€20bn listing boosts wind farm growth by Tim Webb

(Energy East take over by Iberdrola means local electric rate will skyrocket)

Spanish group to float world's largest renewables company as green power industry blows hot

Published: 09 September 2007

Iberdrola, the Spanish energy giant that bought ScottishPower last year, will raise up to €4bn (£2.7bn) when it floats the world's largest wind power company.

The Spanish hope to list their Iberenova division, which analysts say will be valued between €16bn and €20bn, next month – in Madrid and not in London, like the parent company.

Iberenova is the world's largest wind farm operator and owner, with a portfolio of wind farms with 6,500MW capacity, as well as 350MW of hydro power in operation – equivalent to about a tenth of the UK's total generating capacity – and a further 40,000MW of planned wind farms in the pipeline. Included in the portfolio are the wind farms owned by ScottishPower, made up of 1,750MW operating capacity in the US and 360MW in the UK.

By selling one-fifth of the subsidiary's shares, Iberdrola will raise capital to finance its planned developments. The construction of wind farms requires a large upfront investment – typically just under £1m for every MW of an onshore farm. However, wind farms cost almost nothing to run compared to coal and gas plants.

Credit Suisse, JPMorgan, Merrill Lynch, Morgan Stanley and the Spanish bank BBVA are handling the float. Bankers are still working on the shareholder prospectus and are planning roadshows for prospective investors.

Iberdrola confirmed last month the division would be spun off in the final quarter. It wants to get the float away early next month if possible, with the new company having an English name.

Iberdrola bought ScottishPower in November for £11.6bn in cash and shares. Banks arranged a debt financing package of £8bn to pay for the acquisition and help refinance debt. Raising up to €4bn from the float to fund Iberenova's expansion will help free up Iberdrola's balance sheet.

The wind farm industry has grown massively in recent years as government subsidies, high oil prices and economies of scale start to take effect. Airtricity, the Irish wind farm company run by Eddie O'Connor, with over 10,000MW of wind farms at the planning stage, is rumoured to be looking to sell its US operations for a reported £1.5bn. The company, which is 51 per cent owned by infrastructure company NTR, could also be floated by its parent.

Mr O'Connor has ambitious plans to build dozens of huge offshore wind farms between the UK, Germany and the Netherlands in the North Sea, connected by a European offshore "super grid" to provide the continent with renewable energy. Spreading the wind farms wide enough should ensure that the wind is always blowing and the turbines turning somewhere.

Airtricity has already submitted plans for the first stage of the project, to build a 10GW wind farm – enough to provide power to over three million homes – consisting of about 2,000 turbines which would cover an area of 3,000sq km.

Despite moves towards more economic and regulatory integration, a Europe-wide electricity market has yet to emerge. A North Sea grid, which would need international regulation, could be the first step towards this. Mr O'Connor wants support from the three countries and the European Union, as well as a commitment from the European Investment Bank to underwrite the debt required to finance the project.