Like most utilities Iberdrola has ambitious plans to grow its renewables empire. This week it said it plans to invest some EUR 17bn to build an extra 12 GW of renewables projects over the next three years to bring its total installed capacity by 2025 to an impressive 52 GW. In contrast, SSE currently has a mere 4 GW of operational renewables.
But to comply with leverage covenants, the utility said in a presentation this week that just 21% of the EUR 58bn of investment needed to finance this renewables expansion (as well as expand its grid networks, make acquisitions, pay dividends etc), will come from raising new debt.
Meanwhile, it expects a further 64% will come from funds from operations (basically cashflows) - and 8%, around EUR 4.9bn, from asset rotation, which in the main means selling minority stakes in businesses. Recent examples of divestments include its sale this year of a 49% stake in Wikinger, a German Baltic Sea offshore wind farm.
It also wants to raise some EUR 2.6bn, around 7% of the EUR 58bn needed by 2025, from so-called partnerships, which according to an Iberdrola spokesperson means offloading stakes in development stage, pre-construction assets.
Iberdrola has already progressed these processes. It is currently in “advanced” talks to sell or partnering on EUR 4bn of assets, and has identified a further EUR 3.5bn for offloading.
Clearly selling more renewables and recycling the capital in new projects is at the top of its agenda. Indeed, sources say non-binding offers were filed on 26 October for the utility’s 49% stake in another German Baltic Sea project, the 476 MW Baltic Eagle, which is due to be built by 2024. The utility is also expected to launch a sale of a stake in the not-too-distant future in the nearby 308 MW Windanker offshore wind project, which is due to be commissioned and operating by 2026.
But surely selling part of its sprawling grid networks would also make complete sense. Indeed, in April it issued teasers for a sale, codenamed Project Delta, of part of i-DE, its Spanish electricity distribution network serving some 11 million customers across much of Spain. But the utility, advised by Morgan Stanley, pulled the sale not long afterwards.
Fast forward to today and trying again to sell a piece of i-DE would make sense. i-DE last year reported a regulated asset base of EUR 9.3bn, so even a small minority stake would generate enough capital to go some way to meeting its ambitious growth plans.
i-DE would also be attractive to investors happy not to take yield for years given the network requires some EUR 3.6bn of investment over the next five years, according to the sale teaser, which adds the business offers return on investment of 5.58%.
The utility cancelled the sale “almost immediately” after launching it in early summer, says one source. Several sources say it did so due to “political sensitivities” surrounding any sale, pointing to a fear of Iberdrola and its executives making a killing from a national trophy asset such as i-DE during a time of rising energy prices in Spain.
The Spanish government capped gas prices over the summer at EUR 40 per megawatt-hour until mid-2023. But at the same time, this created a “deficit” in the Spanish energy sector. “In Spain the cost to the system to produce energy has exceeded the price which companies have been willing to charge end customers,” says one of the sources. But consumers in the longer term will have to foot the bill by spreading the extra costs over a longer period, the source adds.
Despite this, sources said in September that they still expected Iberdrola would relaunch a sale of i-DE once the energy crisis passes, possibly some time in the new year. But fast forward to today and sources do not expect this will happen. So what’s changed? Sources partly put it down to a change of role within Iberdrola of its longstanding Chief Development Officer Pedro Azagra Blázquez.
Blázquez, who has executed over 100 deals for Iberdrola, is said by the sources to have been behind the push to offload part of i-DE. But in June he was appointed to a new role within the group as head of the company’s US renewables business, Avangrid. Iberdrola’s enthusiasm for selling waned as a result of his move, the sources say.
“Pedro was a pretty independent person who liked to get things going and trying things out,” says one of the sources. “He’s a character and had a way of kicking off sales and seeing how far they would develop without necessarily the full backing of the company.”
Ignacio Galán, who was Iberdrola’s CEO until two weeks ago, is said by the sources to have been “upset” when news of the sale leaked in local media. Iberdrola subsequently denied the story, even though, as it turned out, Infralogic has seen a copy of the teaser confirming the sale. Iberdrola pulled the sale process not long after issuing denials that it had ever taken place.
Rating agencies also are said by the sources to prefer Iberdrola to retain control of its regulated grid networks. “Grids are very important for the financial solidity of the whole group,” says one of the sources. Last year, Fitch said Iberdrola’s network “improves geographical diversification and the average credit quality of country exposure, which is already a strength for the company”.
Iberdrola, which declined to comment, looks set to raise the capital it needs for its further push to renewables. But it looks unlikely that selling grids will form part of this process.
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