Spanish Energy Boss: Interest Rate Rises will Trigger Renewable Business Collapses

Guest essay by Eric Worrall

h/t Willie Soon – the President of Spanish Energy Giant Iberdrola has suggested interest rate rises will wipe out large numbers of highly leveraged “unskilled” renewables businesses.

Iberdrola chief says global renewable sector facing Enron-style endgame

By Diarmaid Williams
International Digital Editor

The chief executive of Spanish utility Iberdrola, Ignacio Galan, has warned of the prospect of financial disaster for the global renewable energy sector, reminiscent of the collapse of Enron.

Galan said, that the imminent end of cheap finance would have a damaging impact on the new players to the green energy market, adding that these new non-industrial entrants with little experience were making overly aggressive bids on contracts to build renewable energy, thinking its was a financial “el Dorado”.

“Because money is so cheap, many people who have no talent in the sector have been coming with an extremely high level of leverage,” he told the Financial Times. “With the change of the rates, there will be a clean up of the sector.”

Mr Galán was not accusing any new entrants in the renewable sector — some of whom are private equity or infrastructure funds — of the kind of false accounting that led to US energy trader Enron’s collapse in 2001. He was instead highlighting how cheap money was pushing some into a business they did not understand. The warning speaks to a wider fear about the potential disruption to global businesses as central bankers start to unwind a multitrillion-dollar experiment in ultra-loose monetary policy.

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The price of ultra-low interest rates has always been gross resource misallocation, especially when those low rates have persisted for a substantial period of time. The rate rises Galán predicts, rate rises triggered by President Trump’s restoration of US prosperity, will separate the wheat from the chaff. Expect substantial squealing in the near future, from failed green corporatists who thought the low interest rate party would go on forever.

via Watts Up With That?

February 23, 2018 at 06:02PM

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