Financial Transmission Rights in electricity markets

Abstract

Some electricity markets use Locational Marginal Prices (LMPs) to trade energy, but due to transmission lines congestion there may be volatility, existing differences between LMPs from generation points and LMPs in load points. These markets resort to the implementation of Financial Transmission Rights (FTRs) for hedging market participants against that congestion charges. In this paper, a review of FTRs implementation in electricity markets is presented, considering the nature of the problem, mathematical models for FTR auctions, simultaneous feasibility proof, and the challenge of congestion charge revenues are discussed. Also, a brief description of seven FTR markets is presented enlightening important concerns about them.