Electric Utilities Press for More Grid Investment, but Regulators Say The Cap Was Never Reached
Electric utility companies frequently assert that they should be allowed to invest more in the power grid. Their leaders repeat this claim day after day, pressing the government to lift or increase the investment cap that law currently imposes. Yet, over the past five years, these firms have not hit that ceiling they claim to want to erase.
The conclusion comes from Spain’s National Commission on Markets and Competition, known as CNMC, which analyzed regulated activities from 2018 through 2022. The regulator reports that the average annual investment by the five big players stayed at about 1.517 billion euros per year, below the legal investment limit in every year within that period, earning the descriptor of the sector’s “super-regulator.”
The record peak of investment reached 1.722 billion euros in 2022, while the cap for distribution activities stood at 1.837 billion euros that year. In parallel, the five main distributors expanded their total assets from 33.852 billion euros in 2018 to 35.690 billion euros in 2022.
Electricity transmission and distribution in Spain operate under a natural monopoly regime. Red Eléctrica de España, or REE, acts as the sole transport operator for the grid, while distribution is led by Endesa, Iberdrola, Naturgy, Hidrocantábrico Distribución, and EDP as the major players, together shaping the bulk of the market.
These firms are responsible for rolling out new networks, yet they face a yearly investment cap set by the Ministry for the Ecological Transition. Consumers bear the cost of these deployments through regulated charges on their electricity bills. For distribution, the cap sits at 0.13 percent of GDP, though the figure rose to 0.14 percent during the pandemic years of 2020 to 2022.
From the perspective of engineering leadership, one executive questioned the link between GDP and grid investment during a quarterly results briefing. The Iberdrola president argued that the investment cap under the Electric Sector Law dates back to 2012, a time when the government aimed to cover a severe deficit in the power system. Today the focus has shifted toward electrifying the economy, meeting decarbonization targets, and reducing external dependency, with modern networks deemed essential to achieve those goals.
Industry insiders point to the National Integrated Plan for Energy and Climate, or PNIEC, which outlines investments totaling around 53,000 million euros. This plan would push the investment rate toward about 0.45 percent of GDP annually. Without such an increase, proponents suggest targeted outlays could still reach roughly 0.18 percent of GDP, directed at specific efforts like digitalization, with other investments becoming contingent on future company requests.
Compensation and Return Expectations
But the debate does not end with the cap. Distributors have also called for a higher financial return on new infrastructure. The current allowed return on equity for regulated networks sits at 5.58 percent before taxes. This rate dates from 2013, and the companies urge an adjustment to reflect today’s conditions, including provisions that guard against inflation spikes and rising interest rates. They advocate for a range roughly between 7 percent and 9 percent, aligning with practices observed in several European nations.
The clock is ticking, since the next regulatory period will begin on January 1, 2026. With that date approaching, the industry warns that ongoing grid investments could be affected by the new regime. They seek clear signals from the regulator, which sets the rates and safeguards necessary to ensure the long-run profitability of network investments.
Earlier estimates tied to the PNIEC imply that the overall scale of the program would influence how much of the GDP is allocated to grid activity. If the cap does not rise, the sector argues for a more flexible framework that can support essential modernization while ensuring that consumers continue to receive reliable service at reasonable prices. These points are central to the ongoing political and regulatory dialogue about how best to fund a modern and resilient electricity system for households and businesses alike.