In little under a year Iberdrola closed the government-backed Mexico Infrastructure Partners’ (MIP) $6.2 billion acquisition of a majority stake in the Spanish company’s Mexican portfolio, ending years on tension between Iberdrola and the government.

The deal kicked off on 4 April 2023, when Iberdrola chairman Ignacio Galán sat on a dark green chair embroidered with the Mexican coat of arms, at a large wooden table with Mexican President Andrés Manuel López Obrador – known as AMLO – and a delegation. In this meeting he agreed to hand over 8.5GW worth of assets — the largest energy deal ever signed in the country.

In a bid to regain energy sovereignty and sufficiency for the country, AMLO struck a $6 billion deal with the Spaniard (sporting an Iberdrola-green tie for the occasion) for 12 combined-cycle and co-generation power plants — almost the entirety of the company’s conventional portfolio in Mexico. The company also threw a 103MW wind farm into the deal, which the president referred to as a “new nationalization".

MIP, has now taken ownership of the assets, will finance the transaction with funds from public institutions. Around 40% of the total will be funded through equity from Fonadin, Mexico’s national infrastructure fund, which will receive MX$45 billion ($2.4bn) from the Ministry of Finance. Mexican finance secretary Rogelio Ramírez de la O confirmed this during a press conference on 19 April 2023.

The remaining portion was financed by local development banks — namely Banobras, Nacional Financiera and Bancomext, with private commercial banks Barclays, BBVA, Santander and SMBC also joining in.

“The large banks in Mexico have offered to provide financing because they know the operation is very attractive,” read a release from the Ministry of Finance and Public Credit at the time the deal was announced.

Reconciliation era 

The deal ends years of tense relations between the Spanish energy giant and the Mexican government. Around 1.4GW worth of assets stopped operating due to regulatory reasons — assets the company pawned off in the deal.

Iberdrola Mexico chief financial officer Jose Sainz said in an investor presentation back in 2023: “We are almost free of any regulatory problems with the Mexican government. We enter a new phase of relationship with the Mexican government. The government was especially interested in buying the assets.”

Among the portfolio of assets Iberdrola is selling off, 87% contracted power purchase agreements with CFE. These assets are under government concessions that will start expiring starting 2027, with about 60% having been in operation for more than 16 years.

The portfolio in question consists of 12 combined-cycle and co-generation power plants, totalling 8.4GW, and a 103MW wind project:

• Monterrey I and II – 449MW
• Altamira III and IV – 1.1GW
• Altamira V – 1.16GW
• Escobedo – 878MW
• La Laguna II – 537MW
• Tamazunchale I – 1.17GW
• Baja California III – 324MW
• Topolobampo II – 917MW
• Topolobampo III – 766MW
• Tamazunchale II – 514MW
• Monterrey III and IV – 477MW
• Enertek – 144MW
• La Venta III (wind) – 103MW

The assets are located across the states of:

• Tamaulipas
• Nuevo León
• Durango
• San Luis Potosí
• Baja California
• Sinaloa
• Oaxaca

Renewable ambitions 

Iberdrola remains active in Mexico despite the massive sale. It operates over 1GW of renewable assets, 1.2GW of CCGT and 202MW of cogeneration assets. The company will retain about 45% of the operating profits in the country, along with an improved financial position with less risks and a much better relationship with the government.

The deal also enables the company to move forward with its 2040 net-zero target. In addition to its operating portfolio, the company has a 6GW renewable pipeline it is looking to carry out in the near future.

“[Iberdrola] considers Mexico a strategic country with potential for growth and expansion, where it will show its support for Mexico and the state by developing renewable capacity," said Ignacio Galan at the time of the signing, reaffirming the firm’s commitment to renewable generation in the country.

Recycling capital

Beyond investing in Mexican renewable development, Iberdrola has expressed its intention to look elsewhere, including into more secure markets. The attractiveness of the US’ Inflation Reduction Act (IRA) was not lost on the energy giant, which sees opportunities in the US in the short term.

In October 2023 renewables company and Iberdrola Group member Avangrid and green energy investment firm Copenhagen Infrastructure Partners (CIP) have closed a $1.2bn first-of-its-kind tax equity package for their jointly owned Vineyard Wind 1 offshore wind project.

JP Morgan Chase, Bank of America, and Wells Fargo led the investment transaction, which is the largest single asset tax equity financing and the first of said financing for a commercial-scale offshore wind project.

Last year globally Iberdrola recorded a record regulated asset base with investment in networks up 11% to €5.2 billion, increasing the total asset base to €42.21 billion. Total renewable capacity also reached 42,187 MW with an additional 3,250MW installed in 2023 with a total associated investment of over €5 billion (60% in offshore wind and hydro).

Advisers to MIP include:

• Barclays – financial
• Creel García-Cuellar, Aiza y Enriquez – legal

Advisers to Iberdrola include:

• JP Morgan – financial
• BBVA – financial
• Citigroup – financial
• Santander Corporate and Investment Banking – financial
• Baker McKenzie – legal

Advisers to the commercial lenders include:

• Milbank – international legal
• Galicia Abogados – local legal

Advisers to the Mexican development banks include:

• Deloitte – financial and tax
• Milbank – international legal to Nafin and Bancomext
• White & Case – international legal to Banobras
• Galicia Abogados – local legal to Bancomext and Nafin
• White & Case Mexico – local legal to Banobras