For most of 2020 companies across the globe have been pulling back on investments in the face of the COVID-19 pandemic. Retrenchment has been the order of the day, with precious few seeking to make major acquisitions. But there is a notable exception to this pattern exemplified by a Spanish energy company, one that is aggressively pushing forward on their global growth agenda via strategic acquisitions.
The company is Iberdrola - a multinational electric utility company based in Bilbao, Spain. They have a workforce of 34,000 employees in dozens of countries on four continents serving over 31 million customers. Subsidiaries include Scottish Power and a significant part of Avangrid, amongst others. The company is the number-one producer of wind power, and one of the world’s largest electric utilities based on their market capitalization of $ 82.34 billion USD.
Iberdrola characterizes themselves as “The Utility of the Future.” As Ignacio Galán, Iberdrola Group Chairman has observed “After 20 years of anticipating the energy transition, our business model positions us a key agent in the transformation of the industry fabric. With our experience, our engagement with society and our financial strength, we are advancing a model for long-term sustainable economic growth capable of meeting the current challenges of society.”
Aggressive Growth Through Acquisitions
Iberdrola’s growth has been fueled by acquisitions. A recent example when their US arm Avangrid Inc. agreed to buy PNM Resources of New Mexico for $4.3 billion, their largest transaction in the US to date. It makes Iberdrola the third-largest renewable energy operator in the US, now operating in 24 states. This deal is their eighth acquisition since the start of the coronavirus pandemic, coming weeks after they bought Infigen Energy of Australia.
The purchase gives Iberdrola a bigger presence in the U.S. Southwest, expanding beyond Avangrid’s territory in the Northeast. It breaks a months-long dry spell for utility deals in the US and it continues a strategy by Galán to grow beyond the Iberian Peninsula and build a business with worldwide reach in power grids and renewables plants.
“Iberdrola has definitely been very interested in U.S. plain-vanilla utilities,” said Kit Konolige, utilities analyst for Bloomberg Intelligence. “This fits the Iberdrola playbook.”
Overall, this year’s buying spree has helped boost Iberdrola’s pipeline of future power projects to more than 70 gigawatts of capacity. That’s 40% more green energy than BP Plc has said it plans to have ready to go in the next decade, the most ambitious plan among European oil majors.
Galán is seeking to bring Iberdrola into new markets in the most developed economies, firming up routes to build more green power projects in the coming years. He has seen the coronavirus-induced economic downturn as an opportunity to boost their acquisition spending.
Future Focused Business Model and Strategic Pillars
Iberdrola is focused on major trends in the energy sector — the decarbonization of the economy to combat climate change and air pollution, the need for more energy production to cope with increasing demand, the development of streamlined processes to handle growing competition and a new customer-oriented approach that delivers more information with a proactive attitude. These trends have helped them define their three global businesses: Networks, Renewables and Wholesale and Retail, with all of these being customer-centric.
The Iberdrola group accelerates the creation of value through five strategic pillars: geographical diversification, energy transition, efficiency, portfolio optimization and, finally, innovation.
Investing in the Future
Iberdrola recently announced plans to invest €75 billion in its renewable energy production, grids and retail operations by 2025 to capitalize on growing demand for clean power.
Pursuing the opportunities created by the “energy revolution” facing the world’s major economies should help to boost net profit by more than 40% from 2019 to €5 billion in 2025, Iberdrola said.
Renewable companies have struggled to generate big profits, while fossil fuels have provided easier margins, but as COVID-19 lockdowns have hobbled energy use and hammered oil and gas markets, the investment focus has been transformed.
Oil and gas companies, including Royal Dutch Shell RDSa.L, BP BP.L and Total TOTF.PA, are moving towards renewable power, but Iberdrola's new spending plan eclipses their combined planned investments in low carbon.
Other utilities are joining Iberdrola in building green capacity and wind energy is set to reach record growth globally over the next five years.
Denmark's Orsted ORSTED.CO is in the midst of a $30 billion investment plan and Italy-based Enel ENEI.MI, the region's leader, has set aside 14.4 billion euros to build renewables capacity and phase out coal between 2020 and 2022.
Even in the context of all this competitive activity, Iberdrola has emerged as the “leader of the pack” in term of having created a strategic plan for growth in the sustainable energy sector, with all appearances that they now have the wind at their back (pardon the obvious pun).