To determine the appropriate extent to which Iberdrola SA should utilize hybrid bonds, we must analyze its current capital structure, financial performance, refinancing needs, and the cost environment, benchmarking these against the provided S&P Global Ratings guidelines.

**1. Current Capital Structure and Hybrid Status**
First, we calculate the "Total Adjusted Capital" to determine the current percentage of hybrids.
*   **Equity:** According to the balance sheet, Total Equity as of 2023-01-01 is **58,114 million EUR**.
*   **Debt:** We sum Current and Noncurrent Financial Liabilities.
    *   Noncurrent Financial Liabilities: 44,216 million EUR.
    *   Current Financial Liabilities: 25,079 million EUR.
    *   Total Financial Debt = 44,216 + 25,079 = **69,295 million EUR**.
*   **Existing Hybrids:** The line item "Instrumentos De Capital Con Caracteristicas De Pasivo Financiero" (Equity instruments with characteristics of financial liability) represents hybrid debt.
    *   Noncurrent: 576 million EUR.
    *   Current: 87 million EUR.
    *   Total Existing Hybrids = **663 million EUR**.
*   **Total Adjusted Capital:** Equity + Total Financial Debt = 58,114 + 69,295 = **127,409 million EUR**.
    *   *Note: In standard rating agency calculations for leverage, "Adjusted Debt" often includes hybrids treated as debt, while "Equity" might include the equity credit portion of hybrids. However, the prompt defines the cap as 15% of "Total Adjusted Capital (Equity + Adjusted Debt)". Using the reported Equity and Total Financial Debt provides a robust base. Even if we adjust for the equity credit of existing hybrids (typically 50-100% depending on terms), the magnitude remains similar.*
*   **Current Hybrid Ratio:** 663 / 127,409 ≈ **0.52%**.

The company currently has a very low proportion of hybrids in its capital structure (well below 3.75%).

**2. Financial Performance and Cash Flow**
*   **EBITDA:** 13,228 million EUR (2022), up from 12,006 million EUR (2021). This indicates strong and growing operational cash flow generation.
*   **Net Income:** 4,339 million EUR attributable to owners.
*   **Cash Flow from Operations:** 10,443 million EUR.
*   **Cash Flow from Investing:** -10,154 million EUR.
*   **Free Cash Flow (pre-financing):** ~289 million EUR. While positive, the company is heavily investing.
*   **Leverage:** Net Debt / EBITDA.
    *   Net Debt ≈ Total Debt (69,295) - Cash (4,608) = 64,687 million EUR.
    *   Leverage Ratio = 64,687 / 13,228 ≈ **4.9x**.
    *   For a regulated utility with strong regulatory advantage (Iberdrola operates in stable jurisdictions like Spain, UK, US, Brazil), a leverage ratio of ~4.9x is manageable but on the higher side of the "investment grade" comfort zone (typically targeting <4.5x - 5.0x depending on the specific rating agency's threshold for 'BBB' or 'A'). Reducing this ratio is beneficial.

**3. Refinancing Needs and Capex**
*   **Capex:** Purchase of PPE was 6,277 million EUR in 2022. Construction in Progress increased from 9,062 to 11,513 million EUR, indicating a heavy ongoing investment pipeline.
*   **Debt Maturities/Issuance:** The company issued 14,826 million EUR in new debt and repaid 10,272 million EUR in 2022. This indicates active refinancing and growth funding needs.
*   **Dividend Payments:** Significant cash outflows for dividends (890m to parent, 419m to NCI).

**4. Cost of Capital and Market Environment**
*   **Interest Rates:** The swap curves show a sharp increase in rates in 2022 (10Y average 1.927% vs -0.143% in 2020). The cost of debt has risen materially.
*   **Hybrid Cost:** Hybrid bonds carry a higher coupon than senior unsecured debt due to their subordinated nature and deferrable interest features.
*   **Guideline Check:**
    *   **0%:** Incorrect. The company has high capex needs and leverage near 5x. Issuing hybrids can optimize the capital structure by treating a portion as equity for rating purposes, thereby lowering reported leverage.
    *   **3.75%:** This level represents "Moderate funding needs" and "Mild leverage optimization." Given the current ratio is ~0.5%, moving to 3.75% would involve issuing approximately **4,100 million EUR** in new hybrids (3.75% of ~127bn is ~4.7bn; 4.7bn - 0.6bn existing = 4.1bn new). This exceeds the "maximum amount of hybrid issued per year of up to 3 billion euros" constraint if done in one go, but the question asks for the *extent* to utilize over the next 18 months. However, 3.75% is a conservative target.
    *   **7.5%:** This level represents "Moderate refinancing or acquisition needs" and "Rating headroom moderately constrained." Moving to 7.5% implies a total hybrid book of ~9.5 billion EUR. This would require issuing ~8.8 billion EUR new. This is aggressive given the 3bn/year cap and the rising cost of debt.
    *   **11.25% / 15%:** These levels are for "High capex intensity... Investment grade preservation strongly dependent on capital structure optimization" or "Material downgrade risk." Iberdrola is a large, diversified utility with strong regulatory frameworks. It does not face imminent downgrade risk solely due to leverage if managed prudently. Its EBITDA growth supports its debt load. Issuing hybrids at 11-15% would significantly increase the weighted average cost of capital (WACC) in a high-interest environment, which is not optimal when the company generates strong operating cash flows.

**5. Strategic Assessment**
Iberdrola has a strong business risk profile (Regulated Utilities, diverse geography). Its financial risk profile is moderated by strong cash flows but pressured by high capex.
*   The current leverage (~4.9x) suggests a need for some equity-like capital to maintain or improve credit metrics, especially as interest rates rise (increasing finance costs from 2.2bn to 3.0bn).
*   However, the cost of hybrids is now significantly higher than in previous years. The guideline for **3.75%** states: "Hybrid issuance provides limited but useful rating flexibility... Cost of hybrid will increase the current cost of debt."
*   The guideline for **7.5%** states: "Hybrid issuance meaningfully improves adjusted leverage metrics."
*   Given the constraint of max 3 billion EUR per year, issuing 3 billion EUR in the next 12-18 months would add ~3 billion to the existing 0.6 billion, totaling 3.6 billion.
*   3.6 billion / 127.4 billion ≈ **2.8%**.
*   If we assume the company utilizes the full 3 billion capacity, it approaches the 3.75% tier. It does not reach the 7.5% tier (which would require nearly 9 billion total).
*   Is 3.75% justified? Yes. It optimizes leverage without overburdening the income statement with high-cost hybrid coupons in a rising rate environment. It provides "rating flexibility" for the heavy capex program.
*   Is 7.5% justified? Probably not within the 18-month window given the issuance cap and the fact that the company's fundamentals (EBITDA growth) are strong enough to support debt without needing *substantial* hybrid support to avoid a downgrade. The "Material downgrade risk" criterion for 15% is definitely not met. The "Significant leverage pressure" for 11.25% is also not acute given the stable regulated cash flows.

Therefore, the company should aim for the lower end of the optimization spectrum to balance leverage improvement with cost efficiency. The target of **3.75%** aligns with "Moderate funding needs" and "Mild leverage optimization," fitting the profile of a strong utility managing a high capex cycle in a rising rate environment.

<answer>3.75%</answer>