I'll analyze this step by step, considering Terna's financial position, capital structure, and the market environment for hybrid bonds.

## Key Financial Analysis

**Capital Structure (2023-01-01):**
- Total Equity: €6,169M
  - Of which: Hybrid bonds (perpetual): €989M (16% of equity)
  - Traditional equity: €5,180M
- Long-term borrowings: €8,417M
- Short-term borrowings + current portion of LT debt: €2,354M
- Total debt: ~€10,771M

**Current Hybrid Bond Position:**
Already has €989M in perpetual hybrid bonds classified as equity instruments. This represents about 16% of total equity and roughly 8.4% of total capital (equity + debt).

**Financial Health Indicators:**
- Strong profitability: Operating profit €1,334M (2022), Net profit €858M
- Solid interest coverage: Finance costs €122M vs operating profit €1,334M (~11x coverage)
- Strong cash flow from operations: €2,324M (2022)
- Significant capex: €1,492M in PPE + €212M intangibles = €1,704M

**Business Characteristics:**
- Regulated utility (electricity transmission) - stable, predictable cash flows
- Capital intensive with ongoing infrastructure investments
- Related party transactions significant (~59% of revenue from related parties)
- Government-linked parent (CDP Reti S.p.A., owned by Cassa Depositi e Prestiti)

**Market Environment for Hybrids (2022):**
- Swap rates turned positive in 2022 after negative/flat period
- 10Y swap: 1.927% average (up from 0.053% in 2021)
- Corporate bond spreads: iShares Core Euro Corp Bond at 1.085%
- Sub-senior non-financial IG: 2.295%

The rising rate environment in 2022 makes fixed-rate hybrid bonds more expensive than during 2020-2021, but still historically moderate.

## Analysis of Hybrid Bond Suitability

**Advantages for Terna:**
1. **Regulated utility profile**: Stable cash flows support fixed obligations
2. **Equity credit**: Hybrids get partial equity treatment from rating agencies (typically 50-100% equity depending on structure)
3. **Diversification**: Already has some hybrid exposure, showing market access
4. **Tax efficiency**: Interest typically tax-deductible vs dividends

**Concerns:**
1. **Already leveraged**: Total debt/EBITDA ~4.5x (rough estimate), moderate for utility but not low
2. **Perpetual nature**: Rising rate risk if rates continue up
3. **Replacement risk**: Step-up clauses typically after 5-10 years
4. **Dividend pusher/stopper**: May restrict ordinary dividends if coupons skipped

**Optimal Level Considerations:**
- Rating agencies typically give 50% equity credit to hybrids if they represent <50% of total equity, 0% if >50%
- For BBB/BBB+ rated utilities, 15-25% of total capital in hybrids is common
- Current position: ~8.4% of total capital in hybrids
- Room to increase, but 50%+ would be aggressive and risk equity credit

**Strategic Assessment:**
- Terna is investment-grade, regulated, with predictable cash flows
- Needs significant ongoing capex (€1.7B annually)
- Parent is government-related, suggesting conservative financial policy
- Already has hybrid bonds in structure

Given the regulated utility nature, stable cash flows, and need for capital-intensive investments, some hybrid exposure makes sense. However:
- 0%: Too conservative, misses cost/equity benefits
- 25%: Reasonable, maintains strong credit profile
- 50%: Aggressive, risks equity credit and financial flexibility
- 75-100%: Excessive for regulated utility, would concern creditors

The current ~8-16% of equity is on the low side. A moderate increase to around 25% of total capital would optimize the cost of capital while maintaining credit quality and operational flexibility. This balances the equity-like stability of Terna's business with the need for financial flexibility in a rising rate environment.

<answer>25%</answer>