The chief executive of Spanish utility Iberdrola, Ignacio Galan, has warned of the prospect of financial disaster for the global renewable energy sector, reminiscent of the collapse of Enron.

Galan said, that the imminent end of cheap finance would have a damaging impact on the new players to the green energy market, adding that these new non-industrial entrants with little experience were making overly aggressive bids on contracts to build renewable energy, thinking its was a financial “el Dorado”.
Ignacio Galan of Iberdrola
“Because money is so cheap, many people who have no talent in the sector have been coming with an extremely high level of leverage,” he told the Financial Times. “With the change of the rates, there will be a clean up of the sector.”

As the company on Wednesday reported a 3.6 per cent rise in full-year net profit to €2.8bn and €32bn in investment over the next five years, he added: “I think that what happened with Enron [could happen again]. Enron was highly leveraged . . . and they had no talent as a utility or as traders. And what happened — it disappeared.”

Mr Galán was not accusing any new entrants in the renewable sector — some of whom are private equity or infrastructure funds — of the kind of false accounting that led to US energy trader Enron’s collapse in 2001. He was instead highlighting how cheap money was pushing some into a business they did not understand. The warning speaks to a wider fear about the potential disruption to global businesses as central bankers start to unwind a multitrillion-dollar experiment in ultra-loose monetary policy.

Mr Galán said: “Bankers always give an umbrella when it is not raining, but when it rains they ask for it back.”

Cheap money “has been one of the main triggers of price inflation of costs in renewable energy projects. If interest rates go up, non-industrial players will find it more difficult to get projects”.

Iberdrola itself is suffering from the competition represented by new players in renewables, failing to win any business in a recent 3 GW wind energy auction in its home country

Now however Mr Galán is bullish on future prospects, saying that rising interest rates in the coming years, and the subsequent “clean out” of competitions, could be good for Iberdrola in terms of winning renewable contracts at better prices than currently offered.

The company on Wednesday also said it was targeting net profit of €3.5bn-€3.7bn by 2022, up from the €2.8bn that it reported in the 2017 full year

Uncertainty with government policy in Iberdrola’s two biggest markets, the UK and Spain have had a negative impact.

Fiona Cincotta, a senior market analyst at www.cityindex.co.uk told Power Engineering International, “Cheap money doesn’t last forever and with the ECB looking to start hiking rates possibly at the end of this year or the beginning of the next, highly leverage firms are going to get stung. This clearing out as he referred to it, would be beneficial to the serious players in the sector such a Iberdrola, meaning contracts could be bid for a more reasonable prices.”