Research on the Theory of Financial Transmission Right and its Application in the Electricity Market

The standard electricity market of "Grid separating from the generation, competing price to supply the electricity" has greatly enhanced the transaction enthusiasm of the whole market members and the efficiency of the market. However, at the same time, local blocks of electricity transmission networks have enormously been intensified, which causes the fluctuation of electricity prices and makes market members face greater risks than ever before. In order to avoid this kind of risks, financial transmission right is introduced as the most recognizable methods to solve the problem worldwide. Financial transmission right is one of the most available tools to repel the risks of the fluctuating prices. It is a management mechanism of financial payment contracts of the electricity transmission network usufruct. The payments of these contracts are dependent on the transaction results of the electricity spot market. Under this mechanism, market members can purchase financial transmission right in advance. While market risks occur, market members, who have financial transmission rights, can gain monetary compensation, and also they can benefit from selling or transferring the rights. Therefore, not only market risks are avoided, but also the efficiency of the transmission network has been increased, and the stability of electricity prices has been ensured. At first, the article reviews some international theories relevant to financial transmission right.