As we enter the new year, investors have an opportunity to take a fresh look at the evolving landscape of GB’s onshore electricity transmission sector. Ofgem’s recent stakeholder update (December 2025) on the onshore CATO regime confirms that the legislative framework for competition in onshore transmission is now in place. Attention now turns to the next steps ahead of identifying projects to be competitively tendered.
What is the CATO Regime?
The CATO regime will depart from the traditional development model, where the existing transmission owners (National Grid Electricity Transmission (NGET), SP Transmission (SPT) and Scottish Hydro Electric Transmission (SHET)) exclusively deliver onshore electricity transmission infrastructure. Instead, under the CATO regime, a transmission owner will be competitively appointed and licensed for specific onshore transmission projects, and will be responsible for designing, financing, building, owning and operating the transmission asset.
The change builds on provisions introduced by the Energy Act 2023 and is being implemented through The Electricity (Criteria for Relevant Energy Projects) (Transmission) Regulations 2024 (Criteria Regulations) which set out the criteria for determining which projects are eligible under the regime and The Electricity (Early-Model Competitive Tenders for Onshore Transmission Licences) Regulations 2025 (Tender Regulations).
The Criteria Regulations and the Tender Regulations are both now in force and establish the rules for awarding onshore electricity transmission licences through competitive tenders.
The regulatory framework will be implemented by NESO as the delivery body. The regime authorises competition in “early-competition” mode, meaning that tenders can be run before detailed design work has been completed. This is intended to bring innovation, fresh capital and efficiency into the onshore transmission network.
Which projects will qualify and what does the process involve?
Not every transmission project will be eligible for competitive tender. A “qualifying project” must generally satisfy criteria such as being new or a full replacement; being “separable” (i.e. the asset and its ownership can be clearly distinguished from the wider transmission network); and delivering demonstrable customer benefit.
Once a project qualifies, NESO will run a competitive tender process under the oversight of Ofgem. Successful bidders will receive a transmission licence and become the CATO for that project.
The commercial framework (published by Ofgem in mid-2025), sets out that the licence will include obligations around security which will be required during the preliminary works and construction, cost-assessment procedures and long-term operational and performance commitments. In practice, the framework is deliberately structured to place a significant degree of early-stage design, consenting and construction risk on the CATO, requiring bidders to take informed positions at an early stage.
Payments to CATOs will generally follow a regulated “tender revenue stream” over a long-term revenue period, rather than being tied to electricity flows or price, meaning that CATO returns should be relatively stable and insulated from wholesale price volatility, much like the offshore transmission owner regime.
What’s coming next?
As of the December 2025 update, NESO is assessing potential projects for competitive tender, while Ofgem and NESO are continuing to finalise the CATO licence. Ofgem noted that we can expect a consultation on the licence terms in the coming months. According to Ofgem, a first tranche of projects may be identified once NESO’s next holistic network plan - the refreshed Transitional Centralised Strategic Network Plan 2 - is completed, which is expected in Summer 2026.
While the CATO regime’s underlying framework is now established, certain elements remain in development (such as final licence terms, project pipeline, timing and detailed obligations) meaning that the first CATO tenders may still be some way off.
What this means for Investors and Developers
The CATO regime offers investors and developers active in energy infrastructure a new opportunity to own and operate onshore transmission assets in Great Britain. The prospect of long-term, regulated, availability-linked revenues, rather than exposure to volatile electricity demand or wholesale prices, could make CATOs attractive to a range of infrastructure investors seeking stable, long-term cash flows.
The “early competition” model allows bidders to influence project design, financing and construction from the outset, enabling innovation, efficient execution and differentiation between bids. That said, prospective CATOs should be prepared for significant responsibilities, including upfront security and financing commitments, complex consenting and construction obligations, long-term availability, operation and maintenance regulatory responsibilities and potentially additional works obligations as network needs evolve.
Given ongoing developments in (i) licence drafting, (ii) the obligations that will be placed on a CATO, and (iii) project pipeline identification, investors and developers interested in the CATO regime should monitor updates closely and start to consider their strategy for the opportunities presented by this new asset class.
