Financial Transmission Rights Auction Research Articles

Optimal Offering Strategy of GenCo With Joint Participation in FTR Auction and Day-Ahead Market Considering Virtual Bidding

Nodal price separations in Day-Ahead (DA) market caused by transmission congestion create congestion charges/surplus that are reallocated to the market participants through the financial transmission right (FTR) auction. From a market participant's viewpoint, these two markets are interrelated because the revenue of market participant in FTR auction is determined based on the day-ahead locational marginal prices. Furthermore, virtual transactions which are designed to improve price convergence between the day-ahead and real-time markets can directly impact day-ahead prices. This impact through virtual transactions may be utilized by a market participant to increase its FTR value and improve its overall strategy in participating in both FTR auction and day-ahead market. To this end, this paper is the first attempt to reveal this tactic in literature and proposes an offer strategy framework for a price-maker generating company participating in both FTR auction and day-ahead market with the consideration of virtual bidding. First, the possibility of FTR value manipulation is conceptually demonstrated by placing virtual bids in the day-ahead market. Second, a two-stage bi-level offering strategy model is formulated for strategic GenCos, which is further converted to a single level optimization problem by using Karush-Kuhn-Tucker conditions and strong duality theory. Numerical tests on a 5-bus system and IEEE reliability test system (RTS) demonstrate the effectiveness and applicability of the proposed approach.

Price Formation in Auctions for Financial Transmission Rights

Financial Transmission Rights (FTRs) are financial derivatives in wholesale electricity markets that are sold in auctions. The revenue collected from FTR auctions is passed through to electricity customers to reimburse them for transmission congestion payments they make in the spot energy market. On average, electricity customers’ congestion payments greatly exceed auction reimbursements in electricity markets across the United States. We study the issue of auction revenue deficiency through the lens of Auction Revenue Rights (ARRs), which is the predominant mechanism used in U.S. electricity markets to distribute auction revenue to electricity customers. We demonstrate how the ARR process influences fundamental supply conditions in the FTR auction market and show how divergent auction equilibria emerge under different ARR decision-making regimes. Using market data from PJM, we find empirical evidence that variation in ARR management strategies helps explain differences between an FTR’s auction price and its realized ex post value.

Application of IRT Models to Selection of Bidding Paths in Financial Transmission Rights Auction: U.S. New England

This paper explores a way to apply Item Response Theory (IRT), one of the popular statistical methodologies in measurement and psychometrics, to evaluate Financial Transmission Rights (FTR) paths in the U.S. electricity market. FTR is an energy derivative product to hedge congestion cost risks inherent in constrained transmission lines. In New England, with about 1200 pricing locations, the theoretical combinations of FTR paths amount to 1.4 million in prevailing flows alone. With capital constraints, it is imperative that FTR market participants build the capability to evaluate FTR paths to bid on. IRT provides a framework of how well tests work, and how individual items work on tests, estimating respondents’ latent abilities, and individual item parameters. IRT is utilized to analyze historical electricity data of 2019 for a daily congestion cost of eight customer load zones and one hub in the U.S., New England, for the evaluation of FTR paths. In the analysis, an item represents an FTR path, while item difficulty, item discrimination, and a latent trait variable for the path correspond to the path profitability, risk level, and daily congestion ability, respectively. This paper explores the experimental procedures by which IRT, a psychometric tool, may also be applicable in complex energy markets, providing a consistent and standardized analytical framework to address the issues of selection and prioritization among multiple opportunities. FTR path evaluation is conducted in three steps to determine bid priority paths in FTR auctions: parameter significance tests, ranking on path profitability and risk level, and weighting scores of individual rankings on the two criteria.

Designing option FTRs for the lossy FTR system

The objective of this study is to upgrade the lossy financial transmission right (FTR) mechanism through the introduction of lossy option FTRs. The lossy FTR mechanism retains the potential to deliver superior risk hedging performance compared with the traditionally deployed lossless FTR mechanism since the locational marginal price decomposition is unnecessary for the settlement of lossy FTRs. The existing lossy FTR theory is, however, based on only obligation FTRs. Although obligation FTRs are the primary risk hedging instruments under any FTR mechanism, option FTRs can improve market competition by allowing flexible hedge positions. Therefore, an investigation is carried out to explore a lossy version of option FTRs. The configuration template and the settlement rule for lossy option FTRs are established. A suitable auction model is prepared for the issuance of lossy option FTRs. The lossy FTR auction formulation is carried out based on a novel representation of power flow equations. Detailed case studies are presented to show the practical utility of the proposed lossy FTR instrument.

Implementation of lossy FTRs for perfect risk hedging under the marginal loss pricing

In this study, a market framework is proposed for the practical implementation of lossy financial transmission rights (FTRs). The advantage of lossy FTRs over conventional FTRs is that the lossy FTRs can be settled directly according to locational marginal prices (LMPs) without requiring any LMP decomposition. Therefore, the price risk for a forward contract can be perfectly hedged if the power transaction involved perfectly matches the corresponding FTR. Although proposed long back, lossy FTRs still did not find an entry to the market because of the prejudice of market complexity and inefficiency. The principal aim of this study is, thus, to create the necessary environment so as to make those fine risk-hedging tools available in the market. First of all, a suitable format for forward contracts is prescribed to enable proper utilisation of lossy FTRs. The detailed lossy FTR auction model is prepared based upon a suitable optimal power flow (OPF) formulation. In addition, the implementation of lossy FTRs is shown for an AC-DC system by appropriately modelling the DC-line power flow behaviour according to the chosen OPF framework. The lossy FTR auction model prepared is thoroughly verified for the FTR issuance as per the market expectations.

A strategy for FTR bidding in deregulated electricity markets

This paper presents a strategy to evaluate the financial transmission rights (FTRs) bids of the electricity market participants using locational marginal price (LMP) technique and serve as an important instrument for hedging the risk of congestion charges. In deregulated electricity markets, FTRs are allocated through the process of auction to reduce the losses in congestion management by making bids for different transmission lines. The main objective of an auction is to maximize revenues from FTRs. A generalized mathematical model of FTR auction for maximising revenues and availability to all entrepreneurs on non-discriminatory basis to keep the system within limits is developed. The FTRs and LMP of 14 bus system are calculated in this paper using the software program developed in MATLAB determines the congestion credits. FTR congestion credits are calculated based on average locational marginal price. Introducing a hybrid scheme for congestion management and FTRs, facilitates the new restructured power system to deal with congestion charges and credits and helps in presenting a new approach for transmission pricing. A numerical example of 14 bus system has been illustrated for analysing the results and supports the approach.

A simplified financial transmission rights auction in the context of the New Zealand electricity grid

This article considers the use of financial transmission rights for managing electricity provision on a power grid. The use of a sub-grid of hubs for dealing in these products is explored. Some suitable approaches to this practice are outlined. These identify the feasible size of sub-grid and locate additional constraints. References W. W. Hogan, Contract networks for electric power transmission, J. Regulatory Economics 4 (1992), 211--242. doi:10.1007/BF00133621 A. B. Philpott and G. Pritchard, Financial transmission rights in convex pool markets, Oper. Res. Letters, 32 (2004), 109--113. doi:10.1016/j.orl.2003.06.002

An Empirical Investigation of Speculation in the MISO Financial Transmission Rights Auction Market

Even with conservative assumptions, a statistical model indicates that speculators account for a significant share of transactions and profits in the Midwest Independent System Operator FTR auction market. While the large speculator profits are potentially concerning, the study also lends some credence to the argument that speculators confer useful liquidity benefits.

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.

Bidding strategy for FTR obligations in transmission markets

In electricity markets, the financial transmission right (FTR) is an important tool for hedging congestion charges. A risk-constrained FTR bidding model is proposed for transmission auction markets. Based on the forecast differential LMP between sink and source points of certain FTRs, bidders try to maximise their expected pay-offs by taking into account the associated risks. Supposing the forecasted distribution of differential LMPs and bidders' risk preferences are known among all bidders, the problem is modelled as a bilevel optimisation with the upper subproblem representing bidders and the lower subproblem representing the solution to the ISO's FTR market clearing problem for maximising the revenues collected from the FTR auction. The bilevel optimisation problem is solved by developing the sensitivity of a bidder's expected utility with respect to its bidding strategies. A three-bus system with four bidders is considered to illustrate the proposed method. The results show the impact of forecasted differential LMP and bidders' preferred risk level on FTR bidding.

Optimal allocation of transmission rights in systems with FACTS devices

Financial transmission rights (FTR) is a market-based approach to transmission congestion management, which is essentially based on the locational marginal pricing (LMP) theory. FTR auction is an important method of allocating transmission capabilities to the market participants who value them most. A DC power flow model is applied to the FTR auction. To improve the result and the revenue of the FTR auction, two types of series FACTS devices are modelled as additional power injection at buses in the presented linear optimisation problem of FTR auction. Some new special treatments have been done on the TCSC operating limits to keep the auction problem linear. The impacts of controlling different FACTS devices on auction results are shown by detailed studies of an eight-bus test system and the IEEE 30-bus test system.

PES Meetings

Financial transmission rights (FTR) auction is an important method for allocating the network transmission capabilities to the market participants who value them most. In this letter, series flexible AC transmission systems (FACTS) devices are modeled as additional power injection at buses in the presented linear optimization problem of FTR auction, which is based on a DC power flow model. The impacts of controlling different FACTS devices on auction results are shown by detailed studies of an eight-bus test system.

Series FACTS Devices in Financial Transmission Rights Auction for Congestion Management

Series FACTS Devices in Financial Transmission Rights Auction for Congestion Management