Market-Based Rate Design for Recovering Merchant Transmission Investment

Merchant transmission projects (MTPs) are primarily market solutions for importing inexpensive power when this energy is available. As a market driven solution, full recovery of the investment is not guaranteed. In general, the recovery is based on transmission service charges and the value of incremental financial transmission rights (FTRs) created by the project. Since FTRs are valuable only when the system is constrained, the FTR´s value diminishes as the constraint is eliminated by the MTP. Hence, the MTP will be commercially viable only if its transmission capacity is fully subscribed. Otherwise, the MTP will likely not be built.