CATO takes shape: NESO launches expression of interest for Onshore Electricity Transmission Competition

Background

The long-awaited Competitively Appointed Transmission Owner (CATO) framework is now moving from legislative concept to market reality. The National Energy System Operator (NESO) has published an Expression of Interest (EoI) seeking to identify transmission projects suitable for network competition under the early-model competitive tender process (Events and webinars | National Energy System Operator). This marks a significant milestone in the Government's and Ofgem's efforts to introduce competitive delivery models alongside the incumbent Transmission Owners. 

The UK electricity transmission system is operating in a period of unprecedented expansion, driven by electrification of heat, transport, and industry, increasing digitalisation and the changing geography of electricity generation. These changes drive not only higher volumes of electricity, but fundamentally different power flows across the transmission network.

Over the past decade, investment in renewable generation has outpaced investment in transmission capacity, creating network constraints that now impose material costs on the system through curtailment. The Beyond 2030 Report (Beyond 2030 | National Energy System Operator) identifies around ?58 billion of direct investment required for offshore and onshore network upgrades. The existing grid is increasingly operating at the limits of its original design assumptions, highlighting the need for significant reinforcement and reconfiguration to maintain system performance.

Against this backdrop, there is increasing recognition that competitive delivery models and private capital can play a role in supporting timely, efficient investment in regulated infrastructure while maintaining appropriate regulatory oversight and consumer protection.

The EoI follows years of policy development. The Department for Business, Energy and Industrial Strategy (BEIS) first consulted on Competition in Onshore Electricity Networks in August 2021 (Finally the introduction of CATO legislation?), confirming the Government's intention to legislate for competitive tenders for the building, ownership and operation of onshore electricity networks. CATOs were originally considered as part of Ofgem's 2012 Integrated Transmission Planning and Regulation project, and draft legislation was produced and taken to pre-legislative scrutiny in 2016, but a lack of parliamentary time prevented progression. Now, with the legislative framework in place, NESO is taking the first concrete steps towards implementation.

CATO at a Glance – Key Commercial Features

The early-model CATO represents a deliberate and targeted application of competition, focusing on projects where risks can be clearly defined, interfaces managed, and competitive delivery is most likely to deliver value for consumers. Under the CATO framework, competitively selected parties would be licensed to design, build, finance, and operate defined transmission assets.

Expected Participants and Project Types

Early Competition is expected to attract a mixture of equity investors, major construction contractors/EPCs, and large utilities or Transmission Owners, typically forming consortium structures that combine long-term capital with technical delivery capability. The model is well-suited to infrastructure funds, sovereign wealth funds, pension schemes, and strategic utilities. It also allows lead sponsors, co-investors, and technical partners to participate in a scalable, de-risked platform.

While UK transmission experience is valuable, NESO recognises that relevant delivery capability exists across adjacent infrastructure sectors. The EoI asks respondents to demonstrate experience in delivering projects relevant to electricity transmission infrastructure, including transmission projects, offshore wind export cables or interconnectors, oil and gas pipelines, rail electrification, major power generation connections, data centre or industrial high voltage (HV) electrical infrastructure, and linear infrastructure with comparable consenting/delivery complexity.

NESO has identified three broad project types for the illustrative portfolio:

• Onshore reinforcement: Projects which increase power transfer across network boundaries via entirely onshore infrastructure, such as overhead line and/or buried cable circuits. 
• 'Wet' onshore reinforcement: Projects which increase power transfer across network boundaries via marine-based infrastructure, such as HVDC bootstraps. 
• Onshore connections: Projects to connect generators and/or demand users to the national electricity transmission system. 

The illustrative projects range from 20 km overhead lines for single customer connections through to 700 km high voltage direct current (HVDC) subsea cables, with varying levels of planning complexity, environmental designations, and interface requirements. 

The Expression of Interest (EoI)

NESO is conducting a market sounding exercise to understand investor capability and appetite across different project types, cost drivers and delivery assumptions that influence project viability, financial capacity and relevant experience of potential market participants, and how projects are packaged, sequenced and brought to market under the early-model competitive regime. 

Critically, the EoI is not a request for formal bids or pricing, a commitment to compete for any specific project, or part of the Pre-qualification (PQ) or Invitation to Tender (ITT) stages of the tender process. Responses will be treated as commercially confidential and used in aggregate to inform NESO's competition strategy. Individual cost assumptions will not be shared with Ofgem or other parties without consent.

The information gathered will inform competition sequencing, project packaging decisions, competition design, regulatory engagement with Ofgem on appropriate returns and risk allocation, and pipeline development. 

The EoI workbook comprises several sections designed to gather comprehensive market intelligence: 

• Declaration: Contact details and declaration from the responding organisation.  
• Organisation Credentials: Information on legal entity, jurisdiction of incorporation, UK operational presence, primary business model, and the role(s) the organisation could fulfil in a CATO bidding structure (lead equity investor, co-investor, lead construction contractor, EPC contractor, operator, or developer). NESO also seeks details on infrastructure delivery experience, key capabilities demonstrated, geographic experience, and financial capacity including indicative equity investment range, debt raising capability, and minimum required IRR for UK transmission investments. 
• Interest and Capability: For each of the illustrative projects, respondents indicate their level of interest, preferred project value range, maximum number of concurrent CATO projects they could deliver, preferred project types, and whether they would be interested in forming or joining a consortium. 
• Cost Drivers and Assumptions: Questions on estimated construction duration, key delivery risks and bottlenecks, ranking of cost impact factors (including planning/consenting delays, supply chain constraints, site complexity, land/seabed rights, interface risks, and environmental mitigation requirements), contingency assumptions, preferred execution strategy, unit cost assumptions, supply chain constraints, and indicative capex ranges. 
• Additional Information: Factors that would prevent or discourage participation, factors that would increase confidence in the process, and any questions or clarifications needed from NESO. 

Timeline and Next Steps

The deadline for EoI submissions is 30th April 2026, with responses to be submitted by email to box.earlycompetition@neso.energy.

Directly following the EoI process, NESO in Q2 2026 will analyse responses and prepare aggregated market intelligence, and engage with Ofgem regarding market appetite, capability, and project packaging. 

Following the publication of the Transitional Centralised Strategic Network Plan (tCSNP) in Summer 2026, NESO will work to shortlist and prioritise favourable projects for early competition. NESO will then recommend selected projects to Ofgem for confirmation to advance to the next phase, Invitation to Tender.

Comment

The launch of this EoI represents a positive concrete step for onshore electricity transmission in Great Britain. Five years on from the 2021 consultation, the CATO framework is finally moving from policy aspiration to substantive market engagement. 

The commercial features outlined—particularly the 35-year fixed revenue stream, 98% availability target, preliminary works payment mechanism, and construction cost cap—are designed to create an investable proposition that can attract a broad range of infrastructure capital. The explicit acknowledgement that NESO will consider delivery experience from adjacent sectors reflects the policy objective of expanding the pool of potential participants beyond traditional transmission developers. 

For potential participants, the EoI offers an important opportunity to shape how the competitive regime develops in practice. NESO has been clear that responses will inform competition sequencing, project packaging, and regulatory discussions with Ofgem on risk allocation and returns. Organisations with relevant experience and appetite should therefore give serious consideration to engaging in this process.

Key strategic considerations for potential respondents include the level of consortium activity likely required given the scale and complexity of the illustrative projects, supply chain capacity given the substantial pipeline of transmission investment already planned by incumbent TOs, and the interface risks associated with connecting to the existing transmission system. 

Looking ahead, the success of this market sounding exercise will be an important indicator of whether the UK can attract sufficient capital and delivery capability to support its ambitious transmission build-out programme alongside the substantial capital programmes already being progressed by incumbent Transmission Owners under RIIO-T2 and RIIO-T3.

Article co-authored by Nicholas Carroll, Associate.