July 25, 2018, by Rodrigo Orihuela and Reed Landberg
The first major utility to embrace green power is cultivating its roots as a grid operator to insulate it from new rivals seeking a foothold in the electricity business.
Iberdrola SA’s Chief Executive Officer Ignacio Galan said selling power directly to environmentally-conscious companies and running grids that earn a predictable return are at the heart of the strategy for Spain’s biggest energy supplier.
“We need to reinforce our networks,” Galan said in an interview in Madrid. “Every dollar or pound or euro we put in will be remunerated with a fair level. It’s not replicatable. There cannot be anyone in parallel making the same thing. There is only one grid.”
Competitors from big oil companies to neighboring utilities and even hedge funds are starting to adopt bits of the strategy Galan has implemented at Iberdrola during his 17 years as CEO. Galan took a predominantly Spanish electricity company, scrapped its coal plants and started investing in wind turbines in the early 2000s when the technology was new.
Now, that strategy is being copied by many of the top utilities across Europe, including Enel SpA in Italy and RWE AG in Germany. Royal Dutch Shell Plc is getting into the wind business, as are fund managers attracted by steady returns. For Galan, oil companies are unlikely to be a major threat because they don’t have the distribution networks that utilities maintain or the expertise in the business of selling megawatts.
“The oil companies will try to make something in certain places,” Galan said. “It took us 100 years to learn something about this business. They have the money. But they don’t have the skills. Business has two things, money and talent. Money it is easy to have. Talent is not so easy.”
Iberdrola was the first major utility to begin investing more than $1 billion a year in wind farms starting in the last decade. Its competitors in the power business are catching up. Enel now operates more renewable assets by capacity, making it the biggest owner of wind and solar plants after two state-controlled companies in China, according to data compiled by Bloomberg New Energy Finance.
Energias de Portugal SA and Electricitie de France SA follow Iberdrola in Europe. Spain’s top natural gas utility renamed itself Naturgy Energy SA last month and said it plans to push deeper into electricity.
Galan, 67, who has been CEO of the Bilbao-based utility since 2001, is unperturbed by the new competition and determined to keep working at his effort to make Iberdrola a global energy business sensitive to the need to protect the environment.
“For the time being I am feeling healthy,” Galan said, noting that the board has lifted age limits previously in place. “I enjoy working. The moment I feel I am not the right person, it will not take me two minutes to say now is not my time.”
By 2022, Iberdrola’s networks will absorb half of the 32 billion euros ($37 billion) it plans to invest worldwide, up from 36 percent in 2017. Another focus is on selling electricity directly to companies. Iberdrola already count Amazon.com Inc. and Google among their clients in the U.S.
“They want to report that they are using electricity from clean sources,” Galan said. “They want to give this sense that they are modern.”
Galan reckons Iberdrola has an edge over new entrants in that business both because of the scale of its green-energy portfolio it holds and because its grid networks span Spain, Britain, Mexico, the U.S. and Brazil.
As for the fund managers, pension investors and other financial entities dipping into the renewables business, Galan figures they will bow out if interest rates rise, boosting the cost of capital needed to develop those power plants. While Iberdrola has enough cash flow to finance its own work, the rest rely on bank loans in the form of project finance.
“In the moment that their rate changes, they will go, and that will be a great opportunity to buy cheap,” Galan said.