Clean generation spread
spread = P_power - P_fuel / eta - EF P_CO2The spread subtracts fuel and emissions input costs needed to produce one MWh of power.
Power & Commodities
Spark and Dark Spreads
Spark and dark spreads measure the margin from turning fuel into power, net of efficiency and CO₂ costs.
Mental model
A spread measures the economics of converting fuel into power after efficiency and emissions costs.
The spark spread compares power prices to gas costs adjusted for plant efficiency and carbon costs.
Dark spreads play the same role for coal-fired generation; both drive the value of thermal plants.
Explore the mechanism
What operating margin remains after converting fuel and emissions inputs into one unit of power?
This figure compares spark and dark spreads for gas and coal plants. Fuel and CO₂ costs stack into a generation cost bar, and the spread is the margin between power price and that bar. Use the sliders to move fuel, CO₂, and efficiency and see how plant profitability responds.
P = 120 €/MWh · CO₂ = 80 €/t
Numbers
Gas total cost ≈ 104.9 €/MWh · spark spread +15.1 €/MWh
Coal total cost ≈ 124.6 €/MWh · dark spread -4.6 €/MWh
Interpretation
Spark and dark spreads are gross generation margins: power price minus the cost of fuel and CO₂ per MWh. Efficiency shrinks the fuel term; higher emission factors amplify the CO₂ term.
A positive spread means the plant is in the money, subject to operating and flexibility constraints. Structurally, tolling contracts and generation assets are options on these spreads, so any risk or hedging analysis should start by asking which factors move fuel cost, CO₂ cost, and power price together.
UNDERSTAND
What to notice
Tolling and generation assets are effectively options on these spreads, constrained by capacity and operating limits.
The quantitative structure
Notation
P_power- power price per MWh
P_fuel- fuel price per fuel-energy unit
eta- plant efficiency
P_CO2- carbon price
EF- emissions factor
A small example
A clean spark spread
Power is 100/MWh, gas is 30 per thermal MWh, efficiency is 50%, and carbon cost is 8/MWh.
- Fuel cost per electric MWh is 30 / 0.50 = 60.
- Add carbon cost: 60 + 8 = 68.
- Spread is 100 - 68 = 32/MWh.
ResultThe simplified clean spark spread is 32/MWh before other variable and start-up costs.
Where it appears
- evaluating gas- and coal-fired generation
- hedging plant gross margin
- screening dispatch economics
Where the intuition breaks
What this view leaves out
- A simple spread omits start-up costs, ramping, outages, variable operations, location basis, and nonlinear efficiency.
Where this concept sits
Follow the strongest prerequisites, applications, extensions, and contrasts.
Connections for Spark and Dark Spreads
Spark and Dark SpreadsYOU ARE HERE
Built onMerit Order and Supply StackSpark and dark spreads compare power prices with fuel and carbon costs of marginal thermal generation.
Supported byPower–Gas–CO₂ Correlation StructureThe joint behaviour of power, fuel and carbon prices drives the distribution of generation spreads.
UsesForwards and Futures Pricing (Cost of Carry)Forward spark and dark spreads are constructed from forward power, fuel and carbon prices.
Built on · Merit Order and Supply Stack
Spark and dark spreads compare power prices with fuel and carbon costs of marginal thermal generation.
Explore concept →