FTR (Financial Transmission Right)
A Financial Transmission Right is a long-dated contract that pays out the price difference between two bidding zones over a delivery period. Estonian traders use FTRs to lock in cross-border spreads — typically Estonia versus Finland, Latvia or Sweden — months or years before delivery. They are the standard way to hedge the risk that one zone’s price will diverge from another’s, and are auctioned by JAO on behalf of the participating TSOs.
Electricity does not all sell at the same price across Europe. Estonia, Finland, Latvia and every other country form their own bidding zones, and within each market time unit each zone clears its own auction at its own price. When the cross-border interconnector between two zones is full, those prices diverge — sometimes by tens of euros per MWh. A Financial Transmission Right (FTR) is a contract that pays out exactly that price difference over a delivery period, in exchange for a fixed premium paid up front.
A worked example
A trader in Estonia expects to import power from Finland next quarter. If Finnish prices stay low and Estonian prices stay high, importing makes money; if the spread inverts, it loses money. They buy an FI→EE FTR for next quarter at, say, €5/MWh up front. Whatever the actual quarter-average FI–EE spread turns out to be, the FTR pays it back to them. Their net position is locked at €5/MWh of import-cost risk; the rest of the spread risk has been transferred to whoever sold them the FTR.
Who runs the auctions
FTRs for the Estonian borders are auctioned by JAO (Joint Allocation Office) on behalf of Elering and the neighbouring TSOs. Annual products clear at the start of each calendar year, quarterly products a few weeks before each quarter, and monthly products closer to delivery. Pricing is set by the auction — the more participants, the tighter the bid–offer.
Who actually uses them
FTRs sit on top of day-ahead trading; they are not a tool for small portfolios. The typical buyers are large utilities hedging long PPAs, banks that finance generation, and trading desks running directional cross-border views. For a single-asset operator without a structured trading book, FTRs are usually overkill — the cross-border spread risk on one small wind farm is rarely large enough to justify the up-front premium and the operational overhead.
Why the EE–FI spread matters
Estonia and Finland share the Estlink 1 and Estlink 2 HVDC cables. When wind blows hard in Finland, FI prices crash and the cable saturates inbound, leaving EE prices high and FI prices low. The opposite happens during cold winter mornings when Estonian thermal plants run flat out and the FI price climbs. The day-ahead market in either zone is what determines whether your asset earns or loses on a given hour; the FTR is the only standardised way to lock that uncertainty in more than a few months out.