With the Olympics summer of 2012 quickly becoming a dim and distant memory, it’s back to work with a vengeance for everyone, with the power industry no exception. As we enter the third fiscal quarter and hurtle towards the end of the year, it is commonly a popular time for companies to make important announcements, whether they be impending deals, the completion of long-awaited negotiations or the launch of new technology.

One recent business story that has hit the headlines is the potential sale of Iberdrola’s minority stake in UK utility Scottish Power, although Iberdrola has remained steadfastly quiet on the subject.

Since 2008, Iberdrola has been selling off what are deemed as non-core assets as the Spanish utility battles to reduce its net debt, totalling just under €30 billion ($39 billion), as of June this year. This debt is a result of Iberdrola’s ambitious plan, spearheaded by its CEO, Jose Ignacio Sanchez Galan, over the last decade, to transform itself into a global business; a plan that has been highly successful. However, few would argue that it is wise to hold long-term debts at such a level, especially in the economically straitened times that Europe finds itself in.

According to a company press release, Iberdrola expects to achieve asset sales of up to €2.5 billion between 2010 and 2012. And, this year alone, it has sold its gas distribution assets in Spain, as well as three US-based companies: The Energy Network, Hartford Steam Company and CNE Power I. It also agreed to dispose of its New York-based unregulated gas and electricity retail companies Energetix and NYSEG Solutions. And, most recently, it completed the sale of its 13.25 per cent stake in Gas Natural Mexico to Japan’s Mitsui.

If the media reports prove to be true, the decision is unlikely to be part of Iberdrola’s ongoing non-core assets divestment programme. Scottish Power is clearly a core asset of the Spanish utility – one of the UK’s ‘Big Six’ energy companies and a profitable business. So why would Iberdrola look to sell a stake in this business?

If you dig a bit deeper, you find that the potential stake relates to Scottish Power’s regulated business, which comprises its high-voltage transmission and electricity distribution operations. According to a report in the Financial Times, these UK operations provide “stable and predictable revenues” because they are regulated, making a stake, albeit a minor one, attractive to what it calls ‘passive infrastructure funds’.

In February of this year, Ignacio Galan confirmed that Iberdrola was planning investments totalling £12 billion ($19 billion) in the UK over the course of this decade. Thus, the sale of a stake in Scottish Power would certainly help to fund this ambitious investment programme, seen as very good news for the UK power market.

What’s not such good news is the energy regulator Ofgem’s recent warning that Britain risks facing power shortages in the winter 2015–16, with spare capacity predicted to fall from the current 14 per cent to just 4 per cent over the next three years. In its report, Ofgem blames the early closure of the nation’s coal-fired power stations and EU environmental legislation. This finding will surprise few, considering that many in the UK power industry have been warning of a mid-decade power deficit for a number of years.

And any threat of a looming power shortage in the UK is not going to be helped by the latest development in its nuclear power sector. Areva of France, together with China Guangdong Nuclear Power Corporation, had been touted as the ‘bidder of choice’ for the Horizon Power joint venture, which RWE and E.ON walked away from earlier this year. However, the Franco-Chinese partnership is reported to have decided against pursuing the deal. This now leaves a consortium led by Hitachi, up against Toshiba’s Westinghouse Electric. Uncertainly once again prevails.

Where this leaves the future of the UK’s nuclear power sector, which was looking pretty positive not so long ago, is anyone’s guess. But the news must have dismayed David Cameron as Britain gears up for the publication of the long-awaited Energy Bill, promising the largest shake-up of the electricity market in decades.

In terms of reinvestment in the UK power sector, the sale of a stake in Scottish Power, even a minor one, would be good news

alt   Heather Johnstone, Chief Editor