SCOTTISHPower owner Iberdrola is considering selling a stake in its UK electricity grid in a move that could raise around £1 billion enabling it to strengthen its balance sheet and finance further investment.

The Spanish power company has started canvassing potential buyers of a minority stake in the UK transmission and distribution unit. This owns and operates a network of cables and power lines that transport electricity to around 3.5 million homes in the south of Scotland, northern England and Wales.

Iberdrola has reportedly started negotiations with potential buyers of a stake in the networks business including Sovereign Wealth and infrastructure funds, as part of its strategy to cut debt. The report valued the business at around £4.5bn.

ScottishPower declined to comment on the report.

However, a source said Iberdrola is considering the sale to raise funds which it could then use to invest in expanding its UK business without taking on debt.

Iberdrola would expect to retain a controlling interest in the networks business.

The group's chairman and chief executive Ignacio Galan met Chancellor George Osborne on Wednesday. Iberdrola said Mr Galan outlined its investment plans and praised the UK's long track record of a consistent regulatory framework.

Following the meeting, Mr Galan said: "The energy sector remains a significant driver for economic growth and employment in the UK. The country will be one of the main destinations for Iberdrola's investments in the coming years, given the energy requirements and the stable regulatory framework it provides."

ScottishPower operates coal and gas-fired generating plants and hydroelectric facilities. ScottishPower Renewables says it is the UK's largest developer of onshore wind farms.

Investors have shown their appetite for UK transmission and distribution assets. Iberdrola raised £350m through an over-subscribed offering of bonds by the Manweb distribution subsidiary of ScottishPower, which operates in Wales and England.