Political Entrepreneurship: The Case of Iberdrola Wind

Posted September 16, 2011 | folder icon Print this page

The scandal surrounding Solyndra is of course a hot topic these days, but we shouldn’t think this is an isolated example. We previously documented the sordid tale of Abengoa, a Spanish-headquartered firm that sought government subsidies and mandates for its business success. In today’s post we’ll paint a similar sketch of Iberdrola, a Spanish-based renewables company specializing in wind.

Iberdrola

According to its website, Iberdrola is “the number one energy company in Spain, the world’s top wind power producer and one of the largest utilities internationally.” Its U.S. subsidiary, Iberdrola Renewables, “is the second-largest wind operator in the U.S. and also operates more than 621 MW of gas-fired generation and more than 129 BCF of owned and contracted U.S. natural gas storage.

The Spanish parent company Iberdrola was specifically mentioned in the famous Calzada green jobs study as one of the rent-seeking firms benefiting from government handouts (to the detriment of economic efficiency and taxpayers). As we’ll see, the U.S. subsidiary has played a similar game in our country, using American taxpayers for business “success.”

No Renewables Company Left Behind

Iberdrola Renewables has benefited greatly from its cozy relationship with the U.S. federal government. From the company’s press release of September 1, 2009 we learn.

Iberdrola Renewables, Inc. today confirmed it has received US Treasury Department approval of five grants totaling $294,889,003 supporting new wind energy projects in four states. These grants represent investment by Iberdrola Renewables of approximately $1 billion in US wind power.

The grants were authorized under the American Recovery and Reinvestment Act in lieu of renewable energy production tax credits (PTCs) typically provided to wind generation facilities. Grants were awarded to the Peñascal Wind Project (Texas), Moraine II Wind Project (Minnesota), Locust Ridge II Wind Project (Pennsylvania), and Hay Canyon and Pebble Springs Wind Projects (Oregon).

“The approval of these grants today is a key event for Iberdrola Renewables,” said Ralph Currey, President and Chief Executive Officer. “Switching from the PTC to the grant program was made necessary by the collapse of US financial markets last fall. This change will enable our company and others to keep investing in new renewable energy while the financial markets mend. Thanks to the grant program, Iberdrola Renewables is proceeding with new renewable investments in 2009 and will continue to do so next year and beyond.”

As the part we’ve put in bold indicates, Iberdrola Renewables was dependent on taxpayer-financing. Private investors, with their own money on the line, would not have taken such a risk. But alas, officials in the Obama Administration decided to make that decision for them—and other taxpayers.

The American Recovery and Reinvestment Act was definitely a “stimulus” for Iberdrola, because it was the subsidy that kept on giving. On September 22, 2009, Iberdrola issued another happy press release:

Iberdrola Renewables, Inc. today confirmed it has received US Treasury Department approval of three additional grants totaling $250,953,367. These grants represent investment by Iberdrola Renewables of approximately $860 million in US wind power in three states.

The grants for three additional wind farms put into service in 2009 result in a total of almost $550 million in Stimulus grants awarded to eight Iberdrola Renewables projects. To date, the company has submitted eight grant applications for new renewable energy projects totaling 980 megawatts (MW) of generation and more than $1.8 billion of investment by Iberdrola Renewables, and received grants for all eight.

The grants were authorized under the American Recovery and Reinvestment Act in lieu of renewable energy production tax credits (PTCs) typically provided to wind generation facilities. Grants were awarded to the 160 MW Barton project (Iowa), 146 MW Farmers City project (Missouri), and the 120 MW Barton Chapel project (Texas). The financial crisis of last fall took away the ability of many renewables companies to use the PTC, jeopardizing investment in renewable projects.

Iberdrola’s success depends on government favoritism. Just as Time magazine, which reported:

With operations in 23 countries, including Britain, Romania and Brazil, Iberdrola Renovables is rolling hard and fast, nowhere more so than in the United States. Chairman Ignacio Galán could not be more effusive about his company’s prospects there, calling the Obama Administration’s support of renewables an “unprecedented success.” The company’s rapid-fire growth was made possible by President Obama’s decision to invest heavily in renewable energy to fight climate change — and recession — under his economic-recovery plan. As part of that plan, Iberdrola received over $1 billion in cash grants from the U.S. Treasury, the biggest sum ever awarded to a renewable company anywhere.

Defenders of Iberdrola might ask, “So what?” After all, just because a wind power company receives government handouts, doesn’t mean there’s anything suspicious going on. Or does it?

Iberdrola’s Lobbying

We don’t want to burst anyone’s misconceptions about how government grants work, but it turns out Iberdrola mail-room workers weren’t shocked to discover hundred-million dollar checks coming in out of the blue. Iberdrola officials have worked closely with the government to achieve the “unprecedented success” courtesy of American taxpayers.

For example, in March 2009 Senator Harry Reid let the cat out of the bag on the crafting of “The Clean Renewable Energy and Economic Development Act of 2009”:

Fortunately, Nevada and other parts of the desert southwest have enough solar energy potential to power our country seven times over.  If that potential is combined with the wind energy from the Great Plains and the hundreds of thousands of megawatts of geothermal energy deep beneath the earth, the whole country could have cost-free fuel for many generations to come.

Innovators and entrepreneurs in every state have already begun to harness this power. But the field is in its infancy – and it will only mature with significant and sustained support and attention at the federal level.

Mr. President, the need for reform is very clear. That is why I am introducing a bill today that charts a course to a cleaner, greener and smarter national energy transmission system without sacrificing reliability or affordability. This will ensure a more secure and sustainable energy future for America.

Here are just a few of the organizations that provided valuable input in the drafting process for this bill: The Energy Future Coalition; the Center for American Progress; the Pickens Plan; Energy Foundation; Sierra Club; Natural Resources Defense Council; National Wildlife Federation; Audubon Society; The Wilderness Society; Bonneville Power Administration; Western Area Power Administration; Tennessee Valley Authority; Bureau of Land Management; Federal Energy Regulatory Commission; Department of Energy; North American Electric Reliability Corporation; National Association of Regulatory Utility Commissioners; California PUC; Working Group for Investment in Reliable and Economic Electric Systems; Florida Power & Light; Midwest Independent System Operator; PJM Interconnection; ITC Transmission; Trans-Elect Transmission; Pacific Gas & Electric; American Electric Power; American Public Power Association; Large Public Power Council; Salt River Project; National Rural Electric Cooperative Association; Solar Energy Industries Association; Bright Source Energy; RES-Americas; American Wind Energy Association; Iberdrola Renewables; Colorado River Energy Distributors Association; Electric Power Supply Association; National Electrical Manufacturers Association; and many more.

Lest it be thought that Iberdrola’s “input” into Senator Reid’s bill was an act of pure altruism on their part, here is what Donald N. Furman, Senior Vice President of Business Development, Transmission and Policy for Iberdrola Renewables, said in testimony before the Senate Committee on Energy and Natural Resources referring to an earlier version of the bill:

I want to commend Senator Reid for his leadership in introducing S. 2076, the Clean Renewable Energy and Economic Development Act. This legislation would establish national renewable energy zones, encourage regional cost allocation for transmission built to serve renewable generation, enable utilities building transmission in renewable energy zones to recover their costs from ratepayers, and fund Federal utility construction of transmission in renewable energy zones if private entities fail to make their own investments. The Reid bill also would require the Bonneville Power Administration (“BPA”) and the Western Area Power Administration (“WAPA”) to use their transmission systems to aid in the integration of wind and solar power. These are all remedies that would prove extremely helpful. Senator Reid’s legislation wisely recognizes that the Federal utilities can play an important role in promoting the development of renewable energy.

Yes, we imagine it is very “helpful” for a business when the government forces customers to buy its products. It almost makes hundreds of millions in grant money just icing on the cake.

Incidentally, for those who like to follow the money, during 2007-2010 Iberdrola contributed almost $233,000 to various political groups, including almost $30,000 to Barack Obama and $6,000 to Harry Reid. (The totals include contributions from Iberdrola’s employees, family members, and political action committee.)

In addition, Iberdrola contributed $25,000 to efforts to stop California’s Proposition 23, which would have suspended that state’s global warming law. As the linked Grist article makes crystal clear, “green” enthusiasts have no problem with businesses making donations to achieve political victories—so long as the green enthusiasts agree with the special interests.

Conclusion

Although the case of Solyndra has the juiciest details for a scandal, it is not a lone “bad apple” spoiling an otherwise angelic bunch. By their very nature, companies seeking government patronage cannot survive the discipline of the market. Rather than turning a profit on their own merits, these firms must rely on taxpayer handouts and mandates forcing customers to buy their products.

Politics being what it is, these potential recipients of government largesse don’t sit back and wait to get called. They actively lobby for the handouts and mandates. So far, Iberdrola has lobbied very successfully in the U.S. and around the world.

Author:
Robert Murphy