Arbitrage and rents in European long-term transmission rights

Clemens Stiewe

Papers from arXiv.org

Abstract: Long-term transmission rights (LTTRs) are designed to support hedging in interconnected European electricity markets. LTTR auction prices have historically fallen short of forward market prices, signaling limited arbitrage. This paper studies the interaction of transmission rights and forward markets. Option pricing theory predicts that LTTR holders take short forward positions in importing markets and long forward positions in exporting markets to lock in arbitrage profits. Empirically, I find a corresponding price effect in the German electricity forward market immediately after LTTR auctions, using panel regression on EEX futures contracts traded between 2018 and 2025. This shows that LTTR holders can achieve systematic rents, indicating an inefficient regulatory intervention and a transfer from consumers to LTTR holders.

Date: 2026-07
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