Cross-border forward markets

Commissioned by TSOs

Lion Hirth, Ingmar Schlecht, Anselm Eicke

2024

European TSOs are required to issue long-term transmission rights (LTTRs) – financial derivatives on the spread between two bidding zones’ spot prices. ACER has proposed numerous changes, including a switch from spread options to spread futures and a virtual trading hub. In a report for the German TSOs, we developed an analytical framework for cross-border forward markets, showing that issuing LTTRs always means taking positions in domestic forward markets, and that a switch to futures would require TSOs to engage in delta hedging with volumes based on expected trade rather than transmission capacity.