Long-term transmission rights in the Nordic electricity markets: TSO perspectives

The EU Member States have adopted the Forward Capacity Allocation (FCA) network code which defines, among others, that Financial Transmission Rights (FTR) are the main mechanism for securing cross-border transmission capacity in Europe. However, in the Nordic electricity markets different contracts called Electricity Price Area Differential (EPAD) are in use. In this paper, we tentatively estimate the financial impacts of FTR auctions on the Finnish and Swedish transmission system operators (TSOs). We use modern portfolio theory to study the expected amounts of congestion income needing to be redistributed from the emittance of yearly, quarterly and monthly FTRs in 2012 and 2013. We assume the TSOs sell FTR volume equal to 70% of net transfer capacity (NTC) of a given interconnector. We find out that the expected portfolio returns do not necessarily exceed the collected congestion rents (TSOs' income), but the returns' expected volatility is high.