|Long-Term Transmission Rights (LTTRs)|
Long-term transmission rights (LTTRs) mean Physical Transmission Rights (PTRs) or Financial Transmission Rights (FTRs) acquired in the forward capacity allocation (Article 2(2) of Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (FCA Regulation)).
FTRs, in turn, divide into:
Long-term supply contracts and corresponding long term transmission rights are considered essential energy markets' features to ensure cross-border trade and delivery of reliable energy for customers (EURELECTRIC letter to the DG FISMA of 19 November 2015 titled EURELECTRIC's concerns on the negative impact of Financial Transmission Rights being classified as financial instruments under MiFID II on the completion of the internal energy market).
To cover the risks of changing conditions between the contracting and delivery of such contracts, market participants hedge themselves through PTRs or FTRs auctioned by Transmission System Operators (TSOs) and traded on secondary capacity market.
In most of Europe the cross-border access to forward markets is based on transmission rights, which enable market participants to hedge short-term price differentials between two neighbouring bidding zone.
There is limited number of liquid forward markets in Europe (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016 (MMR 2015), p. 35, 37).
The cross-border access to forward markets depends on the market design.
In the Nordic and Baltic markets and within Italy, cross-border access to forward markets is based on contracts which cover the difference between the relevant “hub” price (which represents the forward price reference for a group of bidding zones) and each specific bidding zone price.
Examples of these contracts are the so-called Electricity Price Area Differentials (EPADs) in the Nordic and Baltic markets or FTRs within Italy.
According to the EURELECTRIC a shift towards the use of Financial Transmission Rights instead of Physical Transmission Rights can be observed e.g. in Italy, Denmark and Belgium.
According to the FCA Regulation, LTTRs are foreseen to be the issued on all bidding zone borders, nevertheless, the relevant National Regulatory Authorities (NRAs) may decide to derogate from the requirement to issue LTTRs on a specific border, after consultation with market participants and an assessment concluding that the existing electricity forward market provides sufficient hedging opportunities.
With respect to the latter issue the ACER/CEER, Annual Report on the Results of Monitoring the Internal Electricity and Gas Markets in 2016 of October 2017 (Electricity Wholesale Markets Volume, p. 42) refers to the Nordic NRAs’ (except Norway) decisions on the assessment whether the electricity forward markets in the Nordic region provide sufficient hedging opportunities in the bidding zones concerned.
Based on different indicators, the Finnish and Swedish NRAs have concluded that the existing hedging opportunities are sufficient in their respective areas of jurisdiction, while the Danish NRA has concluded that there are insufficient hedging opportunities in the two Danish bidding zones (DK1 and DK2).
Pursuant to these decisions, TSOs are not requested to implement any specific measure on borders connecting bidding zones with sufficient hedging opportunities.
On the borders between DK1 and SE3 and between DK2 and SE493, TSOs are not requested to introduce LTTRs, but to ensure that other long-term cross-zonal hedging products are made available to support the functioning of the electricity wholesale markets.
TSOs are, moreover, expected to develop and submit for approval the necessary arrangements within the subsequent six months.
Long Term Transmission Rights Pricing
From the market participant's perspective the important information may be that pursuant to the rules elaborated on forward capacity allocation in the EU Internal Electricity Market (Article 40 of the FCA Regulation), the price of long term transmission rights for each bidding zone border, direction of utilization and market time unit will be:
- determined based on the marginal price principle, and
- expressed in euro per megawatt.
Table: Discrepancies between the auction price of transmission rights (monthly auctions) and the day-ahead price spreads for a selection of EU borders – various periods 2009 - 2015 (euros/MWh), source: ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016, p. 36
According to the MMR 2015, on average, PTR auction prices on most borders continued to be below the recorded day-ahead price spreads in 2015.
ACER, based on the said data, suggests that the three relevant factors that negatively affect the value of transmission rights are the lack of market coupling, the probability of curtailments and the periods of maintenance.
The impact of curtailments should be mitigated by the implementation of stronger firmness regimes as envisaged in the FCA.
ACER explains this by the fact that a transmission right that is subject to reduction periods does not fully meet market participants’ needs.
In this case, market participants would remain exposed to risks during those periods, which unavoidably reduces the value of the product.
There are various ways of mitigating the impact of maintenance periods in risk premia.
One possibility is to ensure that maintenance is scheduled when the impact on prices is likely to be lower (e.g. during periods of lower demand).
Another (complementary) measure would be to ensure that the capacity offered by TSOs in a given timeframe does not exceed the maximum amount that can be offered even during maintenance periods, offering the remaining capacity through separated products in the same timeframe or simply leaving the remaining capacity for subsequent timeframes.
On the one hand, this would increase the value of transmission rights and on the other, this may shift some capacity from long-term to closer-to-delivery timeframes, including the day-ahead timeframe.
Return of Long Term Transmission Rights
Long term transmission rights holders may return their long term transmission rights to the relevant TSO through the Single Allocation Platform for subsequent forward capacity allocation.
Long term transmission rights holders willing to return their Long Term Transmission Rights must notify the Single Allocation Platform and must observe the procedure stipulated in the Harmonised Allocation Rules.
Long term transmission rights holders who return their long term transmission rights are remunerated by the relevant TSO through the Single Allocation Platform and such remuneration will be equal on the price resulting from the auction where the long term transmission rights were reallocated (Article 43 of the FCA Regulation).
Regional design of Long Term Transmission Rights
Rules on the regional design of long term transmission rights are developed pursuant to the procedure stipulated in Article 31 of the FCA Regulation (see box).
Allocation rules must contain at least the description of the following items:
(a) type of long term transmission rights;
What is particularly noteworthy, among the terms, conditions and methodologies that require the approval by all regulatory authorities of the concerned region are:
The rules developed for the European Capacity Calculation Regions (CCRs) reflect the above set-up.
For example, the Core CCR TSOs' proposal for the regional design of long-term transmission rights in accordance with Article 31 of Commission Regulation (EU) 2016/1719 of 10 March 2017 envisions a month and year as the forward capacity time-frames for long term transmission rights issued in the Core CCR.
The said long term transmission rights are to be issued in form of base load products with a fixed amount of MW over the product period, the product form may include reductions periods, i.e. specific calendar days and/or hours within the product period, in which cross zonal capacities with a reduced amount of MW are offered, taking into account a foreseen specific network situation (e.g. planned maintenance, long-term outages, foreseen balancing problems).
Long-term transmission rights type of each Core bidding zone border are set out in the table below.
EURELECTRIC letter to the DG FISMA of 19 November 2015 - EURELECTRIC's concerns on the negative impact of Financial Transmission Rights being classified as financial instruments under MiFID II on the completion of the internal energy market
Consultation Draft, South-east Europe (SEE) Region proposal for design of Long Term Transmission Rights in accordance with Article 31 of the Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a Guideline on Forward Capacity Allocation, February 2017
Region Explanatory note for SEE CCR TSOs proposal for design of Long Term Transmission Rights in accordance with Article 31 of the Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a Guideline on Forward Capacity Allocation
|Last Updated on Tuesday, 28 November 2017 00:39|