pjm’s annual ftr auction
DESCRIPTION
PJM’s Annual FTR Auction. Introduction. FTR Market Enhancements. In order to create a more robust FTR Market, PJM is enhancing the FTR Market to include: Annual FTR Auction Current FTR allocation procedure will be converted into a long-term auction New FTR Product - PowerPoint PPT PresentationTRANSCRIPT
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PJM’s Annual FTR Auction
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Introduction
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FTR Market Enhancements
In order to create a more robust FTR Market,PJM is enhancing the FTR Market to include:
Annual FTR AuctionCurrent FTR allocation procedure will be converted into a long-term auction
New FTR ProductFTR Options are a financial instrument that provides a new hedging mechanism
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Annual FTR Auction
Annual FTR Auction
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FTRs are allocated to Firm Transmission Service Customers annually
Monthly FTR Auctions allocate residual FTR capability to highest bidder
TODAY
All FTR capability is auctioned off to the highest bidders
Auction revenues will be allocated to Firm Transmission Service Customers
FUTURE
Annual FTR Auction
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BENEFITS
Annual FTR Auction
Provides more flexible transmission congestion hedging alternatives
Makes benefits of congestion hedges generally more available to customers who switch suppliers under Retail programs
Continues to allocate property rights to Firm Transmission
Customers through Auction Revenue Rights
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What Are FTRs?Financial Transmission Rights are …
financial instruments awarded to bidders in the FTR Auctions that entitle the holder to a stream of revenues (or charges) based on the hourly Day Ahead energy price differences across the path
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What are ARRs?
Auction Revenue Rights …are entitlements allocated annually to Firm Transmission Service Customers that entitle the holder to receive an allocation of the revenues from the Annual FTR Auction
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Entire PJM System Capability
Auction RevenueRights
Auction Revenue
FTRs AwardedTo Bidders
(MWs & Price)
Annual FTR Auction
Annual ARR Allocation
ARRs Allocated
(MWs)
Auction RevenueRights
Holders
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FTR Options
New FTR Product
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New FTR Product
TODAY
FTR Obligations only
FTR Obligations can be a
benefit or a liability
FUTURE
FTR Obligations and FTR
Options
FTR Obligations can be a
benefit or a liability
FTR Options can be benefit, but never a liability
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BENEFITS
New FTR Product
Provides additional Transmission congestion hedging
alternatives to PJM customers
Will make analysis of hedging alternatives less complex
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FTR Market Timeline
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Overview of Financial Transmission Rights
(FTRs)
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What Are FTRs?Financial Transmission Rights are …
financial instruments awarded to bidders in the FTR Auctions that entitle the holder to a stream of revenues (or charges) based on the hourly Day Ahead energy price differences across the path
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Why Do We Need FTRs?
• Challenge: – LMP exposes PJM Market Participants to price
uncertainty for congestion cost charges– During constrained conditions, PJM Market collects
more from loads than it pays generators
• Solution:– Provides ability to have price certainty– FTRs provide hedging mechanism that can be
traded separately from transmission service
???
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Characteristics of FTRs
Economic value based on Day Ahead LMPs Defined from source to sink can be in form of obligation or option
obligation can be benefit or liability option can be benefit but never liability
Financial entitlement, not physical right Independent of energy delivery Must be simultaneously feasible
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Economic Value of FTR
• FTR Target Allocation is equal to the FTR MW amount times the price difference from the FTR sink point to the FTR source point
• LMPs based on the clearing prices from DayAhead Market • If LMP FTR Sink < LMP FTR Source ,
– the FTR is a liability if FTR defined as Obligation– the FTR has zero value if defined as Option
FTR Target Allocation
(FTR MW ) * (LMP FTR Sink - LMP FTR Source)=
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How are FTRs Acquired?
1. Annual FTR Auction– multi - round – multi - period – multi - product – entire system capability
2. Monthly FTR Auction – single - round – purchase “left over” capability
3. FTR Secondary Market – bilateral trading
FTRs are acquired in three market mechanisms …
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Types of FTR Products
FTRs can be acquired in two forms …
FTR Obligations
FTR Options
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What are FTR Obligations Worth?
Benefit – the hourly economic value is positive – FTR same direction as congested
flow
Liability – the hourly economic value is
negative– FTR opposite direction as
congested flow
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What are FTR Options Worth?
A Benefit– the hourly economic value is
positive – FTR same direction as the
congested flow.
Neither a Benefit or a Liability– the hourly economic value is
zero – FTR opposite direction to the
congested flow.
FTR Option cannot have negative value
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FTR Consistent withCongested Flow
Thermal Limit
FTR Obligation = 100 MW
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Obligation Credit = 100 MW * ($30-$15) = $1500
LMP = $30
LMP = $15
Source (Sending End)
Sink (Receiving End)
Bus B
Bus A
Energy Delivery = 100 MWh
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Thermal Limit
FTR Obligation = 100 MW
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Obligation Credit = 100 MW * ($15-$30) = $-1500
LMP = $30
LMP = $15
Source (Sending End)
Sink (Receiving End)
Bus B
Bus A Energy Delivery = 100 MWh
FTR Obligation is a Liability
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FTR Option is a BenefitThermal Limit
FTR Option= 100 MW
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Option Credit = 100 MW * ($30-$15) = $1500
LMP = $30
LMP = $15
Source (Sending End)
Sink (Receiving End)
Bus B
Bus A
Energy Delivery = 100 MWh
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Thermal Limit
FTR Option= 100 MW
Congestion Charge = 100 MWh * ($30-$15) = $1500
FTR Option Credit = 100 MW * ($15-$30) = $-1500 = $0
***When calculated, the FTR Option Credit is negative, therefore the economic value will equal zero.******
LMP = $30
LMP = $15
Source (Sending End)
Sink (Receiving End)
Bus B
Bus A Energy Delivery = 100 MWh
FTR Option is Neither a Benefit/Liability
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Summary
• FTRs are financial instruments used to hedge congestion costs
• FTRs can be acquired in the Annual FTR Auction, Monthly FTR Auction or Secondary Market
• FTRs can be Obligations or Options obligation can be benefit or liability option can be benefit but never liability
• FTRs must be simultaneously feasible
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Overview of Auction Revenue Rights
(ARRs)
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What are ARRs?
Auction Revenue Rights …are entitlements allocated annually to Firm Transmission Service Customers that entitle the holder to receive an allocation of the revenues from the Annual FTR Auction
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Characteristics of ARRs
Economic value based on LMPs from the Annual FTR Auction
Defined from source to sinkOnly available as an obligation
obligation can be benefit or liability Financial entitlement, not physical rightMust be simultaneously feasible
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Economic Value of ARR
• ARR Target Allocation is equal to the ARR MW amount (divided by the number of rounds) times the price difference from the ARR sink point to the ARR source point
• LMPs based on the nodal clearing prices for each round of the Annual FTR Auction
• ARRs can be a benefit or a liability
ARR Target Allocation
(ARR MW ) * (LMP ARR Sink - LMP ARR Source)
(# of rounds)=
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How are ARRs Acquired?
1. Annual ARR AllocationAuction Revenue Rights (ARRs) requested by Firm Transmission Customers are allocated on an annual basis
2. Daily ARR ReassignmentARRs allocated for the planning period will be reassigned on a proportional basis within a zone as load switches between LSEs within the planning period
ARRs are acquired in the following mechanisms …
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What can the holder do with the ARR?
• Convert ARR into FTR by “self-scheduling” FTR into Annual Auction on exact same path as ARR
• Reconfigure ARR by bidding into Annual Auction to acquire FTR on alternative path or for alternative product
• May retain allocated ARR and receive associated allocation of revenues from the auction
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Summary• ARRs entitle the holder to receive allocation of
Annual FTR Auction revenues • ARRs are allocated to firm Transmission Service
Customers• ARRs are reassigned on a proportional basis within
a zone as load switches between LSEs within the planning period
• ARRs are only available as an obligation – obligation can be benefit or liability
• ARRs must be simultaneously feasible