Iberdrola SA CEO Ignacio Galán described Oct. 27 an improving environment in the Spanish electricity market following clarifications by the government over the scope of its measures to prevent surging wholesale gas prices from sending consumer energy bills spiraling.
The government launched a plan in September to claw back windfall profits made by low-carbon operators, including Iberdrola, during the price surge. The government approved the law Oct. 26, clarifying that energy sold in bilateral power purchase deals will be excluded from mechanism.
All fixed-price contracts made before Sept. 16 will be exempt from the levy, which obliges sellers to refund the bulk of their income from sales on the market as long as gas remains above €20/MWh, the government said.
"This represents a certain improvement in the situation," Galán said on Iberdrola's third-quarter earnings call, during which the company reported a decrease in reported net profit in the first nine months of 2021.
The decline was attributed to the effect of deferred taxes in the U.K. and the capital gain recognition in 2020 from the sale of the company's stake in Siemens Gamesa Renewable Energy SA. But it is also due to the recent surging energy prices, especially in key markets like the U.K. and Spain in recent months.
"The result has been affected because in some cases we have been forced to buy electricity on the market. What is happening in Britain, Spain ... is affecting results," Galán said.
The elevated energy prices are intensifying existing inflationary pressures from high steel and copper prices, a phenomenon the wind equipment sector has already warned will lead to higher costs for upcoming projects.
Galán doubled down on his stance that the company is well-placed to weather this hike. Equipment for most upcoming installations has already been bought, most of the power for this year and next has already been sold forward, and the company's large regulated business is sheltered from the impact, the CEO said.
"That's what's allowing us to be confident in our results for this year and next," Galán said.
Looking ahead, the CEO "[expects] the regulatory context in Spain to return to normality," and the connection of new renewables capacity to further contribute to results. Wind speeds in key market U.K., which reached long-time lows earlier this year and plagued offshore players in the sector, are also expected to recover, Galán said. As a result, Iberdrola confirmed its net profit and dividend guidance for the year.
In addition to the gas clawback, Spanish regulators launched a carbon clawback law earlier this year, targeting chiefly older low-carbon assets that have benefitted from higher prices brought about by Europe's post-2005 carbon pricing regime.
Pointing to the success of the EU Emissions Trading System, the bloc's carbon market, at bringing down emissions, Galán said, "There is no need to interfere with a system that works properly." With its "polluter pays" principle and the ability of the market stability reserve mechanism to regulate credit supply, the system already does its job, he argued, without the need for additional national interference.
"It makes no sense that those who are not polluting pay, in some cases even more," the CEO told analysts.
Asked whether the uptick in regulatory interference in recent months has damped the attractiveness of Spain as a place to do business, Galán said, "These measures did concern our investors and we must revise the situation. [But] we've never stopped investing in Spain."
