Minimum Offered Volumes in Long-Term Flow-Based Allocations of Transmission Rights

Long-term Transmission Rights in the European CORE Flow-based Capacity Calculation Region are currently auctioned based on capacity offered as Available-to-Transfer Capacity (ATC). In a near-future, the auctions should move to a Long-term Flow-Based Allocation (LTFBA) of the offered capacity, where rights on all CORE borders are auctioned simultaneously. This will have two important consequences: (1) borders will compete with each other via flow factor competition describing how rights allocated on a given border influence the capacity that can be offered on other borders, (2) collateral requirements, which are financial guarantees that market participants must post before the auction, will have to be posted for bids in a same auction for all borders, increasing the required amounts compared to an ATC setup where auctions take place sequentially. In this paper, we present the results of a study commissioned by Eurelectric and Energy Traders Europe on the impact of offering minimum volumes to be allocated per border as a measure to mitigate flow factor competition. We show that such types of measures have modest market impacts while enabling to provide a reasonable amount of hedging instruments (transmission rights) on all borders. We also discuss possible approaches to address the question of collaterals.