The US is moving ahead of the EU as a more attractive destination for clean energy investment as government responses to the cost of living crisis vary, according to one of the world’s largest energy companies.
Ignacio Galán, executive chairman of Iberdrola, says that although the EU was the first to act decisively on decarbonisation, the balance has shifted due to green incentives in new US activity. Inflation Reduction Act has made it a “much more attractive” investment.
In an interview with the Financial Times, the head of the Spanish conglomerate lamented the EU’s proposed cap on revenue from power generation as well as Spain’s expected wind tax on with their largest energy companies, including Iberdrola. “The key issue is that these measures can create uncertainty,” says Galán.
His comments point to global tensions as governments take different paths in the battle to manage rising costs of living and the economic downturn while continuing to drive the transition to cleaner energy.
Galán was speaking ahead of the announcement of a 2023-25 investment plan on Wednesday for Iberdrola, Europe’s largest utility company by market value ahead of Italy’s Enel and already with operations spanning from USA, Brazil to Australia.
Iberdrola plans to invest 36 billion euros in power generation and renewable energy networks, of which the US receives 34% of which, the largest share. It is also close to completing a 9 billion euro acquisition US PNM Resource Groupwill receive 2 billion euros in investment, bringing the share of US investment to 47%.
Galán welcomed the Inflation Reduction Act, an economic package passed in August that provides $370 billion in tax dollars for wind and solar power, batteries and other green technologies. “The US government has taken longer to take the topic of climate change seriously. But now they’ve committed to that and they’re providing all that’s needed,” he said.
He praised US legislation promoting electrification through zero-carbon vehicles and heating systems, while providing a solid framework for the next 10 years.
A good example of its scale, he said, is green hydrogen, an alternative fuel created with renewable energy. He said that the US is providing about $100 billion to produce it, while the EU – which has green hydrogen in its long-term plan to reduce dependence on Russian gas – is providing only $5 billion.
But Iberdrola is far from abandoning the EU. In its 2023-25 investment plan, Spain will receive 17% of the capital and other EU countries, including France, Germany and Italy, will receive a total of 12%. The UK, which owns ScottishPower, will receive 20%.
Iberdrola is looking to participate in a series of green projects funded by the EU’s 800 billion euro coronavirus recovery fund, which began to be distributed last year, and Galán stressed that the European Commission has committed to providing provide more renewable energy.
However, he was optimistic about the response to the crisis caused by fallout from Russia’s invasion of Ukraine and record-high gas prices.
The EU was wrong, he said, with its proposal to impose a €180/MWh cap on electricity revenues of non-gas power producers. “The energy crisis is about gas,” he said. “If instead of the gas market you intervene in the electricity market, the result is less investment in clean electricity and ultimately more dependence on gas.”
Such moves have negated the “sure, stability, predictability” investors need, he said. “If you intervene at €180, why not €67, where the limit is in Spain? And why not 120 € tomorrow? “
While the EU is proposing a wind tax on only oil and gas groups, Spain has proposed a temporary 1.2 per cent tax on the revenues of the country’s largest energy corporations.
Despite the Socialist-led government’s rhetoric about “excessive” corporate earnings, Galán said Iberdrola’s profits in Spain fell 14% from a year ago in the last quarter. That’s largely because the company sells a lot of its electricity through long-term contracts with fixed prices based on production costs, with average wholesale prices currently around €70/MWh.
If the income tax comes into effect as envisioned, “we will go to court to protect the interests of shareholders,” he said.
When asked if the tax would make Iberdrola less likely to invest in Spain, he replied: “It certainly doesn’t make Spain more attractive for investment. Not just for us, for everyone. “
For the nine months to the end of September, Iberdrola reported a global net profit of €3.1 billion on sales of €37.9 billion.
The US, where it owns Avangrid, is the company’s largest investment destination, but the country’s rate of new funds this year is 25%, lower than the rate set for 2023-25. Latin America will receive 14% of the total over the next three years.
“The world is in the midst of a crisis, so our priority is to invest as much as we can without risking our financial soundness,” said Galán.