The spark spread is the theoretical gross margin of a gas-fired power plant from selling a unit of electricity, having bought the fuel required to produce this unit of electricity. All other costs (operation and maintenance, capital and other financial costs) must be covered from the spark spread.
The term dark spread refers to the similarly defined difference between cash streams (spread) for coal-fired power plants. These indicators of power plant economics are useful for tracing energy markets. For operating or investment decisions published "spread" data are not applicable. Local market conditions, actual plant efficiencies and other plant costs have to be considered. The higher the dark spread the better, for the generator; an IPP with a dark spread of €15/MWh will be more profitable than a competitor with a dark spread of only €10/MWh.
Definition of spark spread
Spark Spread = Price of Electricity - [ (Cost of Gas) * (Heat Rate) ] = $/MWh - [ ($/MMBtu) * (MMBtu / MWh) ]
Both prices in the above formula must be in the same currency and must refer to the same energy unit (usually MWh).
A precise definition of a spark spread has to be given by the source publishing such indicators. Definitions should specify energy (electricity and fuel) prices considered (delivery point & conditions) and the plant efficiency used for the calculation. Also, any plant operating costs that may be included should be stated. (see: Methodology of Powernext).
Typically, an efficiency of 0.5 (50 %) is considered for gas fired plants, and 0.38 (38%) for coal fired plants (see: Methodology of Powernext). In the UK, a non-rounded efficiency of 49.13% is used for calculating the spark spread.
Both the UK and German Spark Spread tables use a fuel efficiency factor of 49.13% for the gas conversion. In reality, each gas-fired plant has a different fuel efficiency, but 49.13% is used as a standard in the UK market because it provides an easy conversion between gas and power volumes (25,000 therms of gas = 15 MWh of energy). The spark spread value is therefore the power price minus the gas price divided by 0.4913, i.e. Spark Spread = Power Price – (Gas price/0.4913).
As of August 2006,UK dark spreads were in the range of 10–30 £/MWh, while UK spark spreads were in the range of 4–9 £/MWh.
In countries that are covered by the European Union Emissions Trading Scheme, generators have to consider also the cost of carbon dioxide emission allowances that will be under a cap and trade regime. Emission trading has started in the EU in January 2005.
The Clean Spark Spread is calculated using a gas emissions intensity factor of 0.411 tCO2/MWh. Therefore the clean spark spread is calculated by subtracting the carbon price per tonne (multiplied by 0.411) from the ‘dirty’ spark spread, i.e. Clean Spark Spread = Spark Spread – (Carbon Price*0.411).
Clean spark spread or "spark green spread" represents the net revenue a generator makes from selling power, having bought gas and the required number of carbon allowances. This spread is calculated by adjusting the cost of natural gas in MMBtu for the efficiency of the generation and subsequently applying the market cost of procuring or opportunity cost of setting aside an emissions allowance such as a European Union Allowance (EUA) in the European Union Emissions Trading Scheme (EU ETS).
Let S: spark spread, E: electricity price, G: gas price, Ng: number of carbon credits necessary to cover gas operation, Pcc: price of a carbon credit.
Then, Clean spark spread = E - G - Ng*Pcc = S - Ng*Pcc
Clean dark spread or "dark green spread" refers to an analogous indicator for coal fired generation of electricity. The spark green spread and the dark green spread are especially important in areas where coal fired electricity generation is prevalent as the convergence of the spreads will lead to an important decision point.
Let D: dark spread, E: electricity price, C: coal price, Nc: number of carbon credits necessary to cover coal operation (2–2.5x that of gas), Pcc: price of a carbon credit.
Then, Clean dark spread = E - C - Nc*Pcc = D - Nc*Pcc
Climate spread: The difference between the dark green spread and the spark green spread is known as the "Climate Spread".
Climate spread = Clean dark spread - Clean spark spread = (D - Nc*Pcc) - (S - Ng*Pcc) = (D - S) - (Nc - Ng)*Pcc.
Note: (D - S) and (Nc - Ng) are positive numbers.
In a carbon constrained economy a power producer in a geographic area where coal is currently the preferred method by which electricity is generated may eventually encounter a negative climate spread if carbon credit prices rise. This would mean that when taking into consideration the cost to produce plus the cost of compliance with a cap and trade (coal is on average 2.5 times as polluting as natural gas for the same MWh of electricity), natural gas would be a better decision. This would begin to cause more internal abatement via power generation fuel switching and less reliance on flexible mechanisms. This is important due to concerns regarding supplementarity.
Climate spread is also interesting in that it is the fundamental driver for the price of carbon credits. Since the ETS cap-and-trade system covers the major polluting industries, power generation by coal and gas fired power plants, by far the largest power sources, create the most carbon credit demand within the ETS. To cover emissions on an ever tightening ration of free EUA allowances, a coal fired powered power plant will either have to abate internally or buy credits. If the price of marginal internal abatement is lower than the price of carbon credits, the firm will choose internal abatement. However marginal abatement becomes more and more expensive, at some point forcing the plant to buy credits – thus the carbon credit price is equal to the marginal cost of abatement to the extent that European power plants have chosen to abate.
Clean Dark Spreads are a reflection of the cost of generating power from coal after taking into account fuel (coal) and carbon allowance costs. A positive spread effectively means that it is profitable to generate electricity on a Baseload basis for the period in question, while a negative spread means that generation would be a loss-making activity. However, it is important to note that the Clean Spark Spreads do not take into account additional generating charges (beyond fuel and carbon), such as operational costs.
Both the UK and German Dark Spread tables use a fuel efficiency factor of 35% for the coal conversion, and an energy conversion factor of 7.1 for converting tonnes/coal into MWh/electricity. In reality, each type of coal has a different energy value and each coal-fired plant has a different fuel efficiency, but 35% is accepted as a broad standard. At the time of writing (March 2007) there is no liquid Dark Spread traded market in either the UK or Germany. The Dark Spread value is the power price minus the coal price divided by 0.35, i.e. Dark Spread = Power price – (Coal price/0.35).
The Clean Dark Spread is calculated using a coal emissions intensity factor of 0.971 tCO2/MWh. Therefore the Clean Dark Spread is calculated by subtracting the carbon price (multiplied by 0.971) from the ‘dirty’ spark spread, i.e. Clean Dark Spread = Dark Spread – (Carbon Price*0.971).
Spark spread as cost of replacement power for intermittent renewables
Spark spread can be used to assess the loss of revenue if a power station is switched from a normal running scenario to one where it is held in reserve to provide power when a large population of wind, or other renewable generators, is unable to generate.
In theory, the power station operator would be indifferent to such non-running as long as he was paid the spread it would have earned during the normally expected number of hour run. In fact, if paid the expected spark spread for the hours it had expected to run in normal operating mode, the operator would be better off, because it would not incur the variable operating and maintenance costs, i.e. O&M costs, which are proportional to the electrical energy produced.
An assessment of the lost revenues is needed if some power plants, such as wind turbines, have absolute priority (must-run plants). A dispatching authority will in this case order the other plants to decrease power. Normally, plant operators are entitled to receive compensation for such interventions. In a competitive electricity market the situation can be handled by a balancing mechanism, in which any imbalance from the schedule (typically a day-ahead schedule) is penalized, either using the price from a balancing market or a calculated price.
Thus, since UK spark spreads were in the range of 4–9 £/MWh – on average £6.5/MWh, or 0.65 p/kWh, we can asses the likely cost of relegating existing power stations to a standby role for a large penetration of renewables as being around 0.65 p/kWh.
- Triad Demand
- Provides a spark spread calculator
- Methods and equations for calculating spark spread (No such page on site)
- Mission climat download area: Tendances Carbon series (page also available in French & German
Electricity generation Concepts Sources Technology Distribution Policies
Wikimedia Foundation. 2010.
Look at other dictionaries:
Spark Spread — The difference between the market price of electricity and its cost of production. The spark spread can be negative or positive. If it is negative, the utility company loses money, while if it is positive, the utility company makes money. This… … Investment dictionary
Spark spread — A measurement of the difference between the price that a generator can obtain from selling one megawatt hour (MWh) of electricity and the cost of the natural gas needed to generate the MWh of electricity. Spark spread is a measure of potential… … Energy terms
spark spread — noun The difference between the cost of the fuel required to produce a unit of electricity, and the price of that same unit of electricity … Wiktionary
Spread trade — In finance, a spread trade refers to the act of buying one security or futures contract and selling another related one, in an attempt to profit from the change in the price difference between the two.As expiry of a long contract and delivery of… … Wikipedia
Spark (Transformers) — Transformers: Generation 1Although not officially the soul of a Transformer at this point, Marvel comics would occasionally refer to the spark of life given to a Transformer by the Matrix.The Targetmaster partner of the Autobot Hot Rod, called… … Wikipedia
Spread Option — A type of option that derives its value from the difference between the prices of two or more assets. Spread options can be written on all types of financial products including equities, bonds and currencies. This type of position can be… … Investment dictionary
Global spread of H5N1 in 2007 — The global spread of (highly pathogenic) H5N1 in birds is considered a significant pandemic threat.While prior H5N1 strains have been known, they were significantly different from the current H5N1 strain on a genetic level, making the global… … Wikipedia
Intermittent energy source — An intermittent energy source is any source of energy that is not continuously available due to some factor outside direct control. The intermittent source may be quite predictable, for example, tidal power, but cannot be dispatched to meet the… … Wikipedia
Demand response — This article is about the electrical concept. For the transport concept, see Demand responsive transport. A clothes dryer using a demand response switch to reduce peak demand In electricity grids, demand response (DR) is similar to dynamic demand … Wikipedia
National Grid (Great Britain) — For the UK Ordnance Survey National Grid for mapping co ordinates in Great Britain, see Ordnance Survey National Grid. 400 kV power line in Cheshire The National Grid is the high voltage electric power transmission network in … Wikipedia