"Our priority is to grow in generation," Chief Executive Officer Antonio Mexia said in an interview in New York. "We are open to consolidation in the sector or to acquisitions that will give us a greater weight in generation."

The Lisbon-based utility"s main interest as it tries to boost production in Brazil is on medium-sized hydroelectric plants of 200 megawatts to 400 megawatts, Mexia said. EDP plans to spend about 1 billion euros ($1.4 billion) in Brazil up to 2010, the chief executive said.

EDP wants to produce more power from dams and wind to meet growing demand and emit less carbon dioxide, a gas blamed for global warming. Mexia says the former Portuguese monopoly is now the world"s fourth-biggest wind power operator following acquisitions in the U.S. and Spain.

Shares of EDP have gained 8.1 percent this year in the Portuguese capital, giving the company a market value of 15 billion euros ($21 billion). Stock of Energias do Brasil SA, ED"s Brazilian unit, has climbed 21 percent this year in Sao Paulo. "In three years" time Brazil will probably face some shortage of supply," Mexia said yesterday. "The main challenge Brazil is facing right now is obtaining environmental permission to take advantage of hydropower."

EDP last month said it"s also holding talks with MPX Mineracao e Energia to build two coal-fueled power plants in northeast Brazil.

"Hydropower"

"Our priority is hydropower," Mexia said. "The second priority would be wind power, although there still isn"t a sufficiently attractive framework. Brazil has unique conditions for wind energy."

EDP may consider carrying out an initial public offering of its renewable energy unit, which wouldn"t happen before 2008, to help it grow in other countries. "We are looking at Eastern Europe, at the UK, at Italy," Mexia said. "Depending on the opportunities we find in those new markets we will take a decision, probably in the beginning of next year, on carrying out an IPO or not."

EDP is hiring banks to study new investments abroad, the chief executive said. The company is discussing the possible IPO internally and would look for banks toward the end of the year, he added.

Horizon Wind Energy

In March, EDP agreed to buy Horizon Wind Energy LLC of Texas from Goldman Sachs Group Inc. for 2.15 billion dollars, more than doubling its wind-power production. The purchase of Horizon will add 3.5 billion euros to the 2.6 billion euros that EDP was already planning to invest on wind energy through 2010.

The U.S. market will grow faster than the European market because it"s "less mature," Mexia said. "The next big challenge for wind energy is Asia." The Portuguese company is also interested in buying Dong Energy A/S"s stakes in wind ventures jointly owned with EDP, Mexia said. "I think today it"s very difficult to have value-creating consolidation in the Iberian Peninsula," Mexia said. "I think we should now focus elsewhere, where you get more value for your money."

Algeria"s Sonatrach already owns 2 percent of EDP and plans to raise that stake to 5 percent, Chairman Mohamed Meziane said earlier this week. EDP in April agreed to acquire natural gas from Sonatrach and offer stakes in electricity plants to the Algerian state-controlled oil-and-gas provider in a new joint venture.

Natural gas

Mexia said EDP is fully supplied with natural gas until 2009. "We are now looking into new gas contracts that will start at the beginning of the next decade. A lot of things will depend on the expansion of the volume of combined cycle power plants," he said.

The Portuguese government has a 20 percent stake in EDP and state-owned bank Caixa Geral de Depositos SA owns another 5 percent. "Shareholder stability is something critical for a company that is growing as fast as we are growing," the chief executive said. "The role of the government in that stability is important."

PIN/BLOOMBERG