Long-Term Transmission Rights
European Union Electricity Market Glossary

 


 

 

Long-term transmission rights mean Physical Transmission Rights (PTRs) or Financial Transmission Rights (FTRs) acquired in the forward capacity allocation (Article 2(2) of the Network Code on Forward Capacity Allocation (FCA)).

 

 

Recitals 9 and 10 to the Network Code on Forward Capacity Allocation

 

(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 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.

 

 

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), 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

 

 

 

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.

 

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 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.

 

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).

 

 

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 Network Code on Forward Capacity Allocation (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).

 

Long-term transmission rights type of each Core bidding zone border 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

 

 

 

 



Last Updated on Friday, 24 March 2017 00:34
 

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