Preparing for CATO: What prospective bidders need to know
At a glance
Since our first review of the Competitively Appointed Transmission Owner (CATO) regime, the prospective project pipeline has expanded, and Great British Grid has emerged as a possible bidder. For investors and delivery partners, the opportunity is becoming clearer. Confidence depends on a credible tender programme, transparent competition and financing models that can withstand delays before revenue begins.
CATO is moving closer to market. We examine the project pipeline, commercial risks and actions prospective transmission bidders can take.
What the project pipeline means for bidders
First proposed in 2016, CATO is Ofgem’s framework for introducing competition into the delivery of new onshore electricity transmission infrastructure. In 2016, Ofgem planned to be able to start the first CATO competition from 2018.
In our first article, published in July 2025, we examined the proposed commercial framework from an offshore transmission perspective. Since then, Ofgem has consulted on the draft CATO licence and supporting guidance. The consultation opened on 19 August 2026 and closed on 16 October 2026, with a decision pending.
The National Energy System Operator (NESO) expects to announce the first projects selected for competitive delivery in late 2026 or early 2027. The tender timetable is expected to follow project selection.
NESO’s Beyond 2030 Investor Annex, published in 2026, identifies 18 projects that NESO has assessed as eligible for competitive delivery. Ten are described as necessary across all four of NESO’s Future Energy Scenarios. Indicative cost bands range from £100 million–£500 million for some substation and reinforcement projects to more than £2.5 billion for high-voltage direct current links. NESO gives probable delivery dates of 2035 to 2045 if the incumbent transmission owners deliver them.
Eligibility does not guarantee a tender, but a credible sequence of projects could support permanent UK teams, deeper supply-chain relationships and longer-term capital allocation. WCN2, the proposed reinforcement between Ayrshire and northwest England, illustrates the uncertainty. Once identified as the likely first CATO project, it has returned to the list but is now required in only one of the four scenarios. In July 2025 Ofgem ruled that it was not a qualifying project because the network need could not be confirmed ahead of NESO’s 2026 network plan refresh.
For prospective bidders, a project list signals opportunity. A reliable tender programme supports investment decisions.
In our first article, published in July 2025, we examined the proposed commercial framework from an offshore transmission perspective. Since then, Ofgem has consulted on the draft CATO licence and supporting guidance. The consultation opened on 19 August 2026 and closed on 16 October 2026, with a decision pending.
The National Energy System Operator (NESO) expects to announce the first projects selected for competitive delivery in late 2026 or early 2027. The tender timetable is expected to follow project selection.
NESO’s Beyond 2030 Investor Annex, published in 2026, identifies 18 projects that NESO has assessed as eligible for competitive delivery. Ten are described as necessary across all four of NESO’s Future Energy Scenarios. Indicative cost bands range from £100 million–£500 million for some substation and reinforcement projects to more than £2.5 billion for high-voltage direct current links. NESO gives probable delivery dates of 2035 to 2045 if the incumbent transmission owners deliver them.
Eligibility does not guarantee a tender, but a credible sequence of projects could support permanent UK teams, deeper supply-chain relationships and longer-term capital allocation. WCN2, the proposed reinforcement between Ayrshire and northwest England, illustrates the uncertainty. Once identified as the likely first CATO project, it has returned to the list but is now required in only one of the four scenarios. In July 2025 Ofgem ruled that it was not a qualifying project because the network need could not be confirmed ahead of NESO’s 2026 network plan refresh.
For prospective bidders, a project list signals opportunity. A reliable tender programme supports investment decisions.
How Great British Grid could affect the competition
On 29 September 2026, the UK Government announced Great British Grid, a publicly owned body within Great British Energy. It would invest public money alongside private capital in electricity network projects. The announcement also set out an intention to accelerate competitive tendering for transmission.
Several aspects of the model are still unresolved:
- No long-term funding figure was announced. Initial costs are expected to come from Great British Energy’s existing budget, with future funding to be considered in a spending review.
- Ofgem and NESO are expected to retain their current roles. The announcement did not propose changes to the responsibilities of existing transmission owners.
- Great British Grid is expected to require a transmission licence before it can own or operate transmission assets.
- The government has proposed wider rights for developers and businesses to build their own connections instead of relying entirely on the existing connections process.
The announcement does not name CATO. Herbert Smith Freehills Kramer has interpreted its reference to competitive onshore transmission tendering as a reference to the regime, but this is GHD’s interpretation only; the government has not confirmed how the Great British Grid would participate.
So, until the government clarifies that role, private bidders will need to monitor Great British Grid’s funding, licensing status and bidding rules. Clear separation between its public policy responsibilities and any competitive role will be important for market confidence.
The delivery capabilities bidders will need
A successful CATO bidder would finance and deliver new onshore transmission infrastructure then operate it under a 35-year Tender Revenue Stream. Revenue does not begin until the asset is available for service and energised. Delays during development or construction extend the period in which bidders carry financing costs without receiving the Tender Revenue Stream.
Preliminary works payments could support early cash flow. NESO can approve payments of up to 50 percent of its estimated preliminary works costs where it considers them necessary. Ofgem may allow a higher cap for the first few tenders. These payments do not remove the need for funding that can withstand consenting or commissioning delays.
Winning bidders must also provide security within 30 days of licence award. The proposed requirement is 10 percent of forecast construction costs, capped at £50 million for projects valued at up to £1 billion. The security reduces as the bidder invests in the project, and for projects above £1 billion the level will be set project by project.
Ofgem has decided against a separate financial penalty for late delivery. Deferred revenue and continuing financing costs are considered a sufficient commercial incentive. If a bidder causes the delay, it may also lose revenue years at the end of the term.
The Post-Preliminary Works Cost Assessment provides some protection after preliminary works are complete. It can adjust the bid for inflation and cost changes that could not reasonably have been anticipated, such as a route change imposed through the consenting process.
NESO had proposed a 40 percent cap on upward adjustments. Ofgem has decided that the first tender will receive a higher cap, to be finalised during pre-tender market engagement after the first project is announced. Certain high-impact, low-probability events, such as a change in law, unavailable insurance or force majeure, will sit outside the cap.
This mechanism gives early bidders some protection, but it doesn’t replace careful project development. Bid teams will still need a route with a credible prospect of gaining consent. They will also need evidence supporting their cost and programme assumptions.
The wider delivery challenge is substantial. On 11 September 2026, the National Audit Office supported the case for about £70 billion of transmission investment that Ofgem expects between 2025 and 2031. It warned that completing the planned programme by 2030 would be very challenging.
Without the required upgrades, annual electricity constraint costs could rise from £1.9 billion in 2025–26 to as much as £7.8 billion in 2030. Four of the 56 ongoing upgrade projects are already forecast to finish after 2030. NESO has estimated that delaying the recommended network programme by one year could add up to £7.5 billion to net transmission costs. A three-year delay could add up to £24.8 billion.
These figures support the case for expanding transmission delivery capacity. Competition alone will not accelerate delivery. Projects must secure consent and connect safely to an operating network. Delivery teams will need access to specialist resources and long-lead equipment, while appointed owners must maintain operating capability throughout the revenue period.
Incumbent transmission owners can also bid, but only through a separate bidding unit. The controls are already in their licences and include Ofgem approval of a conflict mitigation statement before pre-qualification, separate management, premises and IT systems, restrictions on staff moving into the bid team during the tender, no use of regulated revenue to fund the bid, an external audit and declarations of interest from bid team members.
These controls aim to manage access to information and conflicts of interest. Their credibility will matter to new market entrants. Great British Grid is likely to face similar scrutiny if it competes alongside private bidders.
Preliminary works payments could support early cash flow. NESO can approve payments of up to 50 percent of its estimated preliminary works costs where it considers them necessary. Ofgem may allow a higher cap for the first few tenders. These payments do not remove the need for funding that can withstand consenting or commissioning delays.
Winning bidders must also provide security within 30 days of licence award. The proposed requirement is 10 percent of forecast construction costs, capped at £50 million for projects valued at up to £1 billion. The security reduces as the bidder invests in the project, and for projects above £1 billion the level will be set project by project.
Ofgem has decided against a separate financial penalty for late delivery. Deferred revenue and continuing financing costs are considered a sufficient commercial incentive. If a bidder causes the delay, it may also lose revenue years at the end of the term.
The Post-Preliminary Works Cost Assessment provides some protection after preliminary works are complete. It can adjust the bid for inflation and cost changes that could not reasonably have been anticipated, such as a route change imposed through the consenting process.
NESO had proposed a 40 percent cap on upward adjustments. Ofgem has decided that the first tender will receive a higher cap, to be finalised during pre-tender market engagement after the first project is announced. Certain high-impact, low-probability events, such as a change in law, unavailable insurance or force majeure, will sit outside the cap.
This mechanism gives early bidders some protection, but it doesn’t replace careful project development. Bid teams will still need a route with a credible prospect of gaining consent. They will also need evidence supporting their cost and programme assumptions.
The wider delivery challenge is substantial. On 11 September 2026, the National Audit Office supported the case for about £70 billion of transmission investment that Ofgem expects between 2025 and 2031. It warned that completing the planned programme by 2030 would be very challenging.
Without the required upgrades, annual electricity constraint costs could rise from £1.9 billion in 2025–26 to as much as £7.8 billion in 2030. Four of the 56 ongoing upgrade projects are already forecast to finish after 2030. NESO has estimated that delaying the recommended network programme by one year could add up to £7.5 billion to net transmission costs. A three-year delay could add up to £24.8 billion.
These figures support the case for expanding transmission delivery capacity. Competition alone will not accelerate delivery. Projects must secure consent and connect safely to an operating network. Delivery teams will need access to specialist resources and long-lead equipment, while appointed owners must maintain operating capability throughout the revenue period.
Incumbent transmission owners can also bid, but only through a separate bidding unit. The controls are already in their licences and include Ofgem approval of a conflict mitigation statement before pre-qualification, separate management, premises and IT systems, restrictions on staff moving into the bid team during the tender, no use of regulated revenue to fund the bid, an external audit and declarations of interest from bid team members.
These controls aim to manage access to information and conflicts of interest. Their credibility will matter to new market entrants. Great British Grid is likely to face similar scrutiny if it competes alongside private bidders.
How to prepare for the first CATO tender
Organisations considering the CATO market can begin preparing before NESO confirms the first competitive projects:
- Assess the pipeline as a portfolio. Test if the possible programme supports permanent UK bidding and delivery capability rather than a team assembled for one competition.
- Stress-test the funding model. Model delayed revenue, security requirements and financing costs under different consenting and commissioning scenarios.
- Develop the route and interface strategy. Document consenting assumptions, route-change exposure and dependencies involving existing transmission assets.
- Assess delivery capacity. Review access to specialist people, long-lead equipment and suitable contractors. Plan for the operating resources required throughout the revenue period.
- Set consortium responsibilities. Allocate ownership of funding, design decisions and delivery risk. Define responsibilities for commissioning and long-term operations.
- Monitor the market framework. Track project selection, licence conditions and tender timing. Follow developments concerning Great British Grid’s funding and competitive role.
The prospective pipeline could support lasting delivery capability and give investors access to long-term regulated revenue. But the organisations best placed to compete will be those that can convert a credible bid into a consented, financed and operational transmission asset.
Preparing that capability before the first tender could prove decisive.