In Good Company with Nicolai Tangen - Ignacio Galán Chair of Iberdrola: Energy transition, permits, speed and values.

Episode Date: October 18, 2023

Iberdrola is at the forefront of the renewable energy revolution. Galán has led the company for over twenty years and has transformed the company into a global leader. Why is this transition going so slowly, what new technologies does he believe in, and where does he get his energy from? Tune in!The production team on this episode were PLAN-B’s Nikolai Ovenberg and Niklas Figenschau Johansen. Background research was done by Sigurd Brekke and portfolio manager Stein Birkeland.Links:Watch the episode on YouTube: Norges Bank Investment Management - YouTubeWant to learn more about the fund? The fund | Norges Bank Investment Management (nbim.no)Follow Nicolai Tangen on LinkedIn: Nicolai Tangen | LinkedInFollow NBIM on LinkedIn: Norges Bank Investment Management: Administrator for bedriftsside | LinkedInFollow NBIM on Instagram: Explore Norges Bank Investment Management on Instagram Hosted on Acast. See acast.com/privacy for more information.

Hi everyone, and welcome to our podcast, In Good Company. I'm Nikolaj Tangen, the CEO of the Norwegian Southern Wealth Fund, and your host today. In this podcast, I talk to the leaders of some of the largest and most interesting companies in the world, so that you can learn what we own and meet these impressive leaders. Today, I'm speaking to Ignacio Galan, the executive chair of the world-leading renewable energy company Iberdrola. Iberdrola supplies energy to close to 100 million people across the world and plays an important role in the energy transition. We own over 3% of Iberdrola, translating into 2.6 billion US dollars. Galán has led Iberdrola for more than 20 years and saw early on the opportunities in the energy

transition. What does it take to reach net zero? Stay tuned. Ignacio Golan, it's a pleasure having you here on the podcast. Thank you very much for having this opportunity to stay here in London with you today. Fantastic. Now, you've got a green tie and green tea, and it's all quite green.

Now, where did you... And you've been a visionary when it comes to renewable energy. Now, where did you see the light? How did you come about? Well, I think I joined the company, I was in my professional life. I was in telecoms. I was the founder of Airtel, today Vodafone Spain.

I was already reconverting the shipyard, the Spanish shipyard, into aeronautics. And I was previously a battery engineer. I was designing, manufacturing, and selling batteries and making international expansion. So I joined the company beginning of 2001, so almost 23 years ago. And I think always I've been very much aware about what we are doing with the planet. Perhaps my roots are already a grue in a village, in a small village, less than 1,000 inhabitants. And always the nature for me was something crucial. And I think I read a lot about Kyoto.

Kyoto has already been signed a few years ago, a few years before. And I said, why this company, electricity company, have to continue generating with coal, with gas, with oil, with fossil fuels, which is not a sustainable resource once we have already wind, sun, and another resource, hydroelectric as well. My great-grandfather was one of the pioneers in the hydroelectric in Spain. And I think we make a plan in which was to close all our coal and oil power plants and transform that one into make already investing in renewables. At that time, it was already the most efficient world, we're not sure.

And I think we started investing and we're not sure. We make already, we started transforming our hydroelectric in reversible in order to make already pumping and generating. And I think, and that was, all this was very easy. So my board approved, yes, investment plan of 16 billion euros. At that time, it was a lot of money. So easily. Well, I actually don't think it was that easy.

But tell me. But I think I limit the green. But I said we have to change the color of the company. And when I said to change the color of the company, we traditionally was in blue color because Hyrule is blue. So there's no way, no way. I need three board meetings changing the blue to green. Finally, they said green, but green Alcantara.

Alcantara is the name of one of our dams, hydroelectric power plant. So that's why it was probably the decision taken, the decision taken by my board, I need to make more effort to convince them. So that's why all our people are recognizing the effort we made for that one. And that's why we are using all green in this moment in the company. Now you come from a small village close to Salamanca.

Yeah, the western part of Salamanca province, close to Portugal. Does any of these, do any of the values from your upbringing influence the way you run the company? Well, first the sense of family, the sense of friendship, the sense of the work given. I think if you break a word, a promise, I think in this village, three generations after, somebody will remind that your great-grandfather was not a really serious man.

The sense of the austerity, the sense of use of the resources as better as possible, what is today we call circular economy. It was not used this name before, but I think we try to use our resources in different manner. But I think mainly try to use our resources in different manner, but I think mainly those one. And I think the easy access to people, I think, is not to be arrogant, to be as the people of the countryside, which are simple people. No, I can underwrite that. I have now traveled with you yesterday across Spain looking at your installations. You for sure treat everybody like a family. Now, zooming out a bit, so you are at the forefront of the renewable energy revolution,

but only 30% of energy now globally are from renewable. Why is it going so slow? Even less. So even less, I think in the total, I think the latest number which I got is something like 25% is electricity and 75% is fossil fuels. And this electricity, half of it, almost half of it is already generated with fossil fuels. Why that? So because nothing has been done for many years.

And now we are not doing enough. I think the fact during the last energy crisis in the last two years, if instead of being so dependent on gas coming from a single country, mostly Russia, in the case of Europe, we had already invested much more in renewable. The problem we had already been facing had been minimized. And why has that taken such a long time? What are the challenges? So for many reasons.

So I think it's the long-term vision. I think we talk about Europe, but we can talk globally. The long-term vision, everybody agrees about 2050, almost everybody agrees 2050. We've been for many years discussing, the responsible of the emissions is the fossil fuels or responsible are whatever thing. So now everybody agrees the fossil fuels are already generating a problem in terms of the contamination,

in terms of the global warming, et cetera, et cetera. And I think everybody agrees for 20, almost everybody agrees for 2050 that we have to diminish the temperature, so, so, so. But when we talk for 23, or when we talk for even 2030, so they start a discussion. And why? Because the short term, systematically, in most countries, in the decision-making process of the government, the short term is always overlapping the long term vision. So even

with having already target short term targets, if anything is happening they automatically change the rules. So last year, last two years. So we were not electricity, we were responsible for the increase of the prices of European energy. It was the gas. But politicians were penalizing, trying to reform the electricity market. It was not electricity. It was the gas, the source of that one. Now they recognize.

But what happened? If they start putting taxes, charges, whatever it means, the people stop. And that is up and down systematically on that one. And how are you working with the regulators and politicians to try to change this? Because also there's quite a bit here in terms of permissions and getting approval for projects and so on, which is very, very slow. So we are, I think, our sector, we have the same, let's say, customers. The citizens are receiving the electricity in a continuous basis.

And I think we are serving the same population. But the point of this is, and we have very close comment. For instance, in all those things that I was mentioning before during the last two years with this intervention in the electricity market. Some countries start trying to make crazy changes in the way how the pricing in electricity is fixed. So what they call the energy electricity market reform. So things of the conversation, we had already had regulators of Europe, of the European

authorities in different countries. What being approved is something which has much logic. So which I think sometimes I think they're talking with many people in different sectors and they have to try to make the best. But we are already really good understanding, especially with the European Union authorities or European Union Parliament. They are not so stressed for the short-term problems without pushing the public opinion into the government of different member states. But why is the approval process for new projects taking so long?

Well, because there are too many authorities involved. I think if we are depending on the national authorities, the national authorities are different departments, departments which are concerned about the environmental, departments which are concerned about real estate, departments which are concerned about the transmission and interconnection, departments which, many of those. But the same thing is replicated at the regional level, the same thing is replicated at the local level.

So in such a way that each of them can already put some restriction and delays and delays and delays. So for instance, for making already, for presented a plan of, an environmental plan, we need already almost to make previews to present it almost two years of studies. So it's two years, but we are looking, what is the birds, what are the animals, what is it, and we present the big museum. And that goes to the different authorities, we then revise with... And one after the other, never in parallel. Exactly, exactly, exactly. That is my point. And second thing, with now, thanks to this conversation with

European authorities, I'm very pleased that a few days ago, the European Parliament has approved two measures which for me are crucial. I was saying why it's so urgent, the carbonization. We are applying the national interest for accelerating the process. It was made in the past. I was living in Germany in the 80s after the reunification. And they applied the national interest for accelerating the process of the Eastern Germany. It was, why are we not making something like a European level? So now the parliament has already approved a bill in this sense.

We have to be translated to the national legislation. It's already put a target for maximum two years for obtaining the permits. There are countries which are working themselves, the authorities, to make all these analyses. Instead of we made the analyses one by one, all the people who are making the, we are going to make the investment, in such a way they provide this territory, you are allowed to make this and this and this. Instead of make to present, they say, no, no, no. They said, here, you can make that one.

So the transmission, they facilitate the things in order to have the connection. Prior, we are asking for the connection. So there are things which are already moving in this direction. The point is that we are seeing the climate change is a reality. We are suffering every time more and more. the climate change is a reality. We are suffering every time more and more. But a part of the problem of the effect of the climate change,

I think, is the self-sufficiency. I was insisting to the European authorities, the FIFO 55, which is the target of reduction to make 55% of the electricity by renewable sources by 2030. So instead of call FIFO 55, let's let's call 50% self-sufficiency. Probably the people will understand better. The only way to keep the lights on is to have our own electricity generated with our own resources, natural resources, sustainable one.

Changing tack a bit here. Yesterday, we saw green hydrogen production. We saw hydropower and pumping. We saw wind. We saw solar. We saw a lot of different things. So when you look at all these technologies, what are you most optimistic about? It depends on the countries.

It depends on the territories. It depends on the countries, it depends on the territories, it depends on the resources. In my opinion, it makes no sense to invest in solar in areas which are not very much sunny. In my opinion, it makes no sense to invest in onshore wind in areas which are not windy. And in my opinion, it makes no sense to make already offshore in areas which are very far from the solar and it's very costly today. But that's why I think it's a combination. So for me, the solution is not one technology, another one.

All technologies are needed. All technologies. If we would like to achieve the target. Where does offshore wind come in, Jerem? What are your views on that? Well, I think we've been pioneers. I think we had already since 12 years or 13 years, some offshore wind firing operation. We have in the Irish Sea, we have in East Anglia, we have in Germany. Now we are building in France, we are building a couple

of them in Germany. We are building and that that's where we started production, the first utility scale offshore in the United States, in the coast of Massachusetts. We have several projects. They are onshore more in Britain. It's in Sanglia 2, in Sanglia 1 North, and on the Sanglia half, and in the North in Scotland, including one floating. So we are pioneers on that one. And floating, how do you see that? have in the north in the school like a problem included one of floating so we are pioneers on that one and floating and floating how do you see that so I

think it's a technology which is is not enough mature in its time for that as well so I finish my is much more costly still the technology there's several choices for the floating system devices. We are making tests with different one, but I think it's a technology that will have their own use in certain places if you have not another alternative. I think in countries where already the seabed, the water is at 40, 30, 50 meters, well it's not sent to make floating. But you are in countries on island, which I think the floating. But you are in countries on island, which I think the shore, the seabed is at much deep. So you need some solution. You need electricity. How far do you think we are from full development of floating technology?

Probably 10 or 15 years. So I think in the 30s decade it's going to be offshore, floating offshore. And until then, what are the risks with floating? Well, I think, as far as I know, no one, it's not anyone make already in a larger scale, so up to now. So I think all of us, we are doing development, but no one, we are putting already real money on that one. I think this project we have together with Shell, I think it's up to 3,000 money on that one. I think this project we have together with Shell is, I think,

it's up to 3,000 megawatt floating, I think. But I think what we are making now is all the CVET analysis, CVET studies, biology, designing different designs, tests of different floating. But I think the large-scale investment is going to be made probably up to the beginning of next decade. What about fusion? There's been some breakthroughs lately. So I think I finished the university in 1972, so almost 51 years ago. I think it was already hope.

But now they have actually done some breakthroughs, right? It was done already. The fusions were done, but without control. Now it's done with some control in a very small scale. So I'm not already in the short term optimistic. And the second thing, I'm not sure what is going to be the competitiveness of this technology. But could we end up in a situation where electricity is free? Well, free, I think that is something which,

let's say, some of people which is, let's say, with certain political characteristics, because they don't distinguish the difference between to have already only fixed costs or to have variable costs. They feel that those things we have only fixed costs is free. It's not true.

So I think you have already the capex. We have to be paid. We have the financial costs. We have the operational costs. It's true that you are not filled. But today, you are not filled for the onshore. You are not filled for the solar. You are not filled for the wind onshore.

But I think you have a cost. So it's not free. Well, interestingly, we are today kicking off an NBIM-wide training program on the energy transition. So we have more than 230 people out of 630 who have signed up for this. So it's an eight-course module that we are putting in place. So really, we share your view on the importance of upskilling. But how do you develop the leaders then? So these are all the employees. Now, how do you personally develop the leaders?

I think the new times with the telework is something which I'm especially concerned. I think leaders are the ones who need to touch people. When you're only touching just a screen, I don't know how the leadership can be built. So we are trying to, our people, we have fortunately a dozen of hundreds of works in the moment project, which are in operation. And I try for all means that our young people with the people with high potential, apart of making a wonderful master, we have master in management and whatever with Starclay University and with Yale University, with MIT. So all those things, but to touch people.

And I think we are putting young people in front of a small project to make a solar power plant with 100 people or 200 people to live with and to force them to deliver in time, deliver in cost, negotiating with the local authorities, negotiating with vendors, and to learn the reality. I think that has extrapolated my experience. I think that's an extrapolation of my experience. I think when I finished, I was designing batteries, but I was already managing a factory of batteries. And I learned a lot about that.

How to live with trade unions, how to deal with local authorities, how to deal with lawyers because always it's impossible, everything. How to deal with the numbers to make. Anything that makes to grow these people. When somebody has been managing a project of 50 million capex, this guy after can go to make already a project of 200, and after I have to go project of a billion. How many people in Iberdrola do you know?

A thousand. I spend 200 days per annum traveling around. I think I met, I was last Thursday with 400 people coming from all over the world during. So you got 200 travel days? Yeah. You are 73 years old? Yeah. Every day I'm growing.

And where do you talk about, you're an energy company, where do you get the energy from? What is your charging station? My horse, my bike, my cows. Is that your energy? Is that your charging station? Your farm? Well, I think normally when I need to take a hard decision, so normally it's not a joke, it's a reality. I used to go to my ranch, I take my horse,

and I used to walk with my horse, and ch-ch-ch-ch-ch-ch-ch-ch. And afterwards I come down and start writing, ch-ch-ch-ch-ch-ch. And I came with a paper, so, yes, or write about the ideas. And I think that you see the world in a different manner. I cannot take a decision looking at the world. I can't. I need open space. Could you just drill down a bit more here? So you are from Salamanca, you talk about your farm, the family. It's very clear when I travel around with you that you have a special

way of treating people. Just tell me a bit more about it. Well, I think for me, human being is the most important thing of the economical activity. Without the people, without the persons, I think you can never succeed. So I think I remember my, I have a Jesuit education, and I remember some of my professors, even some of my initial bosses, they used to say to me one sentence, which I always try to apply. Your success is the success of your people. And the failure of your people is your failure. So try to be, put always around your people with more capabilities than yours. And never,

never make them guilty, you are guilty, either make any mistake. And how does this translate into the timeframe of your thinking? So short term versus long term? Well, I think the long term is something you do, I think when you are at the top of the company, as you are, we have 24 hours a day. We have to be making our brain work. So it's not rest. I think you have, you can have good ideas when you are riding horse, when you're cycling,

when you're in the office. I think it's 24 hours a day. But and nothing that is the long term the long-term ideas normally appear Thinking and looking different things which are coming from here from here from here drip in one moment. Everything is combined So the short term is is already you need to put in your in your life targets on that one in targets measure of targets I finish as well in your life, targets on that one. And targets, measure targets. I think it's as well, you cannot already relax saying the things is going to happen.

They need to happen now. So they say, no, no, you're not making this properly today, it's going to be properly tomorrow. You have to make every day the things popular. The total quality starts from the very beginning of the process, not at the end. But another one, the vision, we are not changing the vision every day. We are not changing the strategy every day.

I think we have a vision for 22 years. We believe in a world decarbonized. We believe in a world where we can provide the energy the world requires using natural resources. We believe in a certain of those things. That is the vision. We transact with many companies, and we do think that transacting with Ibojla is a bit different. It's more relational, less transactional, and it's more long-term in nature. I think it's really good. It has a higher level of trust, more long-term thinking, more give and take, and we really, for sure, appreciate it. Another reason why we really like it, you have exceptional project execution. Now, you mentioned the word German here previously.

We've been five years in Germany. Now, tell me about how you run projects. Why are they so good? So first, because we try to define clearly all the details prior we started the construction of a project. I think we are trying to fix all the details prior we started FID. But second, the people which are thinking that one are committed with it. So it's always like people, people, people.

I think when the people feel the ownership of the project and the pride. You saw yesterday this guy has already built Cortes La Muela. He's proud of what he has already done. These people are transmitting. I think many of those, they are already their family as well, brothers

or son of the family inside of the company. So they are proud to say, I did that one. I executed that one in time. So that is a sign of ownership that makes. And I think that that is very important. I think in this, my continuous trip around the company, I think that is what I perceive from these people.

Then they set of pride what they are doing. And that's why they execute, because it's their pride to make that one in time, in cost. And that's it. I was, at the beginning of September, I was visiting a couple of offshore farms, one in France, Saint-Bruc, and another one in Germany, Baltic Eagle. So, you see, they're French people and they're German. So well, German and from other countries because they were all mixed, different nationalities. How proud they are showing to me where the drilling system they had invented for putting

the foundation of this one. And they are proud of saying, Joel, we invented this one for making that one. I mentioned to you yesterday how they invented some system for avoiding then the whales had already suffered because of the noise of this one. And they are proud of this one. And that makes that happen.

How do you inject a sense of urgency into the organization? How important is speed in what you do? So perhaps because I always ask for everything for yesterday. And this mind is coming to me when somebody comes to me and says, I know yesterday is the tomorrow.

And that is moving everybody in this direction. Do you micromanage? I mean, how do you get the balance right between having an eye for detail and letting people have freedom in the decision making? So we have a structure, a matricial structure, which is each of the CEOs of the different countries.

And we have already the business area. So responsible of networks, global responsible of renewables, global responsible of marketing. We are responsible for marketing. But I think every Monday morning, everybody is coming to our operation committee and no one decision is left. We take the decision. So the paper is coming here for taking the decision. Every Monday, people know the thing is done. It's passing through people from different areas, from the department, explaining their project, go. So we know very much in

detail what is happening everywhere, but I think at the same time the globalization of the company through the business heads are already just defining in the same direction for everybody. It's challenging to operate in so many different markets? Well, I think more than challenging. I mean, you are in Spain, UK, Brazil, US. Australia, Germany, France, Greece, Hungary, Poland, Portugal. But I think it's an opportunity.

So we learn very much each other. For instance, our network operation in the United States is managed by Brazilians. We're Brazilians because the grid of the state we're present in, New York, Connecticut, Massachusetts, and Maine, the design is very similar to the design we have our, and New York, Connecticut, Massachusetts, and Maine, the design is very similar to the design we have our distribution companies in Brazil, which is very different to the design we have in Scotland or the design we have in Spain.

So I think in that each another learn a lot. So we have already a British, which are already in the global purchase, Charles Jordan, which I think is a guy which has a very good relation with Iran. And I think that adds a lot of value for the whole group. So people from different nationalities, different mentalities, different skills, then we are moving around. Talking about nationalities,

so China controls a very big part of the solar and the battery market. How is that impacting your strategy? With a part of solar panels, we are not already much in relation with the Chinese industry. So I think solar, we had already in the past, Gamesa was our vendors, it's one of our vendors to buy, they have a factory in China, but I think we are buying in Europe. I don't know whether they buy the components. But in terms of equipment, probably the largest part of our purchase is just solar panels, which is coming from China.

China and countries around, so which is Vietnam and we are making, made by Chinese. We have not much relation with China. Changing tack a bit here. We have a lot of, we've got tens of thousands of young people listening to this podcast. What is your advice to young people? Sorry? Okay, I'll do it again. Now we have tens of thousands

of young people listening to this podcast. What is your advice to young people? To have not a threat. To be courageous. To be on life learning. The things are reached with effort. Don't feel that the things

are coming by free. They have to work. They need to work hard. And they have to be continuous, continually learning and to take decisions. They have not to mind if they make mistakes. If they make mistakes, they have to continue taking decisions and to try to correct the mistake they did.

But valientes, to be courageous not to hit a threat the world is offering hundreds of opportunities for them more than ever yeah well you for sure

have been very courageous in your life and what I'm looking forward to is that when we both have retired and 5-10 years after that

I will bring some marinated salmon grouse from the that, I will bring some marinated salmon, grouse from the Norwegian mountains. I'll pick some mushrooms outside Oslo, and we exchanged some pictures yesterday, and I'll come down to your farm, and you put on some of your jamon, because you have pigs and cows.

We can cook already, yes. A wonderful, you're facing fish, myself facing meat. And I think we can make a wonderful meal together. And you are also a big producer of Rioja wine, so I'm very much looking forward to that. And then we will sit there and we will toast to all the work you have done to transform the global energy system. Well done.

Thank you very much. I'm very pleased and very proud to have partners like yourself to work together with the same launching view and to try to collaborate for making a better world, because we have another world. If we destroy that one, we cannot pass this world to our future generation. It's our obligation not to make mistakes in this sense. Absolutely. Thanks for being on the podcast.

Thank you to you. Thank you.