Ofwat has confirmed that the Cheddar 2 Reservoir and Transfer solution in the RAPID programme should continue to receive development funding for gate C in the gated process, leading up to a conditional review point in February 2028.

The solution owners, South West Water and Wessex Water, submitted their gate three report on 30 January 2026 for assessment.

Confirmation of the draft decision is accompanied by a series of priority actions to be completed in the months ahead, leading up to the conditional review point. This approach is intended to give the solution owners time to carry out further work, including ground investigations to inform the reservoir construction costs, and broader optioneering for Water Resources Management Plan (WRMP29). It will also enable RAPID to make sure that the WRMP process is up to date and remains the process through which best value is decided and evidenced. RAPID will then recommend to Ofwat whether the solution should progress to gate C.

Ofwat's decisions in the gated process are only about whether companies should continue to receive funding to investigate and develop solutions. Ofwat does not decide if the solutions should go ahead.

The draft decision has been made via the new process which combines the previous RAPID gates and the Ofwat Major Projects stages for projects included in the Major Water Infrastructure Programme (MWIP). The new process sets out clear decision points, from project inception through planning, procurement, construction, commissioning, and operation. The decision points are called gates A to F. As part of the transition to the new combined process, existing solutions will be moved onto the next gate as appropriate. The Cheddar 2 Reservoir and Transfer will transition to gate C on the completion of gate three (the current gate).

The gate three assessment process is overseen by RAPID, with input from the partner regulators; Ofwat, the Environment Agency and the Drinking Water Inspectorate. The Environment Agency together with Natural England, have reviewed the environmental sections of the submissions, and provided feedback to RAPID.

The Cheddar 2 Reservoir and Transfer project is being developed by South West Water (including Bristol Water) and Wessex Water with the aim of delivering a new reservoir to store water abstracted from the Cheddar Springs and River Axe, for use during periods of high demand for water. The project will involve the construction of a second 9,000 megalitre (M/l) reservoir at Cheddar, which will be filled from the Cheddar Springs and the River Axe, under Bristol Water’s existing licences. The reservoir will be located to the south of the existing Cheddar Reservoir near Cheddar village.

The water will be transferred to the southwest, via new and existing infrastructure, including a 76 km potable water transfer pipeline, and is proposed to supply South West Water customers in the Wimbleball Water Resource Zone. The project will have an annual average deployable output of 13 megalitres per day (Ml/d) and peak deployable output of 20Ml/d. The main elements of the project are:

• Raw water transfer and Cheddar 2 Reservoir:A new non-impounding, 9,000Ml, raw water reservoir ‘Cheddar 2 Reservoir’, and associated infrastructure. Located to the south of the existing Cheddar Reservoir near Cheddar village;

• Raw water connections from the existing Cheddar Springs and Axbridge pre-treatment transfer to the second reservoir; and

• Raw water transfer from the new reservoir to a new Water Treatment Works.

• • A new 40Ml/d Water Treatment Works at Axbridge and upgrade to River Axe abstraction and pre-treatment;A new potable water transfer pipeline measuring circa 76 km in length with associated plant (including pumping stations and water service reservoirs) to allow water transfers via displacement through the Wessex Somerset Water Resource Zone to South West Water Wimbleball Water Resource Zone; and

• Recreation and amenity creation, alongside biodiversity net gain, plus habitat and flood compensation creation around the reservoir site.

The solution owners have been notified that the solution should be funded to progress to the conditional review point due to the further work required to determine that the project is the best value option in the light of substantial cost uncertainty. After this, the partner regulators will make a final recommendation on progression beyond the conditional review point to Ofwat.

If, by the conditional review point, the solution owners have been unable to demonstrate that the solution remains the best value option, it will not receive further funding to progress to gate C. This does not however prevent RAPID from making a recommendation on whether the solution should proceed or not, at an earlier stage, ahead of the conditional review point.

The solution was chosen in South West Water's 2024 Water Resource Management Plan (WRMP), as a solution on its preferred pathway. However, the costs have increased substantially since the assessment that selected it as a preferred option and further work is required to update the analysis with the latest costs for Cheddar 2 Reservoir and Transfer and potential alternatives

In the 2019 price review (PR19) process, Ofwat determined an expenditure allowance of up to £1.97 million (2017/18 prices) for the Cheddar 2 Reservoir and Transfer project to support development activities for gate four activities, covering the period to 31 March 2025.

Cheddar 2 Reservoir and Transfer did not reach gate four within the PR19 period, therefore gate four allowances were reassessed as part of the price review 2024 (PR24) final determinations. In the PR24 final determinations, Ofwat allowed up to £10.735 million (2022/23 prices) to complete gate four activities in the period 1 April 2025 to 31 March 2030. To accommodate the new combined gated process, this was reprofiled with a new allowance of £11.98 million for gate C. This is subject to the outcome of the conditional review point.

The updated development expenditure template submitted the solution owners’ as part of their gate three submission sets out their’ request for a new allowance of £60.033 million (2022/23 prices) for gate four activities which is driven by an increase in the scope of the project, requiring additional programme costs, ground investigations, stakeholder engagement and land and enabling works. This is an increase of £49.298 million when compared to the PR24 gate four baseline allowance of £10.735 million. An additional allowance of £20.802 million was also requested for post gate four development activities.

Hover , the draft decision document says the allowance of £11.98 million for gate C will not be amended and the solution owners must provide RAPID with a completed expenditure by AMP template, forecasting planned expenditure over the conditional review point period up to February 2028 by 25 June 2026.

Solution costs

The Cheddar 2 Reservoir and Transfer solution has experienced a significant increase in costs since gate two, up from £688.23 million to approx £1.88 billion, representing an increase of approximately 173%.

According to RAPID, the increase reflects developments in scope, design maturity and the associated risk profile, and is primarily attributable to further definition of the solution. In particular, this includes progression to a more developed reservoir design (and associated uncertainties), the addition of the 73 km pipeline to Wimbleball, and the inclusion of additional pumping and associated infrastructure. “These developments have materially increased the overall complexity of the solution and the level of construction and delivery risk, particularly in relation to the reservoir,” the draft decision document says.

Assessed in this context, RAPID says the overall scale of costs presented at gate three submission is indicative of the likely scale of costs required, reflecting the size, complexity and risk characteristics of the solution at its current stage of development. Unit costs on a £/Ml/d basis are notably higher than those observed for other schemes.

According to RAPID, while the cost scale is indicative, the evidence provided is not sufficient to support confidence in the robustness of the estimates for assurance or comparative value for money assessment at this stage.

Cost information presented includes capital and operational expenditure, along with allowances for risk, uncertainty and optimism bias, which together indicate the likely order of magnitude of costs at gate three.

However, the assumptions underpinning the cost build up are not applied or evidenced consistently. RAPID comments:

“In particular, the treatment of indirect costs, preliminaries, inflation assumptions and cost uplifts lacks sufficient transparency and justification, limiting clarity over how these allowances have been derived and incorporated within the overall estimate.

RAPID is now inviting the solution owners and other interested parties to respond to the draft decision – deadline is 6pm on 25 June 2026. Representations can be made via by email to This e-mail address is being protected from spambots. You need JavaScript enabled to view it or by completing an online Microsoft Teams form. Current aim is to publish the Cheddar 2 Reservoir and Transfer Gate Three Final Decision document at 10am on 18 August 2026.

Click here to download the draft Decision Document

Click here to access the online Microsoft Teams form