Głowacki Law Firm

Long-Term Transmission Rights (LTTRs)
European Union Electricity Market Glossary

 

 

 

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)).

 

 

FCA Regulation, Recitals 9 and 10

 

(9) Currently there are multiple allocation rules across the Union governing the contractual arrangements for long-term transmission rights. TSOs should develop harmonised allocation rules for physical transmission rights, financial transmission rights - options (hereinafter "FTRs – options") and financial transmission rights - obligations (hereinafter "FTRs – obligations") at Union level.

 

(10) Those harmonised allocation rules should at least contain the description of the allocation process/procedure for long-term transmission rights, including the minimum requirements for participation, financial matters, type of products offered in explicit auctions, nomination rules, curtailment and compensation rules, rules for market participants in case they are transferring their long-term transmission rights, the use-it-or-sell-it (hereinafter "UIOSI") principle, rules as regards force majeure and liability. Those harmonised allocation rules should also outline the contractual obligations to be respected by market participants.

 

 FTRs, in turn, divide into:

 

Financial Transmission Right Obligations, and 

 

Financial Transmission Right Options.

 

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 zones.

 

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.

 

The FCA Regulation foresees LTTRs to be the issued on all EU 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 reservation the ACER/CEER Annual Report of October 2017 on the Results of Monitoring the Internal Electricity and Gas Markets in 2016 (Electricity Wholesale Markets Volume, p. 42) referred 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 were 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 were 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.

 

According to Article 35(8) of the Harmonised Allocation Rules (HAR)), the LTTRs are deemed to have been allocated by the Single Allocation Platform to the auction registered participant from the moment the said participant has been informed of the auction results and the contestation period is closed.

 

 

LTTRs’ pricing

 

 

It may be important from the market participant's perspective 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 utilisation 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

 

 

 

Discrepancies between the auction price of transmission rights and the day-ahead price spreads

 

 

 

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.

 

Based on the said data ACER 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 first factor should be addressed immediately, with the completion of the day-ahead market coupling project across the EU.

 

The impact of curtailments should be mitigated by the implementation of stronger firmness regimes as envisaged in the FCA.



Periods of maintenance (also known as ‘reduction periods’ or periods of unavailability) seem to significantly reduce the value of transmission rights.

 

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.

 

LTTRs’ holders willing to return their rights must notify the Single Allocation Platform and must observe the procedure stipulated in the HAR.

 

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).

 

Detailed rules for the return of the LTTRs are stipulated in Articles 38 - 40 of the HAR (see box).

 

 

 

Articles 38 - 40 of the HAR

 

Title 5
Return of Long Term Transmission Rights


Article 38
General Provision


1. Long Term Transmission Right holder(s) may return some or all of their Long Term Transmission Rights to the Allocation Platform for reallocation at any subsequent long term Auction once the final Auction results are published.


2. Returned Long Term Transmission Rights shall be a constant band of whole MW(s) over the specific timeframe of the subsequent Auction. The Auction at which the Long Term Transmission Rights were allocated and the subsequent Auction to which the Long Term Transmission Rights are to be returned shall be for the same form of products.


3. The minimum volume for a returned Long Term Transmission Right shall be one (1) MW over the specific timeframe of the subsequent Auction.


4. The Allocation Platform shall make the volumes of returned Long Term Transmission Rights available at the subsequent long term Auction, increasing the Offered Capacity announced in the provisional Auction Specification accordingly and equally for each hour of the Product Period. The same applies for where the Offered Capacity announced in the provisional Auction Specification for the subsequent long term Auction contains a Reduction Period.


5. If the returned Long Term Transmission Rights are rounded down in accordance with the process described in Article 35(7), the Allocation Platform shall remunerate the Market Participant for the full amount of the returned Long Term Transmission Rights in accordance with Article 40.

 

Article 39
Process of the return


1. Long Term Transmission Right holder(s) wishing to return their Long Term Transmission Rights shall send a notification, directly or indirectly through an authorised third party, via the Auction Tool to the Allocation Platform in line with the corresponding Information System Rules no later than the deadline specified in the provisional Auction Specification for the subsequent Auction to which the Long Term Transmission Right is to be returned.


2. A valid notification of the return pursuant to paragraph 1 of this Article shall contain the following information:
(a) EIC code of the Long Term Transmission Right holder;
(b) identity of the subsequent Auction to which the Long Term Transmission Right is returned; and
(c) the volume of the Long Term Transmission Rights for return.


3. In order to be able to return Long Term Transmission Rights the Registered Participant shall:
(a) have a valid and effective Participation Agreement with the Allocation Platform;
(b) hold the relevant Long Term Transmission Rights at the time of the notification of the return;
(c) send the notification before the deadline pursuant to paragraph 1 of this Article; and
(d) fulfil or secure its financial obligations pursuant to these Allocation Rules.


4. If the requirements set forth in paragraph 3 of this Article are fulfilled, the Allocation Platform shall send without undue delay a notification to the Registered Participant via the Auction Tool containing:
(a) a message confirming the acceptance of the return subject to paragraph 7 of this Article; or
(b) a message rejecting the return including the reasons for rejection subject to paragraph 7.
5. If the return is accepted, the Allocation Platform shall decrease the total volume of the Long Term Transmission Rights held by the respective Long Term Transmission Right holder by the amount returned.


6. Long Term Transmission Right holder(s) wishing to modify their return as notified in accordance with paragraphs 1 and 2 of this Article, shall send a notification via the Auction Tool with the adjusted volume of the Long Term Transmission Rights to be returned before the deadline for return of Long Term Transmission Rights pursuant to paragraph 1 expires. Where the volume of the Long Term Transmission Rights to be returned is adjusted to zero (0) MW, the related return shall be deemed as cancelled.


7. If the Allocation Platform is unable to register a return as set forth in this Chapter, the Allocation Platform may apply a fallback procedure for data exchange pursuant to Article 53. If no fallback procedure for return is technically possible, no financial compensation may be claimed by the Registered Participants.

 

Article 40
Remuneration of Long Term Transmission Right holders


1. Registered Participants who returned Long Term Transmission Right are entitled to receive a remuneration equal to the value of the returned Long Term Transmission Rights set during the relevant subsequent Auction(s) calculated for each hour as follows:
(a) the Marginal Price of the Auction at which the returned Long Term Transmission Right was reallocated in Euros/MW per hour multiplied by
(b) the amount of MW which was reallocated.


2. On return the Registered Participant ceases to be holder of Long Term Transmission Right for the returned amount of Long Term Transmission Right. This means that all rights and obligations of the Registered Participant connected to the returned amount of Long Term Transmission Right will cease except those connected to its payments obligations pursuant to Chapter 10 and the remuneration set forth in this Chapter 5. All rights and obligations of the Registered Participant related to the not returned proportion of Long Term Transmission Right will remain unaffected.

 

 

 

 

Regional design of Long Term Transmission Rights

 

 

 

Article 8
 of the Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD)

 

Forward markets

 

1. In line with regulation (EU) 2016/1719, transmission system operators shall issue long-term transmission rights or have equivalent measures in place to allow for market participants, in particular owners of generation facilities using renewable energies, to hedge price risks across bidding zone borders.

 

2. Long-term transmission rights shall be allocated in a transparent, market based and non-discriminatory manner through a single allocation platform. Long-term transmission rights shall be firm and be transferable between market participants.

 

3. Subject to compliance with treaty rules on competition, market operators shall be free to develop forward hedging products including for the long-term to provide market participants, in particular owners of generation facilities using renewable energies, with appropriate possibilities to hedge financial risks from price fluctuations. Member States shall not restrict such hedging activity to trades within a Member State or bidding zone.

 

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;


(b) forward capacity allocation timeframes;


(c) form of product (base load, peak load, off-peak load);


(d) the bidding zone borders covered.

 

What is particularly noteworthy, among the terms, conditions and methodologies that require the approval by all regulatory authorities of the concerned region are:


- the regional design of long term transmission rights;


- the regional requirements of the Harmonised Allocation Rules;


- the regional compensation rules (Article 4(7)(c) and (e) of the FCA).

 

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).

 

The types of long-term transmission rights on each of the Core bidding zone borders are set out in the table below.

 

 

 

Core CCR borders

 

Type of Long-Term Transmission Right

NL-BE

FTR- options

 NL-DE/LU  Physical transmission rights pursuant to UIOSI principle
 BE-FR
 FTR- options
 BE-DE/LU  No LTRs defined yet
FR-DE/LU  Physical transmission rights pursuant to UIOSI principle
 PL-DE/LU  Physical transmission rights pursuant to UIOSI principle
 PL-CZ  Physical transmission rights pursuant to UIOSI principle
 CZ-DE/LU  Physical transmission rights pursuant to UIOSI principle
PL-SK   Physical transmission rights pursuant to UIOSI principle
AT-DE/LU   No LTRs defined yet
 AT-CZ  Physical transmission rights pursuant to UIOSI principle
AT-SI

 Physical transmission rights pursuant to UIOSI principle

SI-HR  Physical transmission rights pursuant to UIOSI principle
HR-HU  Physical transmission rights pursuant to UIOSI principle 
AT-HU   Physical transmission rights pursuant to UIOSI principle
HU-SK   Physical transmission rights pursuant to UIOSI principle 
HU-RO   Physical transmission rights pursuant to UIOSI principle
CZ-SK  No LTRs defined yet
SI-HU   Physical transmission rights pursuant to UIOSI principle

 

  

 

 

FCA Regulation, Article 31

Regional design of long-term transmission rights

 

1. Long-term cross-zonal capacity shall be allocated to market participants by the allocation platform in the form of physical transmission rights pursuant to the UIOSI principle or in the form of FTRs – options or FTRs – obligations.

 

2. All TSOs issuing long-term transmission rights shall offer long-term cross-zonal capacity, through the single allocation platform, to market participants for at least annual and monthly timeframes. All TSOs in each capacity calculation region may jointly propose to offer long-term cross-zonal capacity on additional timeframes.

 

3. No later than six months after the entry into force of this Regulation, TSOs in each capacity calculation region where long-term transmission rights exist shall jointly develop a proposal for the regional design of long-term transmission rights to be issued on each bidding zone border within the capacity calculation region.

No later than six months after the coordinated decisions of the regulatory authorities of the bidding zone border to introduce long-term transmission rights pursuant Article 30(2), TSOs of the concerned capacity calculation region, shall jointly develop a proposal for the regional design of long-term transmission rights to be issued on each bidding zone border within the concerned capacity calculation region.

Regulatory authorities of Member States in which the current regional design of long-term transmission rights is part of a TSO cross-border re-dispatch arrangement for the purpose of ensuring that operation remains within operational security limits may decide to maintain physical long-term transmission rights on its bidding zone borders.

 

4. The proposals referred to in paragraph 3 shall include a time schedule for implementation and at least the description of the following items specified in the allocation rules:

(a) type of long-term transmission rights;

(b) forward capacity allocation timeframes;

(c) form of product (base load, peak load, off-peak load);

(d) the bidding zone borders covered.

 

5. The proposals shall be subject to consultation in accordance with Article 6. For the proposed long-term transmission rights to be issued, each TSO shall duly consider the result of the consultation.

 

6. The allocation of physical transmission rights and FTRs – options in parallel at the same bidding zone border is not allowed. The allocation of physical transmission rights and FTRs – obligations in parallel at the same bidding zone border is not allowed.

 

7. A review of long-term transmission rights offered on a bidding zone border may be launched by:

(a) all regulatory authorities of the bidding zone border, at their own initiative; or

(b) all regulatory authorities of the bidding zone border based upon a recommendation from the Agency or joint request by all TSOs of the concerned bidding zone border.

 

8. All TSOs in each capacity calculation region shall be responsible for undertaking the review as provided for in paragraph 9.

 

9. Each TSO involved in the review of long-term transmission rights shall:

(a) assess the offered long-term transmission rights taking into account the characteristics in paragraph 4;

(b) if considered necessary, propose alternative long-term transmission rights, taking into account the result of the assessment in subparagraph (a);

(c) carry out a consultation in accordance with Article 6 regarding:

(i) the results of the assessment of the offered long-term transmission rights;

(ii) if applicable, the proposal for alternative long-term transmission rights.

 

10. Following the consultation referred to in paragraph 9(c) and within three months of the issuance of the decision to launch a review, the TSOs of the capacity calculation region concerned shall jointly submit a proposal to the competent regulatory authorities to maintain or amend the type of long-term transmission rights.

 

 

 

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

 

Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (FCA Regulation), Article 2(2)

 

Core CCR TSOs' proposal for the regional design of long-term transmission rights in accordance with Article 31 of Commission Regulation (EU) 2016/1719, 10 March 2017

 

Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD)

 

ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016

 

Forward Risk-Hedging Products and Harmonisation of Long-Term Capacity Allocation Rules, ACER's Consultation Document, PC_2012_E_13, 29 August 2012

 

Transmission Risk Hedging Products - An ENTSO-E Educational paper

 

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

 

 

 

 

 

clip2

    Links    

 

 

 

 

Capacity allocation

 

 

 

 

 

 

 

 

 

 

Last Updated on Wednesday, 13 June 2018 22:49
 

Search

TwitterFacebookLinkedin
Copyright © 2009 - 2018 Michal Glowacki. All rights reserved.
The materials contained on this website are for general information purposes only and are subject to the disclaimer