Flush with cash, Iberdrola mulls investments and has offshore wind on the shopping list

With surging profits, record levels of investment and a $6bn asset sale approaching payout day in Mexico, Iberdrola is ready to pick and choose when it comes to spending.

The Spanish utility’s net profit of €4.8bn ($5.2bn) for 2023, was 11% higher than the previous year, while its gross investments of €11.4bn were hailed as a record for the company.

Another $6bn is on the way with conclusion of the sale of 55% of the group’s Mexican business expected to conclude on 26 February, following the resolution of litigation issues and final approvals from competition regulators, the company stated.

"We expect to benefit from lower financial expenses due to the positive impact of Mexico transaction, and the co-investment with our partners in other geographies,” Iberdrola's executive chairman Ignacio Galan said on an earnings call today (Thursday).

With guidance suggesting that capital expenditure will hit a new record of €12bn next year, and net profit forecast to rise by 5-7%, analysts participating in the earnings call wanted to know where the money will be spent.

US 'agility'

On the topic of offshore wind, Iberdrola executive chairman Ignacio Galan turned first to the US, where the company celebrated first power on the 806MW Vineyard Wind array last year.

Iberdrola’s Avangrid unit is also developing the 1.2GW Commonwealth Wind project for Massachusetts and the 804MW Park City Wind for Connecticut.

“We are under licence to participate in the Connecticut-Massachusetts- Rhode Island auction. You know we are committed but we will be very selective. It depends very much on the terms. After we participate we have a period of negotiation, which I think is six or seven months. So I think nothing is going to be final up to the middle of this year or after summer," Galan said.

Comparing his company favourably to competitors that have taken big losses in the US, Galan argued that Iberdrola had benefitted from its first mover status in US offshore wind and had also shown “agility” when it came to reacting to changing economic circumstances before committing significant amounts of capital.

“Now it looks like the terms are changing. I think the recent auction in New York shows that they are already accepting certain of the rules that we've been already discussing, too,” he said, referring to a new willingness among US states to raise prices and introduce inflation and rate-adjustment mechanisms for the duration of the PPA.

“If this goes in the right direction, we will proceed. If not, we will renounce the right... There are plenty of opportunities for offshore auctions in different countries and there are not very many players with the capabilities, the technology and the knowledge, and it is right for companies like us to be committed but selective," he said.

Green selection box

On the same theme of adopting selective process to portfolio management, Galan welcomed the UK government’s decision to modify terms and conditions in that country, with an average 66% increase in strike prices governing subsidised contracts for difference.

“We have a couple of projects to participate with around (2GW) and I think we will see what is going to be our final position on that one but we are positive," Galan commented.

"I think there are very many auctions elsewhere, in Germany, France, Portugal and Spain, whatever. But most of them are still in a very draft phase. So when we have more details, we will be ready to take a decision to participate or not," he added.

"In summary, we are positive about offshore. We are committed. We have a good team. But we will carry on as we've been in the past. That means being selective... going to those who are attractive and not going to the one who we feel are not attractive enough," he said.

Mexico allure

Galan also stressed that Iberdrola is still “very interested” in Mexico, where renewables still represent 45% of its business, including a 590MW wind portfolio and a broader 6GW pipeline renewables pipeline that includes 2MWGW “on track” for the next five years.

“This will allow us to continue growing and increasing and creating wealth and jobs in a core country for us,” he stated.

Galan said the impacts of the Mexico divestments are also expected to include a lowering of financial expenses, while co-investment with our partners will further boost the company’s cash position.

He argued that the completion last year of turbine installation at the 496MW St. Brieuc offshore wind farm in France gave the company a positive contribution of earnings (before interest, taxes, depreciation, and amortisation) that was roughly comparable to the reduction in Ebitda represented by the divestment in Mexico.

Quizzed again on how the company plans to invest, Galan offered a clue by singling out the network markets of the US, UK and Brazil for praise following recent regulatory moves.

“At this moment, in networks, we have huge opportunities. So in the United States, just in New York, our recourse commitment is €7bn of investment up to 2026, between transmission and distribution, plus probably another €3bn in transmission up to 2030," he said.

Turning to transmission in the UK, Galan added: "There we have huge demand and only in recent days we have for launched at an auction for £5.4bn for the purchase of equipment expecting to secure the supply chains for the future investment required."

"And in Brazil the situation as well, is huge. I think we have plenty of opportunities in networks in these countries," he added.