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Winds of change  

The setting could not be more different to ScottishPower’s modern, functional headquarters on the Clyde. Amid the ornate splendour of the historic Madrid Stock Exchange, its ceiling decorated in cathedral-style motifs of Spain’s great trading cities, Ignacio Sánchez Galán spelled out what is in store for electricity users in Scotland over the next three years.

Control shifted from Glasgow to Bilbao in northern Spain in April, after Iberdrola acquired ScottishPower in an £11.6bn deal that helped turn the Spanish parent into the world’s fourth-largest electricity company.

As Galán made clear in his presentación del plan estratégico, the company has not only grown quickly, it is likely to accelerate. Despite having only 162 days of ScottishPower trading in the books, the chairman was able to report a rise of 30.5% in nine months’ profits. With a big acquisition in process in America and the flotation of its renewables business still to come, it was perhaps unsurprising that Galán could not stop talking about the company’s progress.

He spoke without hesitation for 40 minutes, outlining a strategy for 2008 to 2010 that involves focusing on the renewables energy sector – essentially wind power – and improvements in the efficiency of ScottishPower. He was less clear on what this might mean for customer bills, but he assured his audience of advisers, media, analysts and other interested observers that the planned savings did not involve job cuts.

Galán wanted to focus on growth and expansion, and so his presentation was heavily laced with boasts about the transformation of the company since 2000, during which it has multiplied in size by 4.5 times, increasing its value from €12bn to €55bn. It has 27 million customers, 30,000 employees and 41,000 megawatts (mw) of installed capacity in 30 countries.

It has also become the world leader in wind power with more than 7,300mw in place and a pipeline of 41,000mw. Wind energy is regarded as vital as energy resources diminish and prices rise. It was a key reason why Iberdrola bought ScottishPower, not so much for its Scottish assets, but for the Glasgow company’s PPM Energy business in America, where it is the second-biggest player. If last week’s presentation gave a glimpse of what may lie in store for Scotland, the emphasis of the €24bn headline investment planned for the period was its growth in the US.

It is processing the €6.4bn acquisition of Energy East, a distribution company based mainly in the eastern seaboard states around New England, that will add to the mainly west-oriented PPM. This will go some way towards Iberdrola’s plan to double its net profits by the end of the plan period against 2006.

The company will invest €17.8bn in organic growth and €8.6bn in renewables. More than half this latter figure (€4.6bn) will be invested in America, where the company has noted legislation passing through Congress, which aims to increase the contribution of renewables to the amount primary energy consumed to 15%. While the UK will get €1.2bn investment in renewables, José Luis del Valle, the outgoing chief executive of ScottishPower, says that slow planning procedures in the UK does tend to hold things up. Nevertheless, the company will add 800mw of capacity over three years to the 400mw already produced from renewables in the UK. “Development at that rate is not bad,” said Del Valle, who has combined his role at Atlantic Quay in Glasgow with that of director of strategy and development at HQ.

The Spaniard, who speaks fluent English and spends up to three days a week in Glasgow, led the integration which he now declares complete, and he is due to leave Scotland in the spring to take on another role which will embrace the UK and US operations. “The integration team has closed shop this month,” he said in a pre-presentation briefing. “We know what needs to be done and the integration team’s work is now over.” Iberdrola is looking for a British executive to replace the Spaniard.

Del Valle’s optimism proved to be understated. He expected synergistic benefits to rise from €130 to €200, which his chairman later uprated to €260m. These savings will come, not from job cuts, but from improvements in the way the company operates, and that means investment in systems. Iberdrola has fewer of the customer debt problems experienced in the UK, so there will be better billing and debt recovery. Smart meters, however, a system widely used in Spain, will have to await further deliberation and the support of the energy regulator. If such a system were introduced, Iberdrola would be ready and willing to move in. “The technology needs to be compatible to all users,” said Del Valle. “Those discussions are on-going in the UK, but we do not see a conclusion. If it comes about it will be good for the supplier and good for the customer, and we would look at it.”

The company’s integration may be complete, but its development into a truly multinational enterprise with a mobile workforce is a continuing process. Del Valle wants to see more Scottish staff move to Spain. So far, fewer than five have made the move and attempts to persuade some senior executives have met with resistance. “We would have liked more to transfer but the language barrier has been a problem. But we are not throwing in the towel. There are a lot of opportunities and we will have Scots running key divisions.”

Last week’s announcement contained few big surprises, though it added some detail and scale to what had been promised during the takeover of ScottishPower. Del Valle will hand over ScottishPower to his successor with a €3bn investment bounty to improve the quality of service and €900m for generation. Iberdrola also confirmed its £1.5bn investment into a feasibility study for clean coal technology at Longannet and Cockenzie power stations, which had been committed earlier, though the company’s position now appears to have shifted from ‘whether’ to ‘when’ it will install the ‘supercritical’ turbines that will reduce their emissions by 20%.

New money, however, was an issue and Del Valle admitted that the credit crisis had forced the company to scale back its plans. Had there been no squeeze on the financial markets, the investment could have been higher. “We could have found another one to two billion,” he said. “We had more projects at group level, but we had to scale them back because of the market.”

This scaling back was partly to maintain its position among credit-rating agencies, he said. “Funds are not so readily available as they were. I think we would have been more aggressive than we are today.”

By Terry Murden

The Scotsman

28 October 2007

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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