MADRID – In the winter of 2015, three directors of an electricity company in Connecticut met with a potential acquirer: a determined Spanish utility named José Ignacio Sánchez Galán, who surprised them with a bold vision for the American utility industry.
“It was very clear to him at the time that the United States had enormous potential for renewable energies,” said John L. Lahey, chairman of United Illuminating. “This guy was way ahead of where the US was six years ago.”
Mr. Galán signed this deal for United Illuminating for $ 3 billion. His company, Iberdrola, is now ready to begin construction of the first large offshore wind farm in the USA in waters off Massachusetts with a Danish partner. In total, Iberdrola and its subsidiaries reach 24 US states and invest in countries from Great Britain to Brazil to Australia.
For the past 20 years since acquiring Iberdrola, which is based in Bilbao and employs 37,000 people, Mr. Galán has been on a mission to improve the electricity utility industry, a fragmented collection of companies tied to aging coal and oil burning generators.
With an insatiable appetite for utility purchases and large investments in renewable energy, Iberdrola is now a global leader in combined wind and solar power outside of China, according to Bernstein, a market research company.
And it seems well positioned to capitalize on what is expected to be the clean energy boom in the years to come, as both the US and European countries Biden government tighten regulations and incentivize investments in green energy.
“Galán was without a doubt the chief executive of a major energy company who first understood that the energy transition from fossil fuels to clean energy is inevitable and will happen quickly,” said Miguel Arias Cañete, Spanish politician and former EU commissioner for energy and climate protection .
The changes at Iberdrola are taking place elsewhere as the electricity industry is being reconfigured not only by stricter environmental laws but also by taking advantage of immense magnitudes in purchasing wind turbines or solar panels.
Iberdrola is now one of the few utility companies, alongside Enel in Italy, Orsted in Denmark and Nextera Energy in the USA, that many analysts see as market leaders in a new generation of “renewable majors”, comparable to oil majors like Exxon Mobil and Royal Dutch Shell had a major impact on how the world used energy.
“All of this points to an industry where there are a relatively small number of very large companies that are economizing on scale in renewables and keeping costs down,” said Sam Arie, an analyst at UBS in London.
Iberdrola was primarily a Spanish electricity company in 2001 when Mr. Galán became Managing Director. Just a few years earlier, the 1997 Kyoto Protocol was signed, the first major international agreement calling on countries to reduce greenhouse gases in order to prevent global warming.
Many industrial giants vowed to fight emission reduction laws, but Mr Galán was delighted. In an interview, he said that he saw the deal as an opening for companies willing to invest in technologies such as wind and solar energy that would help reduce greenhouse gas emissions.
“Instead of being a problem, I saw it as an opportunity,” said Galán. The geopolitical trends of Kyoto were moving “in my direction”.
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As part of what was then considered a radical € 12 billion restructuring plan, Iberdrola sold a large part of its portfolio of carbon and oil-generating coal-fired power plants to instead invest in renewable energies and power grids.
Mr Galán admits that his proposals seemed risky as they coincided with the spectacular collapse of Enron, another ambitious electricity company.
But he pushed to expand, especially overseas. He remembered being drawn to investing in the US when he noted all of the wooden poles with power lines during a visit. If a country with such great technological capabilities still needed wooden poles to carry its electricity, there was plenty of room for a company like Iberdrola.
“He turned the company from a trailer into a leader in electricity and energy in general,” said Óscar Fanjul, former chairman of the Spanish energy company Repsol.
Mr Galán now plans to roughly double Iberdrola’s clean energy capacity over the next five years by investing not only 35 billion euros more in wind and solar energy, but also in emerging sectors like hydrogen, which the company says could be ready as wind power was taking off 20 years ago.
According to Iberdrola, which posted a net profit of 3.5 billion euros on sales of 36.4 billion euros in 2020, almost 80 percent of the planned investments are outside the home market.
Power generation is only part of Iberdrola’s business. It also builds and manages power grids and investments are expected to increase in this area as well. Electricity is becoming of central importance for cars and trucks as well as for heating at home. Therefore, the network systems required to deliver the electrons to households need to be significantly improved.
The field is likely to become more competitive as oil giants, particularly in Europe, invest billions of dollars in renewable energy to reduce the overall carbon content of their products. In February, major oil companies competed for options to build wind farms off the UK coast and the prices paid were criticized by some operators as being too high.
In the interview, Mr Galán shrugged off any competitive threat from Big Oil to confirm what Iberdrola had been doing for decades.
“I am very pleased that you are already using a photocopy” of the strategy Iberdrola printed 20 years ago, he said.
Analysts say there is much work to be done to meet the climate goals, enough for both Iberdrola and its rivals to thrive. “The market is growing very quickly and there is enough space,” said Meike Becker, an analyst at Bernstein in London. In addition, Ms. Becker said, Iberdrola orders so many wind turbines and solar panels that its size can give it a cost advantage of almost 20 percent over smaller competitors.
These days, Mr Galán’s position on Iberdrola seems to be as strong as ever. Iberdrola’s share price has tripled since he took office, although its acquisitions have also contributed to a hefty mountain of debt of over € 35 billion – about half of Iberdrola’s market value.
He has fought off challenges in the boardroom, such as one from another prominent Spanish manager, Florentino Pérez, president of Real Madrid football club. Mr. Pérez’s construction company, ACS, acquired a 10 percent stake in Iberdrola in 2006, a move that Iberdrola initially welcomed as a possible Spanish ally against a takeover bid. But the relationship deteriorated when ACS tried to increase its seats on the board. ACS was eventually sold.
The company has recently been involved in a court scandal involving a former police inspector whose security company was hired by Iberdrola and many others. Mr Pérez has joined the case as a sole plaintiff and his allegation that Iberdrola spied on him rekindled his old feud with Mr Galán. Iberdrola insists that nothing has been done wrong.
But for a leader known for making bold bets on the future, 70-year-old Galán has yet to announce transition plans. He maintains tight control as both chairman and chief executive officer and says he has no interest in retiring after calling himself the “dean of all business leaders in Europe”.
Some analysts say privately that he should have a successor. His son and son-in-law are both managers at the company but are not considered ready to move into the executive suite and his deputy is 64 years old.
“I think I just have to keep growing and running this company,” he said.
Stanley Reed reported from London and Raphael Minder from Madrid.