Minimum offered volumes in flow-based allocation of long-term 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:

• 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,
• 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.

We present here 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.