Clean Spark Spread
Clean Spark Spread measures the profitability of gas fired electricity generation based on the variable cost of inputs (gas and carbon allowances) and the value of the output (electricity).
It is expressed by the formula:
Clean Spark Spread = Pelectricity − [Pgas x 1/ρgas + PCO2 x Egas]
where the symbols stand for:
- Pelectricity - the price of electricity per mega watt hour (MWh) of electricity,
- Pgas - the price of gas,
- ρgas - the thermal efficiency of a power plant,
- PCO2 - the price of CO2 per ton,
- Egas - emissions and is given in terms of tons of CO2 emitted per MWh of electricity produced from gas.
One more factor to be accounted for in the relevant calculations - given that emissions are priced in € while gas and power can be priced in different currencies (specific to the country in question) - is FX.
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LinksIn general, spark spreads are indicative prices giving the average difference between the cost of gas and the equivalent price of electricity on any given day.
Despite growing sustainability trends, gas is still among major types of fuel used for electricity production and is needed as a reliable (not intermittent) source of energy.
The spark spread is intended to cover operating expenses for power production as a whole to be profitable. The interaction of Clean Spark Spread and Clean Dark Spread is one of the main short term drivers of carbon prices.
The values of ρgas in practice are specific to individual power plants and fall in most cases between 50%-60%. Gas in general has higher price of fuel per MWh than coal, in return gas fired power plants have higher thermal efficiency and coal is about twice as polluting per MWh of electricity produced as gas. Hence, depending on current market situation and the value for relevant spreads, both fuels may play a role in powering the electricity system at issue.