Generation and transmission expansion planning considering FTRs as a long-term regulatory risk-hedging and coordination mechanism

S. Gómez, L. Olmos

Summary:

Due to the deregulation process and the changes that the power system is undergoing in its transition to a decarbonised, sustainable, more integrated, one, power system stakeholders need instruments to manage the increasing risk they face associated with different types of uncertainty, and to coordinate their investment decisions, made in a decentralized manner. Typically, investors deploying generation capacity in remote areas with abundant primary energy resources are subject to a relevant market price risk associated with the unpredictability of the evolution in the long term of the price of accessing the network to trade their energy in large consumption centres, whose price tends to be more stable. Besides, there is a lack of coordination of the investment decisions made by them and the transmission expansion planners, which are partly due to the counterparty risk both face. 
LT-FTRs (Long-term Financial Transmission Rights) may be a suitable tool to hedge the risk and coordinate the generation and transmission investment decisions. Here we assess their impact on the system development and social welfare, assuming that generation investors in remote areas are strategic and both, them and transmission owners are risk-averse. We consider a reactive planning approach by the network planner and formulate the problem as a bi-level optimization one. Then, we apply this to a stylized case study where we investigate the impact of LT-FTRs on the development of wind generation in the North Sea and its integration in the European power system. According to the results, making LT-FTRs available could trigger additional socially-efficient generation investments in weakly linked areas and coordinate the development of this generation and the transmission capacity required. 

Spanish layman's summary:

LT-FTR representan una posible herramienta adecuada para cubrir el riesgo de precio causado por las congestiones de la red y coordinar las decisiones de inversión en generación y transporte. Aquí, evaluamos su impacto en el desarrollo del sistema, asumiendo que los inversores son adversos al riesgo y las compañías de generación en las zonas remotas son estratégicas. Modelando un problema de optimización bi-nivel bajo un enfoque de planificación reactiva.

English layman's summary:

LT-FTRs may be a suitable tool to hedge the price risk caused by network congestion and coordinate the generation and transmission investment decisions.  Here we assess their impact on the system development, assuming that stakeholders are risk averse and generation investors in remote areas are strategic. We consider a reactive planning approach by the network planner and formulate a bi-level optimization problem.

Keywords: FTRs, generation expansion planning, transmission expansion planning, coordination mechanism.

Registration date: 05-ene-2026