Appendix D Explanation of payouts under
obligation and option FTRs
D.1.1
For an obligation FTR with a duration of one month the FTR payout or
requirement to pay per month would be equal to:
FTR Payout/payment = ΣPD x Q / 2
Where
Q is the FTR quantity or, more correctly, capacity, in MW. As trading periods
are of half an hour duration and prices are in MWh, the MW is divided by 2 to
obtain the FTR MWh entitlement per trading period,
PD is the FTR receiving end price minus the sending end price in each
trading period in the month.
D.1.2
For an option FTR with a duration of one month the FTR payout per
month would be equal to:
FTR payoutO = ΣPDO x Q / 2
Where
FTR payoutO is the FTR payout for options
PDO is the FTR receiving end price minus the sending end price for each
trading period in the month whenever it is positive, and
as before, Q is the FTR quantity in MW. As with obligations, this is divided by
two to obtain the FTR MWh entitlement per trading period,.
D.1.3
As the equations show, a key difference to note between the two
products is that for obligation FTRs the price difference in all trading
periods in a month is relevant to the determination of the payout or
payment, whereas for option FTRs only positive price differences are
relevant.
D.1.4
Another key point to note is the relationship between obligation and
option FTRs, which is summarised by the following equation:
ObAB = OpAB – OpBA = - ObBA
Where
ObAB is an obligation FTR from node or hub A to node or hub B,
OpAB is an option FTR from A to B,
OpBA is an option FTR from B to A, and
ObBA is an obligation FTR from B to A.
D.1.5
This equation shows that obligation FTRs can be thought of as a
combination of an option FTR in the direction of the flow of the FTR
minus an option FTR for flows in the opposite direction. That is,
obligation FTRs do not provide similar coverage to what South Island
generators currently receive in relation to LPR across the HVDC. 34
Rather, obligation FTRs are closer to a CfD, as they provide a payment
when the price at the sending end of the FTR is low relative to the
receiving end price but require a payment when the sending end price is
high. The purchase of such an FTR from A to B is effectively committing
to generate that amount at A for export to B, even when the price
difference is in the opposite direction.
D.1.6
34
The equation in paragraph D.1.4 also shows that an obligation FTR in
one direction is the equivalent of a negative obligation FTR of the same
quantity in the opposite direction. In other words, (unless the risks are
treated asymmetrically) they are in effect the same product, so that from
the perspective of an AB obligation FTR, ObAB is in effect a “buy” and
ObBA is a “sell” (and vice versa if viewed from the perspective of a BA
obligation FTR).
In terms of the equation what South Island generators currently receive is OpAB + OpBA. While this
provides coverage for South Island generators’ exports across the HVDC when they are exporting,
and for the load obligations of South Island generators when they are importing it means there is no
funding available to cover other parties’ LPR across the HVDC. Note though that South Island
generators do not receive coverage of the full Benmore-Haywards price difference but only coverage
from whatever rentals arise on the HVDC, minus whatever they have to pay (through other
channels) for ancillary service support, in either direction. Their LPR cover is therefore “non-firm”
and partial.