Iberdrola chief unveils energy network investment

Iberdrola: Plans to boost UK's electricity infrastructure. Picture: ContributedIberdrola: Plans to boost UK's electricity infrastructure. Picture: Contributed
Iberdrola: Plans to boost UK's electricity infrastructure. Picture: Contributed
BRITAIN’S ageing electricity infrastructure is expected to receive a boost from the Spanish owner of Scottish-Power this week when it reveals a multi-billion-pound investment plan.

Iberdrola will say it is devoting the lion’s share of its spending in the next three years to its overseas subsidiaries because of the chronic economic woes in its home market.

Chief executive Ignacio Galan is expected to confirm that, as part of this investment, ScottishPower is to return to the British energy regulator in mid‑March to seek a green light on a major distribution network upgrade.

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Ofgem decided last November not to fast-track ScottishPower’s proposed £5.2 billion investment to upgrade the local distribution networks covering 3.5 million customers in central Scotland, Merseyside and north and mid Wales.

It is understood Ofgem gave the company a “red” negative rating on its proposed cost efficiencies. The regulator also demanded extra clarity on “asset data” – the quality of the existing lines, substations and so on of the current network, and how energy losses can be reduced.

Galan is expected to tell a capital markets day in the City alongside Iberdrola’s annual results on Tuesday that he is also confident ScottishPower can convince Ofgem that it can meet its “ambitious” targets for customer satisfaction.

ScottishPower Energy Networks currently manages 105,000km of power cables and 30,000 substations in 
central Scotland, Merseyside and parts of Wales. Many of them were installed between the 1950s and 1970s and are approaching the end of their operational lives.

ScottishPower, which claims the upgrade would create 2,500 jobs between 2015 and 2023, has also said it would further reinforce power lines and substations in rural areas to combat the effects of severe weather.

Galan, whose group acquired the company in 2006, will give details of Iberdrola’s wider investment plans covering 2014-16.

The focus is expected to prioritise overseas expansion, even though there will be Spanish projects as well. This would continue the strategy of the past two years where the bulk of Iberdrola’s investment has been abroad, with Spain mired in towering debt and unemployment.

Between 2012 and 2014 about 42 per cent – or £4bn – of Iberdrola’s total investments of ¤10.5bn (£8.6bn) have come to the UK, 24 per cent to Latin America (primarily Mexico and Argentina), 17 per cent to the United States and only 17 per cent to Spain.

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One utilities analyst said: “I expect Iberdrola to say that most forward investment will be focused on regulated assets – mainly distribution and longer-distance transmission networks. Also renewables, where returns are also largely regulated, stable and predictable.”

It is understood the group believes that the US and Mexico have attractive investment opportunities. The Mexican government has opened up its power generation market, while Galan has been looking at additional distribution prospects in the US.

Iberdrola’s earnings are expected to have fallen in its latest financial year, partly due to difficult trading in Spain.

The City consensus forecast is for underlying earnings in 2013 of ¤7.4bn (£6.1bn) and net profits of ¤2.6bn (£2.1bn). That compares with earnings in the previous 12 months of ¤7.7bn (£6.3bn) and net profits of ¤2.8bn (£2.3bn).

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