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Ignacio Galán, the engineer who made Iberdrola a ‘new energy major’

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Ignacio Galán, who has transformed Iberdrola from a second-tier Spanish conglomerate into the world’s third-biggest utility, is not shy of touting his achievements — or his foresight. 

“We have been pioneers of this energy revolution for 20 years,” the 70-year-old chairman and chief executive said on Wednesday as his €68bn company announced the latest in a run of acquisitions this year.

“When nobody believed that electricity could be produced with clean sources and everybody was thinking coal would remain for centuries . . . and oil and gas were absolutely needed, we were the only one saying we can generate and produce electricity with clean sources.”

Wednesday’s $8.3bn deal for PNM Resources, a utility that serves New Mexico and Texas, was the company’s biggest transaction since 2006 when it bought ScottishPower for €20bn. It will turn Iberdrola’s North American arm into one of the largest utilities in the US, where it will also be among the top three renewables operators. 

“It’s great to see how a Spanish company is leading in the US,” said Arancha González, Spain’s foreign minister, who Mr Galán called with the news on Wednesday. “This speaks to me of the solidity of . . . Spanish business, which is leading on issues as sensitive as renewables in the US.” 

Mr Galán has transformed Iberdrola since taking the helm in 2001, from a largely domestic company with coal, hydro, nuclear and oil-fired power plants into a clean energy specialist that also owns electricity networks. His acquisitions — in countries including Brazil, Mexico, the UK and US — have made the group the world’s third-biggest utility by market value.

In an interview with the Financial Times in June he boasted that he had delivered shareholder returns of more than 700 per cent during his tenure, largely through what he calls “greenfield M&A” — buying up relatively small companies, always through friendly deals, that have “a big capacity for growth”.

In his eyes the potential of clean energy has barely been realised. “We are in a sector [renewables] that today represents 20 per cent of the world’s energy business,” he said. “More electrification [replacing oil and gas] is going to represent a big growth opportunity.”

The company is among a group of global utilities, along with Enel of Italy and Florida-based NextEra Energy, that are referred to by analysts as the “new energy majors”.

Once considered low-risk but relatively dull investments, these utilities have astutely navigated the global shift from fossil fuels towards cleaner sources of energy. Their stock market valuations surpass those of oil and gas majors such as BP.

PNM was Iberdrola’s eighth acquisition this year, following deals in Australia, France and Japan. Although some of the transactions have been in the works for up to a year, Mr Galán views the coronavirus crisis — and the government funds intended to revive the economy from its onslaught — as an opportunity to turbo-charge the shift towards clean energy. Roughly two-thirds of Iberdrola’s generation capacity is “zero emissions”, although the group is not aiming to be entirely carbon-neutral until 2050.

Those who have worked with Mr Galán believe his engineering background has allowed him to spot trends early, even when he did not always have the support of the markets or some members of staff. 

Mr Galán has recalled that when he set out his first five-year plan after arriving at the company, some sceptical senior executives chose to retire or leave.

He “is a very proud engineer and I think that’s important”, said Professor Jim McDonald, a non-executive director of ScottishPower and vice-chancellor at the University of Strathclyde in Glasgow. “That’s a very solid part of how Ignacio goes about analysing challenges and opportunities. The fact he is very technically strong is very useful for him.”

Mr Galán, who grew up in the small village of Villavieja de Yeltes, near the medieval city of Salamanca, has also become formidably well-connected, pushing the renewables agenda in meetings with European commissioners and at a dinner last year with German chancellor Angela Merkel, Emmanuel Macron, France’s president, and Ursula von der Leyen, president of the European Commission. 

But there have been stumbles along the way. A decade ago he waged an acrimonious and public battle with Iberdrola’s then biggest shareholder ACS, the Spanish construction group headed by Real Madrid football club president Florentino Pérez. Iberdrola also hired José Manuel Villarejo, a former police commissioner now imprisoned pending trial on allegations of operating a criminal organisation, for services including private detective work. Mr Galán said the company acted lawfully and ethically at all times.

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The group’s share price also slumped last decade when Spain’s then centre-right government cut subsidies on renewables, hitting the profitability of Iberdrola’s wind farms. But the country’s current leftwing administration has embarked on a much more ambitious energy plan, in which it plans to invest billions from the EU’s €750bn coronavirus recovery fund, and Iberdrola has vastly increased its bet on renewables, building Europe’s biggest solar plants and one of its largest green hydrogen projects.

“Renewables were a joke 10 years ago and now they are taking over the world,” said Meike Becker, analyst at Bernstein. “It is actually quite remarkable to have had that vision and stuck to it.”



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Analysis

UK pushes floating wind farms in drive to meet climate targets

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In waters 15km south-east of Aberdeen, renewable energy companies are preparing to celebrate yet another landmark in the drive to end Britain’s reliance on fossil fuels.

Five wind turbines, each taller than the Gherkin building in the City of London, fixed to 3,000-tonne buoyant platforms have been towed to the UK North Sea from Rotterdam where they will form part of the Kincardine array, the world’s biggest “floating” offshore wind farm.

Wind farm developers have dabbled since the 2000s with floating technology to overcome the limitations of conventional offshore turbines. These are mounted on structures fixed to the seabed and are difficult to install beyond depths of 60m, which makes them unsuitable for waters further from shore where wind speeds are higher.

Floating projects, which are anchored to the seabed by mooring lines, are rapidly moving from the fringes to the mainstream as countries turn to the technology to help meet challenging climate targets.

Britain was the first country to install a floating offshore wind farm off the coast of Peterhead, Scotland in 2017. But existing floating projects are modest in size. The Kincardine array has an electricity generation capacity of 50MW compared to 3.6GW for the world’s largest conventional offshore wind farm.

Map showing the location of Kincardine offshore floating wind farm, offshore from Aberdeen on Scotland's east coast

Now the bigger wind developers are stepping up a gear with plans to build more schemes on a larger scale.

Denmark’s Orsted, Germany’s RWE, Norway’s Equinor along with the UK’s ScottishPower and Royal Dutch Shell are some of companies on a long list of bidders vying to build floating schemes in an auction of seabed rights for about 10GW of offshore wind projects in Scottish waters. The bidding round closed in mid-July with the winners expected to be announced in early 2022.

The UK is separately examining an auction exclusively for floating wind in the Celtic Sea, the area of the Atlantic Ocean west of the Bristol Channel and the approaches to the English Channel and south of the Republic of Ireland.

Developers expect the costs of floating projects to fall rapidly as more projects are deployed. In 2018 floating wind costs were estimated at more than €200 per megawatt hour, nearly double the cost of nuclear power in the UK.

The Offshore Renewable Energy Catapult, a UK technology and research centre, is hopeful developers will be able to build “subsidy free” floating projects at prices below forecast wholesale electricity costs in auctions as early as 2029. Conventional offshore wind developers reached this inflection point in a UK government auction in 2019.

A Norwegian flag flies from a boat near the assembly site of offshore floating wind turbines in the Hywind pilot park, operated by Equinor
Norway’s Equinor is among the companies competing to build floating turbines in Scottish waters © Carina Johansen/Bloomberg

UK prime minister Boris Johnson, who is hosting the UN’s COP26 climate summit later this year, has set a 1GW floating target out of a total 40GW offshore wind goal by 2030. He has underlined the importance of accessing the “windiest parts of our seas” as part of the UK’s goal to cut carbon emissions to net zero by 2050. 

Other countries including France, Norway, Spain, the US and Japan are pursuing the technology, which experts said would particularly appeal to countries with limited access to shallow waters, or where the geology of the seabed makes it impossible to install conventional “fixed-bottom” turbines.

WindEurope, an industry body, predicts one-third of all offshore wind turbines installed in Europe by 2050 could be floating.

Countries pursuing floating wind are interested in it “not just as an opportunity to deliver net-zero targets. It has a real potential to be a driver of economic growth as well,” said Ralph Torr, a programme manager at the Offshore Renewable Energy Catapult.

Much like how the UK supply chain has lost out to foreign companies in the construction of conventional wind offshore farms — despite Britain having more than anywhere else in the world — there are concerns the mistakes will be repeated for floating technology. Manufacturing work for the Kincardine project was carried out in Spain and Portugal and the turbines and foundations assembled in Rotterdam.

An offshore wind turbine off the coast of Fukushima, Japan
A wind turbine off the coast of the town of Naraha in Japan’s Fukushima prefecture. Japan is one of the countries pursuing floating technology © Yoshikazu Tsuno/AFP/Getty Images

Competition with other markets was already high as they all tried to gain a “first-mover advantage”, said Torr, who warned the UK government’s 1GW floating wind target by 2030 was not “going to unlock huge investment in the supply chain or infrastructure because it’s [just] a handful of projects”.

The Offshore Renewable Energy Catapult and developers are urging the government to commit to a second target in 2040 for floating wind, which they believe would provide confidence to industry to invest in the necessary facilities in Britain.

“Because floating [wind] becomes economic in the 2030s, it’d be much better to understand what the longer term pipeline is,” said Tom Glover, UK country chair at RWE. He added that in the Scottish seabed rights auction, developers had to “provide a commitment and an ambition for Scottish content”, which should benefit the local supply chain.

Wind developers are conscious that UK suppliers need time to gear up. Christoph Harwood, director of policy and strategy at Simply Blue Energy, which is developing a 96MW floating scheme off the coast of Pembroke in Wales, said projects that were larger than the earliest floating schemes but were not yet at a full commercial scale would be important in that process.

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“If the UK supply chain is to benefit from floating wind, don’t rush into 1GW projects, take some stepping stones towards them,” he said.

Tim Cornelius, chief executive of the Global Energy Group, which carries out offshore wind assembly work at the Port of Nigg on the Cromarty Firth in north-east Scotland, said the size of floating wind turbines offered opportunities to UK suppliers. 

The floating turbines are much bigger than their conventional offshore counterparts so need to be built closer to their point of installation, which precludes using the lowest cost manufacturers in China and the Middle East.

The floating turbines require “an astonishing amount” of deepwater quayside space at ports, Cornelius explained. His company is looking at creating an artificial island for quaysides in the Cromarty Firth in Scotland, which he says would require a “material investment but is entirely justifiable as long as developers are prepared to commit”.

But he warned that “as it currently stands, the [UK] supply chain isn’t in a position to be able to support the aspirations of the [floating offshore wind] industry”.

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Analysis

China tech crackdown claims ETF victims

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Exchange traded funds updates

Beijing’s regulatory crackdown on some of its biggest companies in technology and education has delivered a bruising blow to highly specialised China-focused exchange traded funds.

Broad-based tech ETFs have sailed through virtually unscathed, but some narrowly focused thematic instruments have taken a beating. Among those most affected, the KraneShares CSI China Internet ETF (KWEB) has nearly halved in value since its peak in February.

Some ETF buyers are hunting specifically for targeted strategies, despite the risks. But Kenneth Lamont, senior fund analyst at Morningstar, said this highlights the potential drawbacks of tracking a narrow theme without the flexibility to shift tactics.

“The [passive thematic] strategy has no way to quickly react to bad news and will hold the stock until the next rebalance. The small number of fund holdings also means that overall returns can be influenced by the performance of handful of stocks,” Lamont said.

Line chart of Total returns, year to date (rebased) showing Narrow vs broad tech ETF

He noted that for the KraneShares ETF, one Chinese education group alone — TAL Education Group — was responsible for knocking 2.8 percentage points off performance from the end of June.

Global X Education ETF (EDUT), which has a large exposure to the Chinese online education sector, was also badly affected.

Actively managed ETFs, such as Ark Invest’s ARKK flagship Innovation fund, can react more quickly. After voicing her optimism for the prospects for China’s tech disrupters earlier this year, Cathie Wood, Ark’s chief executive, shed millions of dollars worth of shares in four China-domiciled companies.

Line chart of Number of shares held (millions) showing ARKK has been selling Chinese technology holdings

Investors in ARKK have not been rewarded as well as those who simply put their money in broadest based funds such as the Vanguard Total World Stock Index Fund ETF (VT), but they have still managed to ride out the China tech storm far better than more exposed counterparts.

Line chart of Returns, year to date (rebased) showing ARKK vs Vanguard Total World Stock ETF (VT)

Some investors insist Chinese investments can bounce back. Mark Martyrossian, chief executive of UK-based Aubrey Capital Management, said he believed many of the affected tech companies would maintain their market leadership.

“The gravy train may have slowed but you disembark at your peril,’ Martyrossian said.

Lamont said badly hit funds had suffered such losses because they were doing exactly what they had promised to do — provide narrow exposure.

More nimble active investment strategies also face their own challenges, said Elisabeth Kashner, director of global fund analytics at FactSet. “Active managers may successfully anticipate market reversals, but they can also miss them, sometimes seriously tanking returns,” she said. “Some people can be skilful and some people can be lucky and if you’re lucky and skilful in one period you might be lucky and skilful in the next, but you might not.”

Additional reporting by Steve Johnson

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Raisi vows to restore ‘trust’ with disillusioned Iranian public

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Iran’s new president Ebrahim Raisi will assume power this week at a time of huge challenges for the Islamic republic, shaken by recent protests over water and electricity shortages and readying itself for more talks over the revival of its nuclear deal with global powers.

Raisi, a 60-year-old veteran of hardline politics and mooted as a successor to the supreme leader Ayatollah Ali Khamenei, secured victory in June on the lowest turnout in any presidential election since the 1979 theocratic revolution and only after barring his most serious rivals from the race.

After the election he acknowledged that “public trust has been marred” in the country’s political elite, though he suggested the outgoing centrist president Hassan Rouhani was to blame for this disillusionment. Rouhani signed the 2015 nuclear deal with the US and other major powers, only for the then US president Donald Trump to abandon it in 2018 and sanctions to be reimposed.

This waning trust could be “repaired”, Raisi said, by focusing on the home front rather than looking for foreign assistance. “Reforming the current situation is possible,” he said.

However, the new president could find himself immediately facing a fresh international row after Israel on Sunday accused Tehran of involvement in Thursday night’s suspected drone attack on an oil tanker off the coast of Oman, in which two crew members were killed. The vessel, the Mercer Street, is linked to an Israeli billionaire. The UK foreign secretary Dominic Raab said on Sunday it was “highly likely” Iran carried out the attack in “a clear violation of international law”. Iran denied any involvement.

And with Iran in the grip of the worst drought in decades and power shortages hitting an economy already ravaged by inflation, sanctions and the coronavirus pandemic, analysts are sceptical that a quick turnround is possible. Only 3 per cent of Iranians have been fully vaccinated against Covid-19.

“The country is in a very tense situation and Raisi has to make very quick and serious decisions about urgent issues such as inflation and vaccination to present a winning card and buy time until a big decision is made about the nuclear deal and sanctions,” said Saeed Laylaz, an analyst.

“But we have not yet seen any initiative from Raisi since his victory to suggest he will be able to pin something big down during his first 100 days.”

Vienna talks

One of his biggest challenges will not be in Iran, but Vienna, where talks about the nuclear deal are set to resume when the Raisi government takes office. Tehran is in talks with world powers, with the US indirectly involved.

Raisi has made clear he wants to improve relations with neighbours, rather than the western world. “In order to help establish sustainable security and regional stability, the solution is co-operation between regional states based on mutual trust and not allowing interference of alien [western] forces in the region,” he said.

Hardliners have so far refused to make any promises about the outcome of the talks, preferring instead to focus on domestic priorities. One of these politicians, Hamid-Reza Taraghi, has listed the new government’s top priorities as curbing an inflation of 44.2 per cent, removing obstacles to domestic industrial production, dealing with water and electricity shortages and tackling the budget deficit.

But reformist analysts question how Raisi can do this while sanctions prohibiting oil exports and other business dealings remain in place. Taraghi has said the government had to find ways to “foil sanctions”, indicating that an agreement might not be reached.

Protests

One of Raisi’s most immediate challenges is to calm tensions in the southwestern province of Khuzestan, home to Iran’s biggest oil and gas reserves.

Recent protests have been driven by demand for water supply for farmlands and cattle. Raisi, allegedly part of a committee that executed thousands of political dissidents in the 1980s, has not been targeted by the protesters.

Still, demonstrators have chanted anti-regime slogans, such as “Down with the dictator” and “Neither Gaza, nor Lebanon; my life for Iran.” A regime that swept to power through street protests has typically cracked down on demonstrations. At least eight people have been killed in Khuzestan so far, Amnesty International said. Officials have confirmed three civilian deaths and one policeman. There have also been solidarity protests in the northwestern city of Tabriz, and protests over electricity shortages in Tehran.

Shopkeeper in Tehran
A shopkeeper in Tehran studies his phone after electricity is cut off due to energy savings by the government © Morteza Nikoubazl/NurPhoto via Getty Images

The regime has tried to boost water supplies to Khuzestan and Raisi has vowed not to “wait even one day” to tackle problems there. He said part of the “massive wealth” in that region had to be spent on its own development. He has also spoken of the economic pressures many people are under, promising to help build at least 1m new houses a year. “Today, not only buying houses but renting them in big cities or even small towns has turned into an unachievable dream for people,” he said in July.

Conciliatory moves

For now, the Islamic republic is determined to demonstrate stability through a peaceful transition of power. Raisi has met outgoing cabinet members individually and approached a wide range of politicians, including former political prisoners, about how the country should be run. Some of those arrested during the 2019 unrest, which allegedly resulted in hundreds of deaths, are set to be released, activists say.

Raisi must also contend with divisions in the hardline camp. The more radical members do not want him to bow to public demands for more social and political freedom. Parliament has ratified a plan that could regulate social media and restrict public access to the internet.

Iranians want to see if he can deliver on his promises. “Raisi has to spend 1 per cent of Khuzestan’s wealth for the province itself. This is not too much to ask and we will hold him accountable even though we have lost hope in any change under this regime,” said a protester in the province who asked not to be named.

The Khuzestan protester added: “I am 25 years old, hold an electronic engineering degree but have no job, no income and no future. The bare-feet people would not be scared of dying if their choice was between starving to death or being killed by bullets.”



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