TenneT should use hybrid bonds to a **high but not maximum** extent over the next 18 months: **11.25% of total adjusted capital**.

Key reasoning:

- **Business profile is strong and regulated.** TenneT is a transmission system operator, an essential monopoly-like infrastructure business, owned by the Dutch State. This supports a strong regulated-utility business risk profile and continued access to debt markets.

- **However, leverage and funding pressure are very significant.** Long-term borrowings increased sharply from **€12.4bn to €19.0bn**, while total assets rose from **€31.2bn to €38.5bn**. The company is clearly in a heavy investment phase.

- **Capex intensity is very high.** Cash capex on PPE and intangibles was **€4.4bn in 2022**, up from **€3.7bn in 2021**. Operating cash flow of **€1.2bn** did not cover capex, resulting in materially negative free operating cash flow before financing.

- **Profitability and cash-flow metrics are under pressure.** Reported operating profit was **negative €976m**, loss before tax was **€1.23bn**, and net loss was **€879m**. Even after adding back depreciation and amortisation, internal cash generation is insufficient relative to investment needs.

- **There is already meaningful hybrid capital outstanding.** TenneT already has **€2.125bn** of hybrid capital, so hybrids are an accepted funding instrument in its capital structure. Hybrid distributions were **€57m**, implying a relatively low historical coupon cost of about **2.7%** on the existing hybrid base.

- **But 2022 market conditions are materially more expensive.** Euro swap rates rose sharply in 2022, and subordinated non-financial IG spreads were also higher. New hybrid issuance would likely be more expensive than TenneT’s existing hybrids and senior debt, so the company should not automatically maximize hybrid usage unless rating preservation requires it.

- **The S&P equity-credit cap matters.** Hybrids can receive equity credit only up to **15% of total adjusted capital**, so there is a ceiling to the benefit. Given existing hybrid capital, TenneT may already be part-way toward the cap. Additional issuance should be targeted to improve leverage metrics without overpaying for capital that may not receive full equity credit.

- **Annual issuance constraint supports a high but measured recommendation.** With a maximum practical issuance of about **€3bn per year**, TenneT could materially increase hybrids over 18 months, but a full 15% target may be excessive given state ownership, regulated cash-flow recovery mechanisms, and the already large existing hybrid balance.

Overall, TenneT has **high capex intensity, rising debt, negative reported earnings, and significant pressure on credit metrics**, making hybrid capital useful for rating support and balance-sheet optimization. However, because it is a strong regulated utility with state ownership and because new hybrid costs are higher than historical funding costs, the maximum 15% recommendation is not warranted. The best-fit option is therefore **11.25%**.

<answer>11.25%</answer>