The end of the era of cheap money is set to lead to Enron-style collapses of companies in the much-hyped global renewable energy sector, according to the chief executive of one of the world’s largest wind power producers.
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Ignacio Galán, the chief executive of Spanish utility Iberdrola, said that 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.”
As the company on Wednesday reported a 3.6 per cent rise in full-year net profit to €2.8bn and €32bn in investment over the next five years, he added: “I think that what happened with Enron [could happen again]. Enron was highly leveraged . . . and they had no talent as a utility or as traders. And what happened — it disappeared.”
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. The concern is that some leveraged investors and companies could be caught out by the rate rise.