Important practical considerations in designing an FTR market

This paper presents the fundamental elements of a well functioning financial transmission rights (FTR) market that is necessary for supporting wholesale competitive electricity markets. Emphasis is placed on the practical considerations that need to be carefully evaluated in implementing an FTR market. The paper presents an analysis of the FTR procurement alternatives market participants can deploy for procuring financial instruments as part of their hedging strategy. The paper focuses on the FTR allocation approach as a key methodology for procuring FTRs. Two main considerations are presented; the eligibility rules and the validation rules. The paper finally presents various allocation methodologies and an analysis of the incentives of the associated objective formulations. A numerical example is presented to illustrate the market benefits of the simulated auction single round approach over the least squares approach with sequential rounds.