A policy contribution to the FCA 2.0 implementing act process

This discussion paper is intended as a contribution to the FCA 2.0 implementing-act
process under Article 9 of Regulation (EU) 2024/1747, in the context of the institutional
discussions surrounding the 41st European Electricity Regulatory Forum (Florence, 28–
29 May 2026). It is a working paper circulated for policy discussion; it does not represent
the position of any institution.

Executive Summary

Europe’s forward capacity allocation market lets TSOs auction Long-Term Transmission Rights (LTTRs) — financial derivatives paying holders the price spread between bidding zones. The market was designed for physical hedging. ACER’s own data show it now functions differently: across 2015–2024, TSOs collected €15 billion in auction income and paid out €16.8 billion to LTTR holders — a net transfer of €1.83 billion from congestion income to private derivative holders, recovered through network tariffs. ENTSO-E’s December 2022 measurement of the 2021 transfer alone was approximately €1.1 billion, more than 25% of issuing TSOs’ congestion income that year; the two figures are not duplicative: ACER aggregates net flows over a decade using ratios while ENTSO-E reported a single-year gross-equivalent in monetary terms. Both reach the same finding through different methodologies. This paper argues the transfer is structural, not accidental, and that the FCA 2.0 implementing act must address it before any bidding-zone reform proceeds.

Three analytical contributions go beyond the institutional record: (1) the architectural-asymmetry framing — a forced public seller with no reserve price meeting bidding buyers produces a clearing price below fair value regardless of participant motivation. Winning participants capture surplus relative to fair value; the transfer is a structural defect of the architecture rather than a behavioural one; (2) the zone-split sequencing argument — FCA reform must precede any bidding-zone splits, or the transfer mechanism extends to the new internal borders that carry the largest congestion volumes; (3) the willing-seller mechanism as architectural correction — replacing the forced public counterparty with voluntary counterparties removes the asymmetry at source; genuine hedgers transact at fair-value prices because their underlying exposure makes the protection worth its cost, while value extraction contingent on the underpricing wedge disappears.

Five recommendations: (1) Mandate quarterly public disclosure of auction revenues, payouts, and participant-type breakdowns. (2) Reverse the Article 30 default so LTTR issuance requires demonstrated hedging need. (3) Add FTR obligations to the product set. (4) Introduce willing-seller mechanisms on continuing borders. (5) Support exchange-traded cross-border spread products as the end-state architecture.

1. The Architecture and Its Costs

When electricity flows across a congested interconnector, prices diverge between bidding zones. The TSO collects the difference — congestion rent. Article 19(2) of Regulation 2019/943 directs this income first to capacity availability and grid investment, then to tariff reduction. The forward capacity allocation market intervenes by pre-committing a portion of this future congestion rent to holders of financial derivatives before it reaches the Article 19(2) waterfall.

An LTTR is a financial contract whose value depends on future price differences between two bidding zones. Across 33 SAP borders in Europe, 26 use FTR options and 7 use legacy Physical Transmission Rights. Zero use FTR obligations — despite ACER formally recommending obligations over options since 2022. [1] A firm bidding on a 100 MW Germany-to-France monthly FTR option that clears at €5/MWh pays €360,000 upfront. If the realised spread averages €50/MWh, the firm collects €3.6 million. It never touches electricity. The €3.24 million difference flows from TSO congestion income to a derivative holder rather than into the Article 19(2) waterfall.

The FTR option structure stacks three risks on the TSO

ACER-CEER identify these directly in their June 2022 Draft Policy Paper. First, options asymmetry: FTR options “reduce the volumes of offered LTTR products” because LTTRs in the opposite direction cannot be netted, and “make the hedging more expensive.” [2] Obligations would allow netting; options do not. Second, the price-taker problem: ENTSO-E states plainly that “TSOs are price takers… TSOs will supply to market participants the capacity at any price higher or equal to zero, regardless of the actual value of the capacity. In the event of insufficient liquidity for a specific border, market participants are incentivised to bid conservatively and thereby increase their profit.” [3] Third, full financial firmness with no offsetting revenue: TSOs must pay the day-ahead spread to LTTR holders even when physical capacity was unavailable. ENTSO-E’s stress tests project collateral requirements of “several billion euros” in extreme conditions, with daily volatility that “could require some TSOs to inject up to €1 billion at short notice,” adding that “the operational feasibility of this cannot be confirmed.” [3] Some European TSOs do participate in financial markets for balancing-related purposes, but no European TSO currently hedges its LTTR counterparty exposure in practice.

The Dutch case illustrates the concrete cost. In 2025, TenneT used €160 million from congestion revenues to reduce EHV grid tariffs. TenneT’s October 2025 advance communication to ACM confirms that cross-border interconnector investments “are already reimbursed via the regular regulatory reimbursement, and additional funding from the auction receipts is not required.” [4] When congestion rent is not pre-committed to derivative holders, it reduces tariffs. When it is, tariff payers compensate the shortfall. The Dutch case is illustrative rather than unique: under the regulated-asset-base financing model that governs interconnector investment across European TSOs, construction and maintenance costs are recovered through NRA-set regulated returns on their asset base. The pre-commitment of congestion rent to LTTR payouts therefore reduces the residual available for the Article 19(2) waterfall regardless of the specific national regulatory arrangement.

2. Three Claims, Each Established by European Primary Sources

Claim 1: LTTR auction prices clear systematically below realised spreads

ACER’s 2024 Market Monitoring Report measures LTTR underpricing across 2015–2024 using two independent methodologies. The cumulative finding: TSOs collected €15 billion in auction income and paid out €16.8 billion — a net transfer of €1.83 billion (approximately 11% of total LTTR remuneration) from TSO congestion income to private derivative holders. ACER states the consequence directly: this transfer “is socialised among network users through network tariffs.” [5]

“Market participants have on average profited from holding LTTRs, rather than having paid a premium for the hedging they provide over congestion in the day-ahead market.”

— ACER Market Monitoring Report, November 2024 [5]

The year-by-year record: 8 of 10 years show negative ex-post risk premium (transfer to LTTR holders). ACER explains the causal mechanism through the relationship between auction competition and risk premium. At competition factor 1–1.5 (16% of all auctions), the average risk premium is +3.2 €/MWh, exactly as hedging theory predicts. As competition falls, the premium declines: only 16% of auctions cluster in the high-competition band where the positive premium predicted by hedging theory is observed; the broad pattern across the remaining 84% shows declining and increasingly negative premia, with the lowest-competition auctions (competition factor >6) generating the largest transfers at −1.0 €/MWh. The relationship is generally declining rather than strictly monotone; a small reversal appears at the 3–3.5 band, but the central pattern is unambiguous and confirms ENTSO-E’s price-taker description: in thinly competed auctions, market participants bid against a forced seller with no reserve price, and the clearing price is determined by the lowest winning bid rather than by equilibrium between informed buyers and informed sellers. The transfer is the mechanical consequence of this asymmetry.

The two reversal years (2016 and 2023) have a specific and consistent mechanism. Yearly LTTRs for 2023 were auctioned in late 2022 when European wholesale prices were near crisis peaks and cross-border spreads were wide. By delivery, EU average wholesale prices had fallen from approximately €227/MWh in 2022 to €97/MWh in 2023 as gas prices normalised. Spreads compressed faster than auction-period expectations. LTTR holders paid for options on large spreads that did not materialise. The same mechanism explains 2016, the other reversal year, following the 2014–15 commodity price collapse. Crucially, even including both reversal years, the decade average remains −10.9%. An efficient option seller should show a net positive premium compensating for uncertainty in both directions. TSOs are systematic net payers across the full sample.

ACER’s forward risk premium methodology directly addresses the unexpected-price-movement objection. Comparing LTTR auction prices to EEX baseload futures spreads in the two hours before auction closure, matching the LTTR auction period, removes the argument that unexpected price movements explain the gap. The result: 11 of 14 European borders show negative forward risk premium. The largest gaps are ES–FR (−11.5 €/MWh), BE–FR (−3.5 €/MWh), DE–FR (−3.1 €/MWh). Three borders show positive premium: HU–SK (+0.6), CZ–DE (+0.4), AT–HU (+0.2). Three institutions using three methodologies reach the same conclusion: ENTSO-E (December 2022, €1.1 billion in 2021 alone), ACER-CEER (June 2022, LTTRs “continuously being undervalued”), ACER MMR (November 2024, €1.83 billion cumulative 2015–2024).

Claim 2: The transfer is architectural, not behavioural

Two positions dominate the institutional and academic discussion of LTTR underpricing. Hirth, Schlecht and Eicke (2024, commissioned by 50Hertz, Amprion, Baltic Cable, TenneT TSO GmbH, and TransnetBW) [11] treat it as a market-completeness phenomenon: without LTTRs, import and export volumes are missing from forward markets, producing a forward premium that LTTRs correct. ACER characterises the underpricing in behavioural terms: a share of LTTRs is allocated “with the expectation of a profit, rather than for covering the hedging needs of market participants.” [5] Both framings have explanatory force. Neither identifies what this paper argues is the central mechanism: the underpricing is architectural, produced by the asymmetric structure of the auction itself, and winning participants capture surplus relative to fair value, defined here as the competitive-equilibrium price under voluntary two-sided participation, regardless of their motivation for participating.

A stylized example illustrates the mechanism. Consider a generator with substantial European cross-border exposure, such as a Nordic utility routing portfolio flows through the German hub. Their internal valuation of yearly DE–FR capacity might be €7/MWh based on its protection value for their book. In a market with voluntary counterparties, the clearing price would settle near this valuation: a voluntary seller charges their marginal cost of bearing the risk; the buyer pays up to the protection’s value to them; the trade clears in between. Both sides benefit, and the price reflects equilibrium between informed parties. In the actual LTTR auction, the same participant observes that the TSO is a price-taker with no reserve price. They have no economic reason to bid €7 when they can win at €2.50. They bid the minimum that secures capacity in competition with other buyers. The €4.50/MWh gap between their hedging valuation and the price-taker clearing price is captured as surplus, by a participant who is genuinely hedging. The same logic applies to a pure trading house: at the price-taker clearing price, their arbitrage profit equals the difference between the price-taker price and the expected spread. Both participant types, physical hedger and financial trader alike, extract the same architectural surplus through different motivations.

This dissolves the speculation-versus-hedging dichotomy that has dominated the European literature. The distinction matters for participant motivation but not for the value transfer: the architecture transfers expected surplus to winning participants in proportion to their winning capacity, regardless of whether their motivation is hedging, arbitrage, portfolio routing, or resale intermediation. The market-completeness argument is correct that some mechanism is needed to bring missing volumes into forward markets; it does not establish that the mechanism must be a forced public counterparty priced below fair value. Voluntary counterparties bring the same missing volumes into the same forward market through the same instrument structure, at prices that reflect equilibrium between informed buyers and informed sellers rather than the lowest winning bid against a non-bidding TSO. The reform that follows is structural, not punitive: it corrects a forced-seller architecture rather than restraining participants from behaving rationally within it.

Claim 3: LTTR auction prices cannot serve as reliable forward signals

LTTR auction prices fail as forward signals on three independent grounds. Each is sufficient on its own; together they are decisive.

First, the auction is one-sided. In voluntary forward markets, both buyers and sellers bid: each side disciplines the other, and the clearing price reflects equilibrium between informed parties on both sides. In LTTR auctions, the seller is a forced public counterparty with no reserve price and no view on the underlying spreads. The seller does not bid against the buyers. Buyers bid against each other, and the clearing price is set by the lowest winning bid that still secures capacity — rather than by equilibrium between informed buyers and informed sellers. The clearing price contains an underpricing component endogenous to auction competition (ACER Figure 20 quantifies this directly). The signal-extraction problem has no clean solution within the current architecture.

Second, LTTR prices are derivatives of publicly observable data. The expected spread between two bidding zones, say DE and FR, is derived from publicly observable day-ahead prices, published hourly by ENTSO-E for every EU bidding zone. EEX already trades forward spreads on the same borders in its futures market, aggregating the same expectations from a larger and more liquid participant pool. LTTR auction participants are not contributing private local knowledge unavailable elsewhere; they are expressing positions on publicly available data in a market that runs in parallel to a more liquid instrument expressing the same expectation. ACER’s own methodology confirms this: the forward risk premium analysis uses the EEX futures spread as the benchmark against which LTTR prices are measured, implicitly recognising that EEX futures are the better forward signal and that LTTR prices are a distorted derivative of the same underlying expectation.

Third, the tenor ceiling is structural. LTTR maturities are capped at one year. Even if the first two problems were solved, a 1-year forward signal cannot serve investment decisions in physical generation or transmission infrastructure, which depend on 10–25 year horizons. ACER’s 2024 MMR identifies the maturity ceiling as a shortcoming and recommends extending LTTRs beyond one year. ENTSO-E confirmed that the forward market’s baseload and peak products “do not meet the risk profile of intermittent RES-generation.” [3] Long-term PPAs and CfD strike prices, on horizons of 10–25 years, provide the forward signals physical participants actually use for investment decisions. The price-discovery defence of LTTRs requires both that prices aggregate information and that the resulting signal reaches the horizon at which investment decisions are made. Neither condition is met in the current architecture.

3. What the Public Record Does and Does Not Show

The empirical record on the European LTTR market is substantial. ACER’s 2024 MMR covers 2015–2024 with two methodologies; JAO’s Auction Tool publishes per-auction results (clearing prices, allocated capacity, participants); ENTSO-E’s Transparency Platform publishes hourly day-ahead prices for every EU bidding zone. The cumulative net transfer figure can in principle be reconstructed from these sources by combining per-auction LTTR data with delivery-period day-ahead prices using the methodology ACER defines in its 2024 MMR Annex. ACER has done this reconstruction and published the result (€1.83 billion cumulative 2015–2024). The data is therefore reconstructable, not unobtainable.

Three specific gaps nonetheless constrain policy assessment and independent verification. First, monetary-aggregate continuity: no institution publishes an annual euro-flow series for the transfer. ENTSO-E published the 2021 aggregate (€1.1 billion) and a 2022 forecast (€2.6 billion) in December 2022, then stopped. ACER reports the cumulative 2015–2024 figure but presents annual results as ratios rather than as a continuing monetary series. The form of public aggregation is determined by the institutions producing the data, and external researchers wishing to verify the annual transfer at scale must reconstruct it from per-auction publications — substantial computational labour that no party outside the institutions has so far undertaken.

Second, border-level disaggregation of the monetary transfer is not in the public record. The forward risk premium indicators in ACER’s Figure 22 give per-border €/MWh measurements for 14 borders over 2021–2024, but the €1.83 billion cumulative aggregate is not decomposed by border in monetary terms. Reform decisions are taken border by border; the data needed to inform those decisions is not at the border level.

Third, participant-type categorisation cannot be robustly inferred at scale from public disclosures. JAO publishes participant identifiers, and individual large bidders can often be identified by name, but systematic categorisation of all winning participants by function (trading house, physical hedger with cross-border exposure, integrated utility, or bank-affiliated trading desk) cannot be reconstructed from the public record. The boundary itself is blurred: a single participant may bid simultaneously for hedging, portfolio routing, arbitrage, and resale, and even the participant’s own internal accounting may not cleanly separate these motivations. The question of which categories of participants extract what share of the transfer cannot be answered from the data the institutions choose to publish. The architecture is observable enough to establish the structural asymmetry; it is not sufficiently categorised to allocate the transfer by participant function — a distinction that makes participant-type disclosure the most consequential of the three transparency gaps.

The transparency reform proposed in Section 5 follows from these gaps directly: continuing monetary-aggregate publication by ENTSO-E using the December 2022 methodology, border-level disaggregation of the transfer, and participant-type publication that the current architecture withholds. The institutions producing the underlying data also produce the analyses they choose to publish; the form of those analyses determines what external assessment is possible. Closing the aggregation-and-categorisation gap is the prerequisite for evidence-based reform at the level reform decisions are actually taken.

4. Why Reform Is Urgent Now: The Zone-Split Sequencing Argument

Intra-German redispatch costs in 2024 reached €2.776 billion. [6] This is of the same order of magnitude as the cumulative cross-border LTTR transfer ACER measured over a decade, but concentrated within a single bidding zone in a single year. The largest congestion problem in Europe is intra-zonal and entirely outside the scope of the current LTTR architecture. ACER has repeatedly recommended German bidding zone splits to address this. ENTSO-E’s Bidding Zone Review (Step 2 final report, April 2024) identified that splitting Germany–Luxembourg into five zones is the economically most efficient configuration. [7]

The May 2025 coalition contract of the German government reconfirmed Germany’s insistence on a single bidding zone. The immediate political risk in Germany is therefore low under the current government. But the structural risk is forward-looking and applies to all potential zone reconfigurations across Europe and future German governments: any architecture chosen now must be compatible with whatever zone configuration is eventually adopted.

“LTTRs and other equivalent measures should be treated as regulatory interventions whose necessity and effectiveness must be demonstrated, as their systematic application can create additional costs on certain borders without clear benefits in terms of hedging.”

— ENTSO-E Hedging Analysis Policy Paper, 17 February 2026 [8]

If zone splits proceed under the current FCA architecture, the new internal borders enter under Article 30’s mandatory-issuance default. The TSOs operating those borders become forced counterparties. The same price-taker auction structure that produced the underpricing at existing borders applies to the new ones. New internal borders would have thin or non-existent futures markets initially, maximising the undervaluation gap during the period when LTTR demand would be greatest. The architecture scales the problem to where the problem is largest.

Reforming the FCA architecture before any zone split removes the Article 30 default and allows new borders to be assessed without mandatory issuance from day one. Reforming after locks in the transfer mechanism on the borders that matter most. This is the timing argument that makes the FCA 2.0 window different from previous reform opportunities: the two reforms must move together, and sequence matters.

The regulatory window

Article 9 of Regulation (EU) 2024/1747, which entered into force on 16 July 2024, requires the Commission to assess whether the forward market design for hedging cross-zonal congestion needs revision, and where necessary to adopt implementing acts amending the FCA Guideline (Regulation 2016/1719). The regulation sets a structured timeline: an Impact Assessment within 18 months of entry into force (by 16 January 2026) and an implementing act within 24 months (by 16 July 2026). As of May 2026, the Impact Assessment has not been publicly published. The implementing-act deadline is at significant risk of slipping. ACER Decision 12/2022 (FI–SE) and Decision 02/2025 (NL–NO2; substance cited from ACER’s published summary, primary text to be verified before formal legal use) have established assessment-based decline of LTTR issuance as a regulatory pattern. [9] ENTSO-E’s February 2026 policy paper calls for reversing the Article 30 default. [8] The institutional convergence — ENTSO-E questioning mandatory issuance, ACER declining issuance on specific borders, the Commission’s mandatory cost-benefit process under Article 9 — has not existed in any previous reform window.

5. A Reform Architecture

The reform is graduated. Each phase improves on the status quo independently of whether subsequent phases are adopted. The question is not between hedging and no hedging; it is between two risk-allocation architectures: one where a regulated monopoly bears involuntary exposure whose cost is socialised through tariffs, and one where voluntary market participants bear priced risk.

Phase	What it does	Who acts	Timeline
Phase 0 Transparency	Mandate ENTSO-E to publish a continuing annual monetary-aggregate series using the December 2022 methodology; mandate JAO to publish border-level monetary disaggregation; and mandate participant-type categorisation — data that exists in operational systems but is not currently aggregated or published in usable form.	JAO / TSOs / ACER mandate	Immediate
Phase 1 Reverse Article 30	Extend the assessment-based approach from new borders (already required) to all existing borders. LTTR issuance requires demonstrated hedging need; burden of proof on those advocating issuance. Consistent with ENTSO-E February 2026 proposal and ACER Decisions 12/2022 and 02/2025.	FCA Regulation amendment	2026–2027
Phase 2 FTR Obligations	Add FTR obligations to the product set alongside options. Obligations allow counter-flow netting, reduce options asymmetry, and are the technical precondition for voluntary counterparties to operate at scale. ACER has recommended this since 2022; zero borders currently implement it.	FCA implementing act	2027–2028
Phase 3 Willing Sellers	On borders where LTTRs continue, the counterparty becomes a market participant choosing to accept risk, not a regulated monopoly. On liquid borders, market-maker obligations attached to JAO auctions; on thin borders, transitional TSO-with-reserve-price set above contemporaneous EEX futures spread (administratively determined where futures do not trade), with NRA-monitored exit as voluntary supply develops. The architectural correction: replacing the forced public counterparty with informed two-sided pricing removes the asymmetry that produces the transfer. Genuine direct hedgers continue to pay fair value for protection; value extraction contingent on the underpricing wedge disappears.	Regulatory coordination	2028–2029
Phase 4 Exchange-Traded	Standardised cross-border spread products on regulated exchanges with market-maker obligations. The Nordic CfD/EPAD model demonstrates operational feasibility within Europe. No TSO balance-sheet exposure; public congestion rent flows fully to the Article 19(2) waterfall.	Exchange development	2027–2030

How voluntary supply emerges in Phase 3

Phase 3’s mechanism varies by border characteristics. On borders with deep zonal-futures markets (DE–FR, AT–DE, NL–DE), market-maker obligations attached to JAO auction participation provide the standard mechanism: market-makers commit to two-sided quoting at defined spreads, earning the bid-ask differential and hedging directional exposure through zonal futures positions on either side. This is the mechanism that operates in EEX power forward markets, in EPADs in the Nordic system, and in CCP-cleared commodity derivatives generally. On borders where zonal-futures liquidity is insufficient to support market-maker hedging (most non-German interconnectors), a transitional bridge is required: the TSO continues as counterparty during the transition but with a reserve price set above the contemporaneous EEX futures spread (where futures exist) or above an administratively determined minimum referenced to forward power-market indices (where they do not). The TSO becomes a willing seller with a non-zero reserve, not a price-taker accepting any bid above zero. NRAs monitor voluntary auction participation; the TSO exits as voluntary supply develops, with timing determined by transparent criteria rather than by political negotiation. The mechanism is implementable through targeted amendment to the FCA Guideline (Regulation 2016/1719), within the scope contemplated by Article 9 of Regulation (EU) 2024/1747.

The fair-value benchmark used throughout this paper is not directly observable under the current architecture. It can be proxied operationally in two ways: on borders where zonal-futures spreads trade with sufficient liquidity, the contemporaneous futures spread (with appropriate adjustment for delivery period and product structure) provides a market-derived reference; on borders where futures do not trade liquidly, reserve-price methodologies anchored to forward power-market indices plus a risk-compensation margin provide an administratively determined floor. Both approaches are familiar from existing reserve-price mechanisms in commodity exchanges and balancing markets. Precise auction-rule redesign, covering clearing arrangements, prudential requirements, market-maker compensation and NRA enforcement, is beyond this paper’s scope and requires dedicated implementation design work.

A participant-aware prediction follows from the one-sided auction structure described in §2. Under fair-value pricing, participants whose value extraction depends on the underpricing wedge, including arbitrageurs, proxy hedgers using the most liquid hub as a routing instrument, and resale intermediaries, face a different calculation than under the current architecture: their expected return is no longer the spread minus a price-taker clearing price, but the spread minus a fair-value price, which by construction approaches zero. Participants with genuine direct hedging exposure, where the protection value exceeds the fair-value price, continue to participate at fair value because their underlying exposure makes the protection worth its price. The reform redirects the structural surplus that currently flows to all winning participants back to the Article 19(2) waterfall, while preserving the hedging function for participants whose physical exposure justifies it. This is correction of a forced-seller architecture, not restraint of any participant’s behaviour.

Why not caps on TSO exposure or Auction Revenue Rights?

Both are mitigation measures that leave the underlying architecture intact. A cap limits the size of the public loss but does not address why it occurs. ARRs return some captured rent to consumers but require continued operation of an architecture that the structural reform in Phases 2–3 supersedes. Both create permanent political negotiation surfaces — today the cap is X, tomorrow Y — captured by the same concentrated-benefits dynamic that has prevented reform since the architecture’s inception. The structural reform in Phases 2–3 resolves the underpricing problem at source: voluntary counterparties price risk at fair value and there is no involuntary public exposure to cap or redistribute.

Scope and limitations

This paper does not claim that voluntary-counterparty architectures can be implemented uniformly across all European borders without transitional complexity. Liquidity depth, market-maker participation, prudential design, and NRA enforcement protocols differ materially across regions and require dedicated implementation work beyond the analytical scope of this contribution. Phase 3’s effectiveness on borders with thin zonal-futures markets depends on the development of voluntary supply over time; if that development is slow, transitional TSO participation may extend longer than envisaged. The argument advanced here is narrower than a complete reform design. The current architecture embeds a structural asymmetry whose continuation the FCA 2.0 process should address, and the FCA 2.0 process is the available window to correct it.

6. Conclusion

ACER’s 2024 Market Monitoring Report measured a cumulative net transfer of €1.83 billion from TSO congestion income to LTTR holders across 2015–2024. The mechanism is empirically demonstrated: in the 84% of auctions outside the high-competition band, declining auction competition produces declining and increasingly negative risk premia. ACER’s forward risk premium analysis on 14 European borders confirms the same finding through independent methodology. ENTSO-E quantified the 2021 transfer alone at €1.1 billion using a different methodology and reached the same conclusion. Three European institutions, three methodologies, one finding. The mechanism producing the transfer is architectural: a forced public counterparty with no reserve price meeting bidding buyers clears at a price determined by the lowest winning bid rather than by equilibrium between informed parties on both sides. Winning participants capture surplus relative to fair value in proportion to their winning capacity, regardless of whether their motivation is hedging, arbitrage, or portfolio routing.

The defences of the current architecture fail under examination. The market-completeness argument proves that some mechanism is needed — not that the mechanism must be a mandatory TSO counterparty priced below fair value. The price-discovery argument requires both that auction prices aggregate information from informed participants on both sides and that the resulting signal reaches the horizon at which investment decisions are made; the LTTR architecture meets neither condition. The interconnector investment argument is weakened by the RAB financing model that governs European interconnector investment, under which TSOs earn a regulated return set by NRAs rather than by forward congestion markets — a structure TenneT’s October 2025 communication to ACM confirms explicitly for the Dutch case.

The urgency is current, not hypothetical. If bidding-zone reform proceeds before FCA reform, Article 30’s mandatory-issuance default extends the structural transfer to the new borders carrying Europe’s largest congestion volumes. The FCA 2.0 implementing act due in 2026 — already past its Impact Assessment deadline — must address transparency, reverse the Article 30 default, and enable voluntary counterparties before the zone-configuration question is settled. These are the two reforms that must move together, and sequence determines whether the transfer mechanism shrinks or scales.

The question for the FCA 2.0 review is not whether forward hedging should exist. It is whether European electricity consumers should continue to fund an architectural transfer to whoever wins capacity in auctions structurally biased against the public counterparty — a transfer their own regulatory institutions have measured (ACER MMR 2024), documented (ENTSO-E December 2022), and recommended structural reform of (ENTSO-E February 2026, ACER Decisions 12/2022 and 02/2025). The reform corrects the architectural asymmetry at source. Genuine hedging continues at fair value. The architectural surplus returns to the Article 19(2) waterfall.

Primary Sources

[1] ENTSO-E Market Report 2025, p.52 Figure 4.2. Covering June 2024–May 2025.
[2] ACER and CEER, Draft Policy Paper on the Further Development of the EU Electricity Forward Market for Consultation, 1 June 2022. Problems 6 and 7, p.8. Verified against primary PDF.
[3] ENTSO-E, Policy Paper on the EU’s Electricity Forward Markets, December 2022. §4.2 (price-taker mechanism, p.12), §4.6 (firmness costs, p.15), §4.7 (RES mismatch). Verified against primary PDF.
[4] TenneT, Advance Communication on the Use of Congestion Income for 2026, October 2025 (ACM publication). The “already reimbursed” quotation is from this October 2025 TenneT communication.
[5] ACER, Market Monitoring Report: Progress of EU Electricity Wholesale Market Integration, 14 November 2024. Section: “Undervaluation of long-term transmission rights reveals shortcomings in their design.” Dashboard: acer.europa.eu/monitoring/electricity_market_integration_2024.
[6] Bundesnetzagentur, Q4 2024 monitoring report on redispatch and congestion management. €2.776 billion total congestion management cost in 2024.
[7] ENTSO-E, Bidding Zone Review (Step 2 final report), April 2024. Five-zone configuration for Germany–Luxembourg identified as economically most efficient.
[8] ENTSO-E, Policy Paper on Forward Markets — Hedging Analysis, published 17 February 2026 (internally finalised 29 January 2026). Verified wording confirmed against primary PDF.
[9] ACER Decision 12/2022 (FI–SE hedging adequacy). ACER Decision 02/2025 (NL–NO2 hedging adequacy) — substance cited from ACER’s published summary communication; primary decision text should be verified before formal legal submission. ACER Decision 08/2025 (HAR).
[10] Regulation (EU) 2019/943 (Electricity Regulation), Article 19(2). Regulation (EU) 2024/1747, Article 9. FCA Regulation (EU) 2016/1719, Article 30. Regulation (EU) 2015/1222 (CACM).
[11] Hirth, L., Schlecht, I. & Eicke, A. (Neon, 6 March 2024), Cross-border Forward Markets: An assessment of the status quo and proposed reforms of European long-term transmission rights. Commissioned by 50Hertz, Amprion, Baltic Cable, TenneT TSO GmbH, TransnetBW.