Conceptually, the spark spread (SS in megawatt-hours) equals:[3] A more refined version of this calculation may be:[citation needed] While the above equations may be sufficient for a single power plant or electricity provider, more detailed calculations may needed depending on the analysis being performed.
Definitions should specify energy (electricity and fuel) prices considered (delivery point & conditions) and the plant efficiency used for the calculation.
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.
The spark spread value is therefore the power price minus the gas cost divided by 0.4913, i.e.
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 output 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.
The Clean Spark Spreads do not take into account additional generating charges (beyond fuel and carbon), such as operational costs.
At the time of writing (March 2007) there is no liquid Dark Spread traded market in either the UK or Germany.
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.
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 assess 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.