The Iberian Giants of U.S. Wind Energy

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According to estimates, Iberdrola Renovables will generate $2.9 billion in total revenue in 2008, with a net profit of $458.8 million. EDP Renovaveis is expected to post a 2008 net profit of $108.1 million on $787.9 million in revenues.

To ensure a steady supply of wind turbines and maximize their returns on capital, both companies have negotiated discounted deals with leading turbine manufacturers, including Denmark's Vestas (VWS.CO) and Spain's Gamesa (GAMS.BE). The popularity of wind energy over recent years has led to steeply rising prices for turbines as manufacturers were unable to keep up with demand. By securing equipment through long-term agreements, analysts say Iberdrola and EDP have been able to offset spiraling costs better than U.S. rivals.

On the Hunt for Acquisitions

Along with plans for organic growth, both companies also are well positioned for acquisitions as other investors bail out of the renewables sector due to the economy. According to Dresdner Kleinwort (AZ) analyst Javier Suarez, the U.S. wind market remains extremely fragmented and could benefit from the economies of scale offered by consolidation. Last year, EDP started the process by acquiring Houston's Horizon Wind Energy from Goldman Sachs (GS) for $2.2 billion.

"There's significant buying potential, because wind generation is a stable, long-term business model," Suarez says. "Both Iberdrola Renovables and EDP Renovaveis could buy up a bunch of small operators."

To be sure, bullish growth forecasts haven't stopped the Iberian energy companies from feeling the global slowdown. Both have lost more than half of their market capitalization since going public last year, as investor sentiment turned against the renewables sector. On Oct. 22, José Ignacio Sánchez Galán, chairman of Iberdrola Renovables, told investors the company may need to alter its investment plans due to current market volatility. He added, though, that future capital expenditure remained on track and that Iberdrola's 2008 debt was "lower than expected."

Analysts still see strong mid- to long-term prospects for companies. After all, American and European policymakers—as well as politicians from several emerging-market countries—now have backed legislation to reduce CO2 emissions through clean technology. This regulatory certainty should help Iberdrola and EDP profit from their multibillion-dollar investments. Says Credit Suisse (CS) analyst Raimundo Fernández-Cuesta: "The medium-term outlook for the renewable-energy developers remains bright."

Scott is a reporter in BusinessWeek's London bureau .