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December 15, 2009 7:29 pm
Energy prices will have to rise if companies are to make the investments needed to cut carbon dioxide emissions, the head of the world’s largest wind power company has said.
Ignacio Galán, the chief executive of Iberdrola , the number one generator of wind power in Europe, and number two in the US, through its subsidiary Iberdrola Renovables, said consumers should “pay more [but] consume less”.
He also said the Spanish energy utility hoped for about another $470m in stimulus funding for renewable energy projects in the US next year, having received $600m this year, making it the single biggest recipient.
Iberdrola suffered a 23 per cent fall in net profits for the first half of the year, in part as a result of restrictions on the retail price of energy such as Spain’s social tariffs, which cover two-thirds of the population. In the UK, where Iberdrola is one of the largest suppliers thanks to its 2007 acquisition of Scottish Power, there has also been strong pressure on prices from regulators and politicians.
Speaking on the fringes of the Copenhagen climate change talks, intended to agree a new global framework for curbing carbon dioxide emissions, he said the industry had to make huge investments to deliver the changes that politicians wanted.
These changes include the development of low-carbon generation such as wind and nuclear power, and equipment to raise energy efficiency such as “smart” grids and meters, he said.
“Those things cost money. What is the price of energy needed? The one that will transform the energy mix in the country.” He cited the estimated need for £200bn ($324bn) of investment in the UK’s energy infrastructure as an example. “Unless the companies expect a proper return, no bank is going to invest, and the country is going to have a problem.”
He argued that energy bills were still a very small proportion of household costs. “We are now in discussion in Spain about the prices for next year, and we are talking about one euro per month per family. What is that?” he said. “In the UK it is the same thing as well: what is an increase of 3 per cent? It is a pound per month per family!”
Iberdrola plans capital spending of about €4.5bn-€5bn next year, in line with this year’s level, although well down from last year’s €6.7bn. “This year the main target for us was to keep an A rating, and to maintain the rating we have been very strict in maintaining our ratios for cash flow to debt, ebitda [earnings before interest, tax, depreciation and amortisation] to debt and so on.”
However, Mr Galán says Iberdrola has prioritised investment in renewables, and the slowdown has hit construction of traditional fossil fuel power plants.
Spending on wind farms is continuing at a rate of about €3bn-€4bn per year, and Iberdrola is planning to sustain that into the next decade.
“Our vision of this crisis is that we are trying to do the best to maintain our financial solidity in the middle of this storm,” he said. If the company can emerge from the crisis with its gearing below 50 per cent, ebitda growing at 3-6 per cent per year, and net profit at about the same level of about €2.8bn per year, and to keep its dividend level, “we will be very happy and very satisfied,” he added.
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