Iberdrola, the Spanish power company that owns Scottish Power, will test the market's demand for green stocks when it floats part of its renewable energy arm, valuing it at up to €29 billion (£20.9 billion) with a price to earnings ratio of a scale rarely seen since the dot-com boom.

The Spanish utility giant will on Thursday float 20 per cent of Iberdrola Renovable, the division that operates mainly in wind power and to a lesser extent solar energy. The IPO has been priced in the range of €5.30 to €7.00, which implies a value of €22 billion to €29.6 billion.

It comes as the Government announced it would vastly expand the use of off-shore wind power .

The IPO price could give Iberdrola Renovable a price-earnings ratio of more than 100, which critics have pointed to as evidence that a bubble has developed in environmental shares.

Iberdrola argue that the price tag is justified by the sector's potential for future growth. A spokesman said: "Renewables companies are by definition growth companies and Iberdrola Renovables is no exception."

Iberdrola say that its renewable arm is the world's largest wind power company and that its output is set to nearly double to 13,500 megawatts from 7,000 megawatts by 2010 on the basis of projects already under way.

It has a pipeline of 41,200 megawatts, about half of which is in the US, the world's largest consumer of oil and fossil fuels.

Its output in Britain is set to increase to 800 megawatts by 2010 from 370 megawatts, on the basis of projects that have already started.

This figure could rise still further, as the Government today announces plans that it claims could see every household in Britain powered by off-shore wind.

Analysts gave the IPO a mixed reaction. Keith Bowman, an analyst for Hargreaves Landsdown, said: "You've always got to be careful with fashionable investments in the stock market, because valuations can come back down to reality very quickly. A lot of investors will be thinking back to technologies in the run-up to the millennium."

Treasa Ni Chonghaile, a fund manager at KBC Asset Management International Ltd in Dublin, told The Wall Street Journal: "We'd be willing to pay a premium to get the market leader. Its exposure to high-growth markets, especially the US, should give it higher multiples than other developers."

Renewables currently make up around 4 per cent of Britain's energy generating-capacity of 75,000 megawatts.

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