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:

 

Financial Transmission Right Obligations (FTRs-obligations), and 

 

Financial Transmission Right Options (FTRs-options).

 

If there is sufficient inter-market coordination and liquidity, FTRs are considered the preferred product, however, until these conditions are not attained, PTRs are regarded as the most suitable transitory solution.

 

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).

 

Overall, the long-term supply contracts and corresponding long term transmission rights are considered essential energy markets' features to ensure cross-border trade between bidding zones 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”).

 

 

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.

  


PTRs and FTRs are auctioned by Transmission System Operators (TSOs) and traded on secondary capacity market.

 

PTRs and FTRs enable market participants to cover the risks of changing conditions between the contracting and delivery of contracts and to hedge short-term price differentials between two neighbouring bidding zones.

 

In most of Europe the cross-border access to forward markets is based on transmission rights.

 

However, 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).

 

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) 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 were not requested to implement any specific measure on borders connecting the respective bidding zones.

 

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 Regulation.



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. 

 

 

Regional design of Long Term Transmission Rights

 

 

 

Regulation (EU) 2019/943 of the European Parliament and of the Council of 5 June 2019 on the internal market for electricity (recast), Article 9

 

Forward markets

 

1. In accordance 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, including owners of power-generating facilities using renewable energy sources, to hedge price risks across bidding zone borders, unless an assessment of the forward market on the bidding zone borders performed by the competent regulatory authorities shows that there are sufficient hedging opportunities in the concerned bidding zones.

 

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

 

3. Subject to compliance with Union competition law, market operators shall be free to develop forward hedging products, including long-term forward hedging products, to provide market participants, including owners of power-generating facilities using renewable energy sources, with appropriate possibilities for hedging financial risks against price fluctuations. Member States shall not require that such hedging activity be limited 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 Regulation).

 

The rules developed for the European Capacity Calculation Regions (CCRs) reflect the above set-up.

 
ACER First implementation monitoring report of 18 January 2019 on capacity allocation and congestion management and forward capacity allocation (p. 19) indicates that all regional designs for LTTRs define LTTRs as base-load products with the possibility of specific reduction periods (with the exception of CCRs Channel and IU, where the form of the product may be also be the peak-load and off-peak-load).

 

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).

 

In the CCR Core, TSOs initially proposed a regional design for LTTRs for all bidding zone borders except CZ-SK and DE/LU-AT.

 

The amended TSOs proposal introduces PTRs on the bidding-zone border CZ-SK and FTR Options on the bidding-zone border DE/LU-AT.

 

The ACER’s Monitoring Report of 30 January 2019 on the implementation of the CACM Regulation and the FCA Regulation explains this evolution as follows:

 

“The introduction of FTR Options on the DE/LU-AT border is at least partly the result of an exceptionally high volume of offered long-term cross-zonal capacity on this border (i.e. 4.9 GW) and of the fact that the calculation of this capacity is not coordinated with other TSOs in a CCR.
If PTRs were introduced and all the PTRs were physically nominated in the day- ahead timeframe, this would create high physical flows in the wider region which would imply very low capacity left to be offered in the day ahead timeframe in the wider region.
In case of FTR Options, the volume of offered long-term cross-zonal capacity has no impact on physical flows on other borders in the region and thereby does not reduce the day-ahead cross-zonal capacity on those borders”

 

Interesting evolution can be seen in the decisions taken as regards LTTRs’ types - while the initial TSOs’ document “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 19 July 2018 envisioned FTRs options only on the three bidding zones’ borders, i.e. NL-BE, BE-FR, AT-DE/LU (the rest being PTRs with the UIOSI principle) in the subsequent paper: “2nd amendment of the Core CCR TSOs’ regional design of long-term transmission rights based on Article 4(12) of Commission Regulation (EU) 2016/1719” of 25th January 2019 the FTRs-options’ scope was extended to further five interconnections (see table below).

 

In the light of the earlier remarks regarding fundamental characteristics of specific types of LTTRs, this tendency appears to confirm growing maturity of cross-border electricity markets within the EU.

 

The timelines for the implementation of the single day-ahead coupling (SDAC) evidently also have a respective bearing, as the ACER Decision No 15/2019 on the Core CCR TSOs’ proposal for the regional design of long-term transmission rights of 30 October 2019 mentions that the national regulatory authorities of the DE-AT-PL-4M MC project (market coupling on DE/LU-PL, DE/LU-CZ, CZ-PL, SK-PL, AT-CZ and AT-HU bidding zone borders) requested the respective TSOs to implement FTRs on the AT-CZ, AT-HU borders for the long-term allocation in parallel with the implementation of the single day-ahead coupling on those borders.

 

Therefore, as the said Decision states, after the date of implementation of single day-ahead coupling on those borders, all long-term cross-zonal capacities on those borders will be allocated in the form of FTR Options, without affecting the status of the already allocated PTRs.

 
ACER First implementation monitoring report of 18 January 2019 on capacity allocation and congestion management and forward capacity allocation (p. 19) explains this evolution and interdependencies as regards the DE/LU-AT border as follows:

“The introduction of FTR Options on the DE/LU-AT border is at least partly the result of an exceptionally high volume of offered long-term cross-zonal capacity on this border (i.e. 4.9 GW) and of the fact that the calculation of this capacity is not coordinated with other TSOs in a CCR.

If PTRs were introduced and all the PTRs were physically nominated in the day-ahead timeframe, this would create high physical flows in the wider region which would imply very low capacity left to be offered in the day ahead timeframe in the wider region.

In case of FTR Options, the volume of offered long-term cross-zonal capacity has no impact on physical flows on other borders in the region and thereby does not reduce the day-ahead cross-zonal capacity on those borders.”

 

The types of long-term transmission rights on each of the Core bidding zone borders pursuant to the document: “2nd amendment of the Core CCR TSOs’ regional design of long-term transmission rights based on Article 4(12) of Commission Regulation (EU) 2016/1719“ of 25 January 2019, are set out in the table below.

 

 

 

Core CCR borders

 

Type of Long-Term Transmission Right

NL-BE

FTR options

 NL-DE/LU FTR options
 BE-FR
 FTR options
 BE-DE/LU  FTR options
FR-DE/LU FTR options
 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   FTR options
 AT-CZ  FTR options
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   FTR options
HU-SK   Physical transmission rights pursuant to UIOSI principle 
HU-RO   Physical transmission rights pursuant to UIOSI principle
CZ-SK  Physical transmission rights pursuant to UIOSI principle 
SI-HU   Physical transmission rights pursuant to UIOSI principle

 

 

On 12 December 2019 the TSOs adopted the 3rd amendment of the Core CCR TSOs’ regional design of long-term transmission rights based on article 4(12) of Commission Regulation (EU) 2016/1719 (subject to approval by all respective national regulatory authorities)..

 

Approved 3rd amendment introduces the implementation of financial transmission rights options at all bidding zone borders in Core CCR (except SI-HR) following the implementation of the Core Flow-Based Day-Ahead Market Coupling Project.

 

 

 

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.

 

 

 

 

 

 

chronicle   Regulatory chronicle

 

 

   

 

 

23 October 2020

 

ACER Decision No 25/2020 on sharing costs incurred to ensure firmness and remuneration of long-term transmission rights (FRC methodology)

 

Annex I ACER Decision on FRC methodology

 

Annex II ACER Decision on FRC methodology

 

22 June 2020

 

ACER Public consultation on all TSOs proposal for the methodology for sharing costs incurred to ensure firmness and remuneration of long-term transmission rights, PC 2020 E 11

 

All TSOs’ Proposal for sharing costs incurred to ensure firmness and remuneration of long-term transmission rights (FRC) methodology in accordance with Article 61 of the Commission Regulation (EU) 2016/1719 of 26 September 2016, 23 April 2020

 

FCA-FRC Explanatory note, 15 May 2020

 

12 December 2019

 

Consultations - 3rd amendment of the Core CCR TSOs’ regional design of long-term transmission rights based on article 4(12) of Commission Regulation (EU) 2016/1719

 

30 October 2019

 

ACER Decision No 15/2019 on the Core CCR TSOs’ proposal for the regional design of long-term transmission rights

 

Annex I ACER Decision on Core LTTR


Annex Ia_ACER Decision on Core LTTR


Annex II_ACER Decision on Core LTTR

 

23 August 2019

 

ACER consults on the amendments to the harmonised allocation rules for cross-border transmission in electricity

 

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

 

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

 

3rd amendment of the Core CCR TSOs’ regional design of long-term transmission rights based on article 4(12) of Commission Regulation (EU) 2016/1719

 

2nd amendment of the Core CCR TSOs’ regional design of long-term transmission rights based on Article 4(12) of Commission Regulation (EU) 2016/1719, 25 January 2019

 

Core CCR TSOs’ proposal for the regional design of long-term transmission rights in accordance with Article 31 of Commission Regulation (EU) 2016/1719, 19 July 2018

 

ACER Monitoring report on the implementation of the CACM Regulation and the FCA Regulation, 30 January 2019

 

The EU electricity network codes, Technical report, Leonardo Meeus, Tim Schittekatte, European University Institute, Badia Fiesolana, February 2018

 

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

 

 

 

 

 

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