Financial Transmission Right (FTR)
A Financial Transmission Right, also called a Congestion Revenue Right, is a financial contract that entitles its holder to congestion price differences between two nodes in a locational marginal pricing market. It allows generators, load-serving entities, and traders to hedge the risk that congestion will cause delivered prices to diverge from contract reference points.
System operators auction FTRs based on available transmission capacity modeled through power flow studies. Participants bid for megawatt quantities on specific source-sink pairs, pay the auction clearing price, and receive congestion rent payouts whenever real-time congestion creates a positive spread in their direction.
FTR portfolios require credit support, scenario modeling, and active secondary trading to manage underfunding risk caused by outages or modeling errors. Sophisticated asset owners align PPA settlement points, physical deliveries, and FTR coverage to stabilize cash flows across multi-year horizons.
Integration of advanced analytics and automated trading platforms enables participants to simulate multiple outage and demand scenarios before auctions. Regulators scrutinize FTR performance to ensure hedging products remain aligned with physical realities and to mitigate underfunding risk.
Technical Details
- •Defined by source node, sink node, direction, and MW quantity
- •Settled against the congestion component of nodal LMPs
- •Auction horizons range from monthly blocks to multi-year strips
- •Credit requirements often rely on Value at Risk or collateral multipliers
- •Positions can be reconfigured through secondary market trades
Why It Matters
Congestion hedging determines whether nodal PPAs and merchant strategies remain bankable. Tera combines queue data, historical congestion, and corporate disclosures so users can benchmark hedge coverage, evaluate FTR auction results, and identify which corridors merit transmission upgrades or grid-enhancing technologies.
Related Features
Exclusive Market News
Newsletter
Get exclusive market intelligence, data-driven insights, and strategic analysis on global electricity markets. Receive updates on emerging trends, regulatory developments, infrastructure projects, and investment opportunities that impact your energy strategy and decision-making.
