Financial Transmission Right (FTR) is a category of Long Term Transmission Rights and is either:

A major difference between FTRs Obligations and FTRs Options is that the former are allocated simultaneously in both directions (one product, one auction), while the latter only cover the price risk in one direction (two products, two auctions).

FTR Options involve possible higher implementation costs and decreased liquidity, but it is argued that these are favoured by market participants as in most cases market participants are interested in hedging the price risk in solely one direction (The EU electricity network codes, Technical report, Leonardo Meeus, Tim Schittekatte, European University Institute, Badia Fiesolana, February 2018, p. 17, 31).

According to the ACER and CEER Draft Policy Paper of 1 June 2022 on the Further Development of the EU Electricity Forward Market for Consultation, FTR refers to a hedging contract between a Transmission System Operator (TSO) (or Single Allocation Platform (SAP)) and a market participant for the right to transmit electricity between two network locations based on cross-zonal capacity allocation. A TSO (or a SAP) is always a central counterparty to the holders of LTTRs.

FTRs hedge the buyer against the market price difference between two or more price zones and they have no impact whatsoever on the economic dispatch or on the actual use of the transmission network.


When the long-term cross-zonal capacities are allocated in a form of FTRs, they have no physical impact on the network but only a financial one. 



The above ACER and CEER Draft Policy Paper of 1 June 2022 observes that although In the area of transmission rights, Physical Transmission Rights (PTRs) are inherited from the liberalisation of the market in EU, over the last 30 years, many authors assessed and demonstrated analytically the superiority of financial over physical rights (Batlle López et al 2014), (Joskow and Tirole, 1998) and (Harvey et al., 1996). The financial transmission rights are vastly present across the globe in both zonal and nodal market designs and are considered to be a central piece of the market designs (London Economics International LLC, 2020), (Electricity Authority, 2019). 

Two central features of FTRs is the revenue adequacy for the TSO and full financial firmness for market participants (Hogan, 2013). If the outstanding FTRs satisfy a “simultaneous feasibility test” and the network topology is fixed then the FTR market is “revenue adequate”. Revenue adequacy means that congestion revenues and merchandising surplus (i.e., the difference between the buying cost and the sales revenues for energy traded through the pool) collected by the system operator from bilateral transactions and local sales and purchases at the Locational Marginal Pricing, will cover the FTR settlements. The principle of revenue adequacy is also central in the transmission rights in the EU.

Pursuant to Article 31(6) of the Commission Regulation (EU) 2016/1719 of 26 September 2016 establishing a guideline on forward capacity allocation (FCA Regulation):

- the allocation of PTRs and FTRs options in parallel at the same bidding zone border is not allowed,

- the allocation of PTRs and FTRs - obligations in parallel at the same bidding zone border is also not allowed.

The current FCA Regulation provides a framework under which the LTTRs are issued at yearly auctions (with yearly baseload products) and monthly auctions (with monthly baseload products). During the implementation of the FCA Regulation, stakeholders proposed to TSOs and regulatory authorities to introduce monthly baseload products also at yearly auctions. This means that yearly auction would allocate both yearly baseload product as well as twelve monthly baseload products. The above ACER and CEER Draft Policy Paper of 1 June 2022 assesses this proposal seems a no regret measure that can be introduced in any of the policy options which include allocation of long-term cross-zonal capacities.

Article 45(2) of the Harmonised allocation rules for long‐term transmission rights (HAR), as established in the Annex to the Decision of the Agency for the Cooperation of Energy Operators (ACER) No 03/2017 of 2 October 2017, stipulates that the holder of allocated FTRs is not entitled to nominate them for physical delivery.



Forward Capacity Allocation Platform


Energy transmission rights as financial instruments


Capacity allocation

Participants in coupled markets continue to be able to buy FTRs.

Financial Transmission Rights allow the holder to be paid the difference in price between two coupled markets, but do not give any nomination right or allow the holder to influence the flow of energy between coupled markets (Commission Staff Working Document, Accompanying the document Report from the Commission, Interim Report of the Sector Inquiry on Capacity Mechanisms {C(2016) 2107 final}, 13.4.2016 SWD(2016) 119 final, p. 134, Commission Staff Working Document of 30.11.2016 Accompanying the document Report from the Commission Final Report of the Sector Inquiry on Capacity Mechanisms {COM(2016) 752 final} SWD(2016) 385 final, p. 181). 

Eurelectric underlines the following features of FTRs:

- FTRs are only being offered in volumes corresponding to the actual physical transmission capacity,

- FTRs are the only way the physically available transmission capacity will be sold long term (as the physical transmission capacity will not be sold via an additional, different long term product),
- FTRs will always be given to the day-ahead market for use in the market coupling of the physical transmission capacity,
- the use of the FTR can be affected by constraints in the underlying available physical transmission capacity (Eurelectric letter to the DG FISMA of 19 November 2015, Eurelectric 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).

Accordingly, FTRs will always be linked to the underlying physical transmission capacities and will not be a product that can be offered by the TSOs for speculative purposes.

It is noteworthy, ACER’s policy paper of 6 February 2023 on the further development of the EU electricity forward market  recommends that transmission rights are allocated in a form of FTR obligations with a full financial firmness (ACER does not exclude the possibility of FTR options, however, recommends careful evaluation of their impact on the efficient functioning of electricity forward market). 

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