Iberdrola backs subsidies freeze on renewables 

The world’s leading onshore wind farm owner has applauded the Spanish government’s renewable subsidies freeze, saying it is a sensible move for a country that has been paying too much for electricity it does not need.

“What we were doing was irrational,” said Ignacio Galán, chairman of Iberdrola, which is also Spain’s biggest power utility by market value.

Two weeks ago the Spanish industry minister, José Manuel Soria, announced a temporary halt of subsidies for all new power plants using renewable energy, to help to curb the country’s €24bn electricity “tariff deficit”. This is the accumulated difference between what consumers pay and what it costs suppliers to deliver subsidised electricity.

The move prompted an outcry from some in the clean energy industry. But Mr Galán, whose company is the largest wind power operator by installed capacity, said there was already twice as much electricity capacity as needed at times of peak demand in Spain, where renewable power accounts for about a third of electricity use.

In addition, Iberdrola’s chairman said, Spain had spent millions subsidising relatively costly renewable energy technologies such as solar power, which accounts for 13 per cent of the cost of Spanish electricity but produces only 3 per cent of electricity supply.

“It makes no sense,” Mr Galán said in an interview with the Financial Times. “Spain is installing the most expensive technologies in Europe instead of looking for those which are cheapest.”

Analysts said Iberdrola’s backing of the suspension of clean power subsidies might seem strange for a company with so many renewable energy assets, but that it made sense considering the fears groups had about retrospective reductions in support.

“They were very concerned about the possibility of the government introducing retroactive cuts,” said Eduardo Tabbush, European wind analyst at the Bloomberg New Energy Finance analysis firm. “That would have affected all their installed asset base. It would have been a disaster for them.”

Shai Hill, utilities analyst at Macquarie Securities, said although the freeze did not involve any retrospective measures, it was still possible these could be announced in future. But he said the greatest danger for Iberdrola would be a windfall tax on nuclear and hydro power.

Mr Galán, who was speaking in Iberdrola’s newly opened office in central London, also raised concerns about future energy policy in the UK, where Iberdrola has made significant investments in the last six years, including buying Scottish Power utility.

He said the group was ready to invest billions more in UK energy infrastructure but made it clear the regulatory framework had to make it possible to achieve sufficient returns.

It is estimated that as much as £200bn will have to be invested over the next 10 to 15 years if the UK is to replace old power stations with new, lower carbon plants, including nuclear and renewable installations. The government hopes an electricity market reform Bill due to be introduced in parliament in the spring will encourage the required investment.

Iberdrola has teamed up with France’s GDF Suez to develop plans for a new UK nuclear plant, with a final investment decision due in 2015, but Mr Galán said much more regulatory clarity was needed from the government.

”The area that has the most uncertainty is the area of nuclear. We still don’t know how it’s going to be properly paid – what the return will be,” he said. “The decision to go ahead is not going to be taken until the moment the framework is clear and predictable enough, with enough remuneration for those investments.”