Financial transmission and storage rights

Abstract

The paper presents concepts of Financial Transmission Rights (FTRs) and Financial Storage Rights (FSRs) as key market concepts for alleviating congestion issues in transmission networks. These instruments are in place in markets where prices differ depending on the location/node due to congestions. They serve as a tool for transmission system operators TSO (or independent system operators; ISOs) for eliminating congestions by remunerating entities who make it possible. The paper further discusses different aspects of FTRs, which are traditional financial instruments used to hedge the risk of high cost occurrence associated with transmission congestion. By owning and trading with FTRs, through auction or via bilateral contracts, market participants can gain additional profit. More variable and uncertain power system environment, characterized by high penetration of renewable energy sources (RES), creates potential for storage units to assist TSO/ISO in maximizing social welfare through FSR. As storage has the capability to move energy in time, it can alleviate transmission lines congestion and create profit through intertemporal arbitrage (by load shifting and peak shaving) improving return rate of its investment. These concepts are additionally explained by intuitive examples showing how, when congestion occurs and TSO/ISO awards market participants who own transmission and storage rights, price volatility is reduced.