Renewable Energy and Transmission Networks - Green Energy and Efficiency: An Economic Perspective - page 376

transmission contracts are sold. That is to say, stand-alone transmission capacity
auctions would take place. Transmission capacity auctions have long been inves-
tigated. Therefore, their format is well known. Still, contracts of different types may
be auctioned. As explained in the next section, whereas in the long-term (generation
and) transmission capacity auctions the whole existing amount of capacity in the
time horizon concerned should be considered, the amount of transmission capacity
to be made available in each of these medium-term auctions should be thought
carefully.
The eventual use to be made of the grid by long-term transmission contracts, or
congestions rents to be earned by their owners, will of course depend on the format
of these transmission contracts. Transmission contracts should, in the rst place,

provide a valuable hedge to potential buyers. This means that, in the long term, they
should be

exible products allowing their owners to shield against the uncertainty
not only concerning the conditions applying in the system, but also the uncertainty
concerning what the output of these generators will be at each time of the year.
Then, options should be appreciated by agents in the long term. In the medium
term, uncertainty may be lower regarding the overall system development, and the
available output of conventional generators, but not so much regarding the speci c

conditions affecting the amount of primary RES energy available, and hence the
level of available production capacity of these generators at each time. Then,
conventional generators could be more inclined to acquire obligations, while those
to be bought by RES generators could still be options. Only in the short term will
RES generators have some certainty about the conditions that they will face. In any
case, both options and obligations should be made available to agents willing to buy
transmission contracts in the medium and long term.
Probably, agents will be most interested in buying point-to-point contracts, since
they provide the former with a full hedge against the variability of the price of
accessing the transmission grid, see [ 23 ]. Only if the set of transmission bottlenecks
that may exist is rather small, it could make sense for agents to separately buy rights
over the capacity of those bottlenecks they wish to use. In the latter case, buying

ow-gate contracts that they can easily trade in bilateral markets could be inter-
esting. For a discussion of the use of point-to-point and ow-gate rights, see [ 12 ,

20 , 21 ]. As for the nancial versus physical nature of rights, both could be an

option, and the rst should not condition the physical energy dispatch. However,

only if agents acquire physical rights, they may be entitled to earn rm generation

capacity payments, see, for a example, [ 3 , 4 ] to learn about the regulation of

rm
transmission contracts in the Central-American market. The possibility to have
access to signing rm supply contracts could lead agents to acquire physical

transmission contracts, especially those generators whose capacity can be consid-
ered rm (no intermittent ones). Much has been published on the analysis of the

pros and cons of trading both types of products, see Batlle et al. [ 1 ] among others.