulatory costs. Northvolt budgeted 5.5%. That 4.5% difference is the survival margin.
The Path Forward
The solution isn't pessimism, it's cost archaeology. Before writing any business plan, consider doing the following:
Shadow actual deployments. Document every cost, delay, and requirement in real projects like li have done here.
Hire experienced guides. Someone who's deployed in your market. Their fee is 1% of what ignorance costs.
Calculate true capital lockup. Not just operational burn, but understand whether you will need pre-launch capital requirements, performance bonds and guarantees, financial compliance reserves and/or insurance reserves.
Build in regulatory multiplication. Understand the financial impact of your growth plans. Each new European country may adds country- specific compliance, infrastructure integration costs, financial capability demonstration costs, 18-24 months minimum deployment timeline.
Accept market coupling complexity. European markets aren't unified—they're coupled. You need to account for this.
Accept infrastructure reality. Energy moves slowly because reliability matters more than innovation.
Energy tech can succeed. But not by applying SaaS economics to infrastructure markets. Not by assuming costs away. And certainly not by discovering reality after burning through Series A.
Your Decision For This Week
You've now seen the whole picture. Now you have a choice. What is it going to be?
Choice A: Ignore This and Hope You're the Exception
You might believe your revolutionary technology will defy economics, but in 15 years, I've never seen that happen. History is filled with companies that thought they were exceptions.
Choice B: Do the Cost Archaeology Before You Commit
Invest €30k-50k over 90 days to understand real costs before sinking €5M and three years into it. Reach out if you need a playbook. Build a solid model to make informed decisions. If the economics work, that's great; if not, you'll save yourself from years of wasted effort.
Choice C: Accept Reality and Weaponise It
Winners acknowledge and leverage high costs as competitive advantages. They approach investors with clear, realistic plans, demonstrating a deep understanding of the market. Instead of selling optimism, they demonstrate competence, attracting larger investments with better valuations.
Investors prefer founders who grasp reality and know how to navigate challenges.
Have you experienced a similar cost surprise? Drop a comment below or DM me with:
What you budgeted vs. what you actually spent
The hidden cost that almost killed you
What you wish you'd known before starting
A Request
I strive to make my pieces as comprehensive as possible, but they can't be complete. There are nuances which I might miss.
If you spot any errors or have additional suggestions, please let me know.
If you have experiences that contradict or confirm what I've written, share them.
If you have questions about navigating these cost realities in your specific situation, please don't hesitate to ask.
I'll update the article and give you credit for your contribution. This only works if it's accurate and useful.
Thanks for engaging with this work.
— Iliana
Photo by Anna Hunko on Unsplash
References
McKinsey & Company, "Digital transformation in energy: Achieving escape velocity," 2024.
The Index Project, "Case Study: Better Place," 2024.
History Tools, "The Spectacular Rise and Fall of Solyndra," 2024.
Sievo, "How to Run an RFP Process: Step-by-Step Guide," 2024.
Hart Energy, "Energy Startups Face Challenges, But Path To Success Exists," 2018.
Federal Trade Commission, "Competition and Consumer Protection Perspectives on Electric Power," 2024.
McKinsey & Company, "Improving B2B energy propositions: Four trends reshaping the industry," 2024.
Red Eléctrica de España, "Renewable Energy Statistics", 2024.
BMWi Germany, "Renewable Energy Act Reform Impact Assessment," 2024.
Octopus Energy, "Company History Documentation," 2024.
Bruegel, "Northvolt struggles: a cautionary tale for the EU Clean Industrial Deal," 2024.
ScienceDirect, "How long does innovation and commercialisation in the energy sectors take?" 2018.