Draft Electricity (Early-Model Competitive Tenders for Onshore Transmission Licences) Regulations 2024 for consultation

What this is about

DESNZ and Ofgem are consulting on the draft Electricity (Early-Model Competitive Tenders for Onshore Transmission Licences) Regulations 2024, the statutory instrument that puts the Competitively Appointed Transmission Owner (CATO) regime on a legal footing. The Tender Regulations set out the stages of an onshore transmission tender, the rules governing withdrawal, re-runs, cancellation and disqualification, the treatment of payments, security and tender cost recovery, and the respective roles of NESO as Delivery Body and Ofgem as the Authority. They are the statutory plumbing without which Ofgem cannot run a tender at all.

The reason it is happening now is sequencing. Ofgem decided in 2023 to introduce early competition for onshore transmission build, NESO is being established as Delivery Body, and the first project to go through the regime (under the Worked Concept Network 2 process) is being scoped in parallel. The Tender Regulations are the third leg of the same stool: the policy decision, the licence-condition modifications, and now the secondary legislation that gives the whole edifice statutory authority. The "early-model" label matters. This is the version designed for projects already identified through NESO's network planning. A later "late-model" regime, where competition starts earlier in project development, will follow under separate regulations.

Options on the table

The consultation does not present a menu of alternative regime designs. The policy choice to introduce onshore competition is settled, and the draft Regulations operationalise that choice. What the document does invite is feedback on the design of specific mechanisms within the regime, and three are worth flagging because they shape who bears risk and who captures rent.

Tender stages and gateway design

The draft Regulations break a tender into stages: pre-qualification, invitation to tender, evaluation, and licence grant. Each gateway has its own disqualification grounds and information requirements. The design choice is how prescriptive to make each stage. A tight, rules-based gateway gives bidders certainty about what they need to demonstrate but reduces Ofgem's flexibility to weed out weak bidders late in the process. A looser, judgement-based gateway lets Ofgem manage the field but introduces process risk that bidders will price into their tenders. The Regulations lean towards prescription, which favours large bidders with mature compliance functions and disadvantages new entrants. That is a Stigler outcome: complexity as a barrier to entry, demanded by those who can absorb it.

Treatment of tender costs

The Regulations set out how Ofgem recovers the cost of running tenders and how unsuccessful bidders are or are not compensated. The design choice here determines the cost of bidding. If unsuccessful bidders bear their own costs in full, only well-capitalised firms will bid, which thins the field and weakens price discovery. If costs are partially recovered through the tender mechanism, consumers ultimately pay through the eventual licensee's revenue. The Regulations land on a model where Ofgem can recover its own costs from the tender process and bidders bear their own preparation costs. The question for respondents is whether this strikes the right balance between disciplining bid quality (bidders should have skin in the game) and maintaining competitive pressure (a thin field is worse than a thick one with some cost socialisation).

Withdrawal, re-run and cancellation governance

The Regulations give the Authority power to cancel or re-run a tender in defined circumstances. The design choice is how tightly to bound that discretion. Broad discretion lets Ofgem respond to unforeseen circumstances but raises the regulatory risk premium that bidders will demand. Narrow discretion gives certainty but risks locking Ofgem into a flawed tender. The draft strikes a middle path with enumerated grounds for cancellation and a re-run mechanism. The substantive question is whether the grounds are defined tightly enough that bidders can model regulatory risk, or loose enough that Ofgem retains the flexibility it needs.

Questions being asked

The consultation document does not present a numbered question list of the type Ofgem typically uses. The invitation is open: "We invite feedback from stakeholders on all aspects of the draft Tender Regulations." That phrasing puts the burden on respondents to identify which provisions matter to them. Useful themes to organise a response around:

Tender process design

What gateway structure best balances bidder certainty against Ofgem's need to manage tender quality? Are the pre-qualification criteria tight enough to screen out non-credible bidders without excluding new entrants? Do the information requirements at each stage impose disproportionate cost on smaller bidders? (The implicit question is whether the regime is designed for incumbents or for genuine competition.)

Roles of NESO and Ofgem

Does the division of responsibilities between NESO (Delivery Body) and Ofgem (Authority) avoid duplication and conflict? Is the Authority's review function over NESO's Delivery Body functions adequate? (The question being asked is whether NESO has the right incentives, given it is also the system operator and network planner that identifies which projects go to tender in the first place.)

Treatment of payments, security and tender costs

Are the financial security requirements proportionate to the projects being tendered? Is the cost recovery mechanism for Ofgem's tender costs reasonable, and does it create the right incentives for tender efficiency? (The implicit question is who bears the cost of a failed or re-run tender, and whether that allocation creates perverse incentives.)

Governance of withdrawal, re-run and cancellation

Are the enumerated grounds for cancellation and re-run sufficiently bounded to give bidders regulatory certainty? Is there an appeal or review mechanism for bidders disadvantaged by a re-run or cancellation? (The question is how much regulatory risk premium the regime adds to bid prices.)

Interaction with the licence-condition framework

Do the Tender Regulations interact cleanly with the parallel licence-condition modifications Ofgem is consulting on? Are there gaps or overlaps between what the Regulations require and what the licence will require? (The substantive question is whether the bidder is being asked to bid against a fully specified bundle of rights and obligations, or against a set of provisions still being finalised.)

How to respond

Deadline: 2 November 2024 (this consultation has closed and a decision has been published; see "Decision on the Electricity (Early-Model Competitive Tenders for Onshore Transmission Licences) Regulations 2025").

Contact: Aakriti Bhardwaj, Senior Policy Manager - Onshore Competition Email: OnshoreCompetitionsPolicy@ofgem.gov.uk

Documents to read: - Main consultation document: Draft Electricity (Early-Model Competitive Tenders for Onshore Transmission Licences) Regulations 2024 for consultation (PDF, 540.27KB) - Appendix 3: Onshore Transmission Tender Regulations Draft Text for Consultation (PDF, 321.92KB) - Consultation responses (PDF, 1.37MB) for what others said.

For anyone tracking onshore competition, the live document now is the 2025 decision, not the 2024 draft. This consultation is useful as the audit trail for how the final Regulations were shaped.