Modifications to the Electricity System Operator Licence: Early Competition in Onshore Electricity Transmission

What this is about

Ofgem is consulting on changes to the National Electricity System Operator's licence that operationalise the Early Competition regime for onshore electricity transmission. The regime allows a Competitively Appointed Transmission Owner (CATO) to design, finance, build and operate transmission assets rather than the incumbent TO doing so under RIIO. The April 2025 Tender Regulations set the statutory framework. This consultation is the licence-side companion: it sets out what NESO, as the body running the tender, must actually do.

The timing follows directly from April. Once the Tender Regulations were made, NESO acquired a delivery role that its existing licence did not contemplate. Without licence obligations, NESO has no enforceable duty to produce Tender Documentation in a particular form, to share information with bidders on equal terms, or to conduct the exercise efficiently. The consultation closes on 4 June 2025, which gives Ofgem time to make the modifications before the first onshore tender exercise is launched. This is foundational scaffolding, not policy on the merits of competition itself, that argument was settled in the April decision.

Options on the table

The consultation does not present alternative policy options. It proposes a single package of licence modifications and invites feedback on whether the drafting delivers what the Tender Regulations require. The substantive choices, whether to have CATOs at all, what the tender stages look like, who bears development risk, were made earlier. What remains is execution detail.

The package covers four operational obligations on NESO:

Tender Documentation submission and Ofgem approval

NESO must prepare and submit Tender Documentation for each project referred to competitive tender, and Ofgem must approve it before the tender opens. The licence will specify the form, content, and timing of these submissions. The point is to lock NESO into a disciplined process: bidders need to know that the documents they are bidding against have been signed off by the regulator, not produced ad hoc by the delivery body. The winners here are bidders, who get a known and stable basis for committing development capital. The loser, in the narrow sense, is NESO's flexibility to amend tender terms on the fly.

Information provision to bidders

NESO will be obliged to provide information to bidders, and to do so on an equal basis. This is the bidder-fairness obligation that makes the tender contestable. In its absence, an incumbent TO with better information about the asset, the connection, or system needs would have a structural advantage over new entrants. The losers are incumbents who currently hold this information asymmetry; the winners are new entrants and their financiers, who need a level information playing field to underwrite bids.

Compliance with the Onshore Competition Information Exchange Guidance

A new guidance document will govern how NESO exchanges information with the existing onshore TOs (NGET, SPT, SHET) during a tender exercise. The TOs hold operational data NESO needs to specify the project, but they are also potential competitors or affiliates of competitors. The guidance is the firewall. The licence obligation is what makes the firewall enforceable. This matters more than it sounds: information leakage from incumbent to affiliate during the early offshore OFTO rounds was a recurring concern, and the onshore regime is designed to prevent the same pattern.

Efficient and effective conduct of the tender exercise

A general obligation on NESO to run the tender exercise efficiently and effectively. This is the catch-all that allows Ofgem to intervene if specific obligations are met but the overall process is dragging, overspecified, or producing weak bidder participation. It is the regulatory backstop.

Together these four obligations do not change what NESO does (it was already going to run the tenders, having been designated as the delivery body in the Tender Regulations), they change what NESO is legally bound to do, and therefore what Ofgem can enforce.

Questions being asked

The published consultation does not contain a numbered question set in the source text excerpted here. The main document (the 359 KB PDF) will contain the specific drafting questions, typically of the form "do you agree with the proposed drafting of Standard Condition X?" Without that PDF in front of us, the question framework is:

Drafting adequacy

Whether the proposed licence modifications give effect to the obligations contemplated by the Tender Regulations. This is the central technical question, are the words on the page sufficient to deliver the policy already decided?

Tender Documentation process

Whether the proposed process for submission and approval of Tender Documentation is workable in practice, given the timelines a real tender exercise will need to follow. Respondents with bidder or financier perspectives will want enough lead time built in; NESO will want enough flexibility to revise.

Information exchange and firewalls

Whether the Onshore Competition Information Exchange Guidance, and the licence obligation to comply with it, is sufficiently robust to prevent information asymmetries between bidders. New entrants and independent developers will press for tighter rules; incumbents will press for workable rules that do not impede legitimate system operation.

Bidder information provision

Whether the obligations on NESO to provide information to bidders are framed at the right level. Too prescriptive and NESO cannot tailor disclosure to the project; too loose and bidders cannot rely on consistent information across tender rounds.

Efficient and effective conduct

Whether the general efficiency obligation is the right backstop, or whether more specific KPIs or process gates are needed. This is the question that decides how interventionist Ofgem can be once the regime is live.

Respondents with a substantive interest, prospective CATO bidders, incumbent TOs, financiers, large connection customers whose projects might be tendered, should focus on the Tender Documentation timing and the information exchange guidance. Those are where the practical economics of bidding will be set.

How to respond

Deadline: 4 June 2025

Contact: James Burns at onshorecompetitionspolicy@ofgem.gov.uk

Main document: Modifications to the licence conditions of an Electricity System Operator (ESO) - statutory consultation [PDF, 359 KB], on the Ofgem consultation page.

Notice: The notice of statutory consultation [PDF, 115 KB] sits alongside the main document and sets out the formal process.

The consultation is now closed with decision. The decision document will be the operative artefact, the modified licence conditions Ofgem ultimately made are what matter for any party contemplating participation in the first onshore tender exercise. Anyone tracking the CATO regime should pair this consultation with the April 2025 Tender Regulations decision and the corresponding modifications to the existing onshore transmission licences, the three together form the complete legal scaffolding.