Clean dark spread (CDS)
Clean Dark Spread (CDS) measures the profitability of coal fired electricity generation based on the variable cost of inputs (coal and carbon allowances) and the value of the output (electricity).
It is expressed by the formula:
Clean Dark Spread = Pelectricity − [Pcoal x 1/ρcoal + PCO2 x Ecoal]
where the symbols stand for:
- Pelectricity - the price of electricity per mega watt hour (MWh) of electricity,
- Pcoal - the price of coal,
- ρcoal - the thermal efficiency of a power plant,
- PCO2 - the price of CO2 per ton,
- Ecoal - emissions and is given in terms of tons of CO2 emitted per MWh of electricity produced from coal.
One more factor to be accounted for in the relevant calculations - given that emissions are priced in € while coal and power can be priced in different currencies (specific to the country in question) - is FX.
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LinksIn general, dark spreads are indicative prices giving the average difference between the cost of coal and the equivalent price of electricity on any given day.
Despite growing sustainability trends, coal is still among major types of fuel used for electricity production and is needed as a reliable (not intermittent) source of energy (nevertheless, the profit from coal-fired electricity production is dubbed ‘dark spread’, the “clean” component acknowledges that the cost of carbon pollution is accounted for).
The dark spread is intended to cover operating expenses for power production as a whole to be profitable. The Clean Dark Spread is one of the main short term drivers of carbon prices.
Thermal efficiency of a plant
The formula for CDS calculations includes an energy conversion factor (ρcoal), i.e. the coal to electricity conversion efficiency of a plant. It generally depends on:
- the age of the power plant,
- the technology used,
- the carbon content of a tonne of coal,
- usage schedules (a coal power plant used intermittently usually has lower efficiency than the one that is operating on a baseload schedule).
The values of ρcoal in practice are specific to individual power plants. Nevertheless, certain approximations (constant factors) are also available for the purpose of the average Clean Dark Spread of a given electricity system, for example a 36% or 39% fuel conversion factor is applied.
The values of ρcoal for individual power plants fall in most cases between 30%-45%.