Provision of financial transmission rights including assessment of maximum volumes of obligations and options

This paper studies the risks faced by the providers of financial transmission rights (FTRs). The introduction of FTRs in different systems in the USA must be viewed in relationship to the organization of the market. Often, private players own the central grid, while an independent system operator (ISO) operates the grid. The revenues from transmission congestion collected in the day-ahead and balancing markets should give the ISO sufficient revenues to cover the costs associated with providing FTRs. This can be ensured if the issued FTRs fulfill the simultaneous feasibility test described by Hogan. This test on a three-node network is studied under different assumptions to find the maximum volumes, which can be sold, including contingency constraints. Next the feasibility test is analyzed when taking into account the proceeds from the FTR auction, and demonstrates that a higher volume might be issued. We introduce uncertainty under different scenarios for locational prices and calculate the maximum provided volumes. As a tool for risk management, the provider of the FTRs can use the Value at Risk approach. Finally, the provision of FTRs by private parties is discussed.