This is an extract from a recent report “Red Eléctrica’s Opportunity To Close Spain’s Grid Investment Gap” published by IEEFA. The extract focuses on Red Eléctrica de España (REE), a subsidiary of the Redeia Corporation S.A. (Redeia, formerly Red Eléctrica Corporación), the backbone of Spain’s electricity system. As Spain’s sole TSO, REE is responsible for the transmission of electricity across the national grid and the operation of the electricity system, including the integration of renewable energy sources.
Introduction
As one of Europe’s frontrunners in renewable energy deployment, Spain offers a critical case study of the tensions between Paris-aligned climate targets and infrastructure readiness. With some of the most advanced renewables capacity goals in the EU, a high potential for solar generation and significant project bottlenecks due to limited grid access and upgrades, Spain exemplifies the imminent need for transmission system investment and financing. Spain’s power grid capacity has expanded significantly over the past 15 years (+92%), but still insufficiently to meet the country’s exponential renewables growth. The renewables growth momentum will continue. In September 2024, Spain updated its National Integrated Energy and Climate Plan (NECP) for 2023-2030, aiming to accelerate its transition to renewable energy and enhance energy security. The revised plan sets ambitious targets, including 81% of electricity from renewable sources by 2030, up from the previous goal of 74%. Key 2030 capacity targets are: 76 GW of solar photovoltaic capacity, 62 GW of wind power and 22.5GW of energy storage.
Achieving these targets requires a robust, modernised and future-proof transmission network — one that can support the growing share of variable renewable energy and integrate new demand from electrified sectors. However, the April 2025 blackout in Spain and Portugal shows how a lack of grid investment can threaten the electricity supply and demand balance. It highlights the importance of the right investments to avoid wasting clean energy and clear the significant queues of renewables projects waiting for grid connections. In addition to investments in domestic grid strengthening, enhancing interconnection capacities is vital not only for the development of renewable power in Spain but also for Europe’s energy security. The European Commission estimates that €584 billion in grid investments is required by 2030 to meet energy transition goals. 1,700 GW of renewable energy and hybrid projects are waiting for grid connections across 16 European countries. This bottleneck in grid access is a major hindrance to renewables growth in the EU. Recognising that connection delays will increase without investment in grid expansion, modernisation, digitalisation and flexibility, the European Commission plans to publish its European Grids Package by the end of 2025. The package will aim to help upgrade and expand EU grids to support rapid electrification and speed up permitting.
Spain faces a distinct set of challenges and opportunities in the context of the broader EU energy transition. Spanish power demand was rather stable, about 260 terawatt hours (TWh) a year, until 2019. It has not recovered to previous levels, stagnating at about 230TWh. COVID-19 was a major trigger to this load cut, but the main drivers were energy efficiency gains and the role played by demand-side management. In a rapidly evolving energy landscape characterised by decarbonisation, digitalisation, decentralisation and electrification, REE plays a crucial role in ensuring the stability, efficiency and sustainability of the power system. In this report, IEEFA examines Redeia’s strategy and investment plan, which are closely related to Spain’s energy transition objectives and the broader goals of the European Green Deal. It reviews Redeia’s physical assets, both inside and outside Spain, classified by technology and geography, and analyses its credit profile, a key factor in determining its access to capital and its propensity to expand and execute its investment programme.
Grid Strategy Sharpens but Investment Gap Remains
Redeia Agrees To Divest Its Satellite Business, Hispasat: On 31 January 2025, Redeia agreed to sell 89.7% of Hispasat for €725 million to Spanish defence corporation Indra, with the sale expected to be completed by the end of 2025. The transaction reflects a valuation notably below the €933 million Redeia paid to acquire the satellite operator in 2019. The company cited the reason for the divestment as capital rotation towards the TSO’s regulated business. This move represents a positive step in the company’s strategy to focus on grid development. The Iberian power blackout in April 2025 highlighted the grid’s weaknesses in emergency responsiveness.
Current Situation and Context: Redeia is executing its 2021-2025 strategic plan, which includes an investment target of ~€4.8 billion (up from ~€4.4 billion) to support grid expansion, interconnections, storage and digitalisation in Spain. In its 2024 results, Redeia reported record investments of €1.1 billion in that year alone, a 34% increase on 2023. The company aims to align its financing with its green debt framework and to reach 100% sustainable financing by 2030.
Post-2025 Investment Plan Imminent: Redeia is expected to announce its new strategic plan for 2026-2030 following the final approval of the network development plan 2025-2030 by the Spanish government, which is anticipated in late 2025 or early 2026. REE’s strategic plan forms the predominant part of Redeia’s overall strategy.
Spain has proposed that €13.6 billion be invested in the country’s power grids between 2025 and 2030. The breakdown of those investments would be about 75% for grid strengthening (electrification and renewable integration, improving interconnections between domestic grids, increasing international interconnections), while the remaining 25% would be to support the distribution system and digitalisation (including demand-side management). If this 2030 target materialises, it would help close the investment gap between expectations outlined in the government-authorised 2021-2026 Electricity Transmission Grid Planning and the actual investment levels through to 2025. REE reported total investment of €2.9 billion between 2021 and 2024, with capital expenditure (capex) for 2025 estimated at €1.4 billion. However, this figure falls short of the €6.96 billion target initially established under the 2021-2026 Grid Planning. Subsequent modifications to the Grid Planning have pushed the total expected investments up to €8.2 billion. REE will need to accelerate investment during the upcoming planning cycle to meet increasing system needs.
REE’s Strategic Challenges and Opportunities
Challenges: One of the main issues REE faces is approvals for land to build new transmission lines, with environmental regulations often delaying grid projects. Grid congestion is the key obstacle to the rapid deployment of renewable energy, whose growth often outpaces grid availability in many Spanish regions. Lack of investment is one of the root causes of this bottleneck and is a key issue for REE to address in its new strategic plan. Besides the grid’s sluggish growth and technological uncertainty around the integration of intermittent renewable energy sources, such as wind and solar, REE is expected to make significant progress in energy storage and hydrogen by 2030. From a regulatory stability standpoint, in Spain and especially Latin America, frequent changes in government policy undermine investment certainty.
Opportunities: Grid strengthening can help make REE the frontrunner in implementing Spain’s ambition for an 81% renewable electricity mix by 2030. REE can also support utilities and technology companies to develop the numerous proposed green hydrogen projects, especially in the Andalusia region. Additionally, Redeia expertise in telecommunications can help REE through digitalisation of infrastructures especially needed in rural, remote and insular zones. From the EU angle, the recovery funding for strategic alignment with the EU taxonomy opens up financial support.
Solid Investment-Grade Credit Profile Backs Capex
REE benefits from a diversified funding structure through its listed parent company, Redeia, with access to equity markets, public bond issuance and loans from public financial institutions. Given REE’s systemic and strategic importance to Spain’s energy system, the government’s 20% ownership stake also implies a degree of financial support if needed.
Maintaining reliable access to these funding channels is essential in light of the substantial investment requirements in current and proposed national grid development planning. These investments are fundamental to preserving REE’s business resilience and supporting steady, long-term earnings growth. As Redeia is a regulated utility with monopoly control over electricity transmission assets, its environmental, social and governance (ESG) framework remains material in credit considerations. This seems to have been exacerbated following the Iberian blackout: S&P Global has put Redeia’s ratings under watch for possible downgrade, citing the incident as “an overall failure of the wider governance of the Spanish electricity system”. Similarly, Moody’s changed the rating outlook to negative, citing “increased social risks”. While ratings from Fitch remain unaffected, it warned the blackout was an “indication of system vulnerability”. These credit ratings remain solid investment grade.
Spain’s abundance of renewable power will lower its climate-related risk and bring long-term societal benefits through more affordable and secure energy supply. This underscores REE’s responsibility to maintain a clear governance structure and a disciplined, transparent financial policy. In turn, this will ensure infrastructure is delivered aligned with planning expectations — ultimately supporting long-term credit quality. By contrast, weak environmental and governance performance could heighten societal and regulatory scrutiny, potentially raising costs of capital. An example among regulated utilities is the financial distress facing Thames Water. Prolonged operating underperformance, underinvestment and governance concerns at the UK water monopoly have contributed to its mounting debt challenges and drastic credit rating downgrades. Redeia has so far retained a solid investment-grade credit profile and should be committed to preserving it.
A Modest Increase in Allowed Rate of Return
For creditors, Redeia’s credit profile is supported by long-term visibility of cash-flow generation backed by a steady regulatory framework by Spain’s National Commission for Markets and Competition (CNMC). Redeia will increasingly focus on REE’s regulated transmission business in Spain, which will predominantly drive the group’s credit quality. REE’s revenue generation is predominately determined by the parameters set out by CNMC, including operation and maintenance cost allowances, regulated asset depreciation and financial remuneration rates. The CNMC’s process of setting allowed revenues, returns and investment recovery follows a broadly transparent and consistent methodology that is publicly accessible. REE generally exhibits above-average transparency among TSOs in Europe. In October 2025, CNMC proposed a pre-tax remuneration rate of 6.58% for the 2026-2031 regulatory period. This is a slight increase from the proposal of 6.46% in July 2025 and a onepercentage-point rise from 5.58% set for the current period, though it remains below industry lobby group aspirations. The proposed risk-free rate of 3.25% is close to Spain’s 10-year bond yields — averaging 3.2% over 2025 — and offers some buffer for investment returns relative to Redeia’s cost of debt
CNMC proposes to include remuneration for long, singular, ongoing projects such as high-voltage direct current (HVDC) subsea links. This marks a positive step to improve cash-flow timing and a more disciplined cost structure, which underpins efficient capital deployment. However, CNMC’s framework doesn’t clearly differentiate the long-term asset valuation between electricity and gas transmission infrastructure. Methodologies for regulated electric assets should account for and anticipate the need for grid modernisation and expansion, while gas infrastructure should reflect declining asset values over time as the role of gas diminishes
Capex Drives Rising Debt, Initially Outpacing Earnings Growth
Redeia’s net debt increased by €100 million to €5.5 billion in the six months to 30 June 2025. The €725 million proceeds from Hispasat’s divestment — expected to be received in the second half of 2025 — will support Redeia’s financial position over the fiscal year 2025-2026. Government funding will also be important as Redeia’s net debt will likely increase through 2030, with elevated investments not entirely covered by internal cash-flow generation
Over time, capex will support continued growth in the regulated asset base as project completions accelerate, underpinning steady growth in earnings. This will help Redeia maintain a solid debt leverage level by generating increasing cash flows. Most of REE’s regulated assets have very long useful lives of 40 years. The company’s debt will be gradually repaid over time, supporting its long-term credit quality that might not be fully captured within the three-to-five-year timeframes that credit rating agencies typically consider. In February 2023, Redeia issued green-labelled subordinated perpetual notes of €500 million at 4.625%. With 50% treated as equity and 50% as credit, the issuance supports the company’s credit metrics as adjusted for hybrid adjustments. Redeia could consider further utilising this tool to support the capex investments and maintain a solid capital structure. This would align well with the long-term nature of its regulated assets. For every €1 billion of 50-50 hybrid instruments issued instead of debt, the company can improve its adjusted funds from operations to net debt ratio by around 1.5%, even after accounting for the higher interest costs associated with hybrids.
Public Support Should Provide Some Financial Flexibility
Redeia has a track record of receiving public financial support in the form of loans and grants. Such support is becoming increasingly important for maintaining a solid credit profile and sustaining access to private funding to finance its accelerating investments. As of 30 June 2025, approximately 14% of Redeia’s gross debt of €6.1 billion was sourced from the EIB, highlighting the company’s strong access to EU-backed financing. In 2024, Redeia received government grants of €209 million, primarily related to the electricity interconnection between Spain and France through the Bay of Biscay. This project, which is being jointly delivered with Réseau Transport d’Électricité, has been designated by the EU as a Project of Common Interest and is co-funded by a Connecting Europe Facility grant of €578 million. The Spanish government has approved a direct award of €931 million in grants to Redeia, funded through the EU-backed Recovery, Transformation and Resilience Plan. Of the total, €510 million will be allocated in 2025 and €421 million in 2026.
Innovative Sustainable Finance Will Broaden Funding
Sustainable finance plays a critical role in meeting Redeia’s funding needs for accelerated growth in regulated assets. Redeia has a well-established sustainable finance strategy, receiving the highest score possible for its green finance framework by S&P Global Ratings, a third-party reviewer. Following its green bonds debut in 2020, Redeia had outstanding bonds, including perpetuals, of €2.8 billion at the end of 2024. This, combined with green-labelled EIB loans, brought its total green debt funding to €3.5 billion at that time, representing about half of the company’s interest-bearing debt, including perpetuals. It demonstrates Redeia’s potential to continue replacing conventional debt — primarily €500 million due April 2026 and €600 million due March 2027 — with green-labelled debt. This aligns with the company’s commitment to reaching 100% sustainable financing by 2030. Redeia shows continued progress and strong access to funding with its €500 million green bonds issuance in September 2025, which was 2.5 times oversubscribed.
Improve Impact Transparency
As the eligible green assets will grow at a rapid pace from 2025 to 2030, it is essential for Redeia to enhance transparency about the impacts of its investments in grid development and their contribution to Spain’s electricity planning goals and its NECP. This will help the company expand its funding access, particularly from investors with a sustainability mandate. The company’s green debt is mapped to its total identified eligible green assets of €9.3 billion at the end of 2024, based on a portfolio approach. Of this, €9.2 billion goes to electricity network assets, comprising those that enable the connection of new renewable capacity to the grid and those that enhance the transmission capacity for renewable energy in the grid. Redeia reported these assets enable nearly 9TWh of renewable energy production each year, representing 3.6% of Spain’s electricity consumption in 2024. Redeia’s green bond reporting does not detail the lookback period for eligible assets, nor does it specify how impacts are attributed to individual bond issues.
Between 2021 and 2024, Redeia’s investments in Spain’s grid totalled €2.9 billion, covering about a quarter of the eligible green assets. For example, REE reported that it commissioned 487km of new transmission lines in 2024, but this was not clearly earmarked with individual green bond issues. The launch of the European Green Bond Standard in December 2024 provides Redeia with a strong opportunity to expand its green bond programme with enhanced credibility and transparency. Investments in electricity transmission and distribution are inherently in line with the EU taxonomy substantial contribution criteria. In 2024, 96% of Redeia’s capex was EU taxonomy-aligned; this positions the company well to adopt the standard. Momentum is building behind the standard: A landmark transaction by the EIB has set a market benchmark. In particular, the standard has already gained strong traction in electricity transmission and distribution activities, with aligned transactions totalling €2.9 billion — including those by Italy’s Terna, Germany’s Eurogrid, Belgium’s Elia and Finland’s distribution operator Elenia. Denmark’s sovereign European Green Bonds also demonstrate how the standard is supporting grid development by backing its TSO, Energinet.
Enhance Accountability
Redeia’s future investments will be critical to Spain’s energy systems, underpinning the need for better accountability through sustainable finance practices. Debt financing could be structured to help targets and commitments translate into measurable outcomes and impacts. Redeia can go beyond use-of-proceeds bonds and embed performance-linked features into debt financing. A combined sustainability-linked green bond structure could align well with the company’s strategic and financing needs, also potentially lowering its cost of debt; this would represent an innovative step in the sustainable debt market. Spain’s 2021-2026 network development plan aims to deliver 8,000km of grid improvements, plus 2,700km of new power lines and 700km of submarine cables. Existing financing mechanisms do not explicitly consider the risks of underinvestment, under-execution or underperformance in delivering the wider goals set out in the NECP.
The draft government planning proposal for 2025-2030 might scale up grid investments to €13.6 billion, which elevates the importance of accountability in capital spending and project execution. The plan anticipates the connection of 27.7GW of new electricity capacity to the transmission grid, a substantial rise from the 2GW foreseen under the 2021-2026 plan. The new plan includes 9,500km of power line improvements, representing 21% of the transmission network. Redeia should take the opportunity to embed performance-linked features in its financing approach to outline the expected contributions to the national plan. Sustainability-linked debt targets can be designed to assess the proceeds’ contributions based on the investment outputs, outcomes and impacts, enhancements to grid performance and future system readiness
Conclusion
REE stands at the centre of Spain’s energy transition, balancing the urgent need for accelerated grid investment with the imperative to preserve financial stability and governance discipline. The company’s role as the sole TSO gives it a unique responsibility to ensure Spain’s renewable energy targets are achieved without compromising system reliability or affordability. Despite REE’s solid investment-grade profile and strategic execution under the 2021-2025 plan, a material investment gap remains. The forthcoming 2026-2030 strategic plan must therefore deliver a structural scale-up in capex, especially in interconnections, digitalisation and energy storage. Failure to close this gap risks perpetuating grid congestion, curtailing renewable capacity and weakening the credibility of Spain’s decarbonisation pathway — ultimately increasing financial and reputational risks for REE. Sustainable finance will be a decisive enabler of this transformation.
Given Redeia’s commitment to 100% sustainable financing by 2030, adopting the European Green Bond Standard combined with performance-linked instruments would broaden funding access and reinforce accountability. Transparent impact reporting and measurable system outcomes — such as renewable capacity enabled, emissions avoided and flexibility gained — will be key to maintaining investor confidence. Ultimately, REE’s success will depend on robust financial management and operational excellence, backed by regulatory stability in line with the wider European grid modernisation agenda. By executing its investment plans effectively and transparently, REE can safeguard Spain’s energy affordability and security. It can emerge as a benchmark for how electricity TSOs can drive the energy transition through disciplined, sustainable and forward-looking infrastructure investment.
Access the report here