By Mikel Zabala, Corporate Ratings

The scale of the disparity between the regions is stark. We estimate that for every euro of existing grid assets, Italy and Spain will invest the same in new electricity-transmission infrastructure to cope with growth in demand and improve resilience as more renewable energy comes online.

In contrast, Germany and the Netherlands will spend several times that amount, at around EUR 4 to EUR 4.5 for every euro of existing assets. In Belgium’s case, it’s around EUR 2.7 (Figure 1).

The capital expenditure challenge in those countries stems from the need to integrate offshore wind, support a more decentralised generation fleet inland, and manage significant cross-border electricity flows – all of which are less relevant in Italy and Spain.

The investment required in Germany, Netherlands and Belgium has presented the authorities and utilities with a financial challenge which they are yet to fully surmount.

Germany’s transmission system operators (TSOs) face a funding gap of around EUR 30bn out of a total investment requirement of EUR 125bn by 2029, although new regulatory incentives should make bridging the gap possible.

Belgium’s TSO has partially pre-funded its EUR 7.5bn cash needs by 2028. The Dutch government took the decisive step to provide guarantees fully covering the EUR 90bn investment needs of its national TSO until 2034.

Customers face trade-offs between higher bills, improved reliability

For consumers, these investments could increase electricity bills by roughly 20% over the next decade, but potential savings in generation costs and ancillary services may reduce the net impact on the overall bill in the long term.

Higher bills, however, are the price to pay for improved grid reliability and stability – with lower risk of blackouts – which also enables the integration of more intermittent wind- and solar-generated electricity in the future.

Investor-friendly regulation in Germany to help bridge investment gap

Germany’s grid regulator is taking steps to make transmission regulation more attractive to investors, including faster cost recognition, shorter regulatory periods, and targeted government subsidies. While some measures remain under consultation, the overall direction appears to be toward a more predictable and supportive framework.

Of the EUR 125bn in investment confronting Germany’s TSOs, around EUR 75bn could be debt-financed, and EUR 20bn funded from cashflow after dividends, leaving the EUR 30bn funding gap (Figure 2).

The TSOs have several levers to bridge this gap, including equity issuance, hybrid bonds, stronger government support or guarantees, selective non-core asset disposals, or minority stake sales to politically suitable partners.

Rating-supportive TSO funding underway, shoring up investor confidence

TSOs have already begun implementing funding measures, and their plans appear balanced from a credit perspective, though consistent execution will be critical. We are confident that the combination of regulatory reforms and credit-balanced TSO funding plans will bolster investor confidence in the sector. In our view, these factors are further strengthened in Germany by the Federal Government’s strong willingness to participate in any equity raises of domestic TSOs.

TenneT*, for instance, is progressing on its separation of German and Dutch operations, facilitating the financing of future investments.

In the Netherlands, the government has committed to providing EUR 90bn in guarantees, fully covering TenneT’s local capex requirements through 2034 – but not those in Germany – which could more closely align its credit rating with that of the sovereign.

Meanwhile, TenneT Germany secured a EUR 9.5bn equity commitment from private investors on September 24th. The company is also considering additional measures such as hybrid issuance, shareholder loans, and scrip dividend uptake by majority owner TenneT Holding. Linked to this announcement, the German government has publicly confirmed its interest in becoming a minority owner in TenneT Germany, which may open another potential avenue for state support.

Similarly, Germany’s Amprion is considering hybrid issuance and potential new equity to finance its five-year investment plans. With lower leverage than TenneT, Amprion has more flexibility and time to address the funding question.

Elia*, which owns TSOs Elia Transmission in Belgium and 50Hertz in Germany, raised EUR 2.2bn in equity in early 2025. The utility is now evaluating further funding measures, such as hybrid bonds and asset disposals over the next couple of years, to cover the remaining EUR 1.8bn-2.3bn gap.

TransnetBW is well positioned to fund its grid expansion too. A EUR 3.2bn equity increase by majority owner EnBW* in June strengthens EnBW’s balance sheet and indirectly supports TransnetBW’s investment pre-funding. Minority owners, Südwest Konsortium and state-owned KfW, have also signaled their openness to contributing new capital for future transmission investments.

* Ratings for Elia (Elia Group SA), TenneT (TenneT Holding BV) and EnBW (EnBW Energie Baden Württemberg AG) are available to subscribers of Scope One.