Enter Values
Spark Spread Formula
Spark Spread Analysis
Formula Breakdown
Dispatch Signal Guide
Based on spark spread (before carbon costs)
| Signal | Spark Spread | Meaning |
|---|---|---|
| Dispatch | > $10/MWh | Profitable to generate; dispatch the plant |
| Marginal | $0 to $10/MWh | Borderline; consider fixed costs and contracts |
| Do Not Run | < $0/MWh | Losing money on fuel; do not dispatch |
Model Assumptions
- Heat rate measures plant efficiency (Btu of gas per kWh of electricity)
- Carbon intensity assumed at 0.4 tonnes CO2 per MWh for natural gas
- Excludes start-up costs, variable O&M, transmission, and capacity payments
- Spark spread is a gross margin proxy, not net profit
- Dispatch signal is based on spark spread (before carbon costs)
- Educational purposes only - actual dispatch decisions involve more factors
Understanding Spark Spreads
What is the Spark Spread?
The spark spread is the theoretical gross margin of a gas-fired power plant. It represents the difference between the revenue from selling electricity and the cost of the natural gas needed to generate that electricity. A positive spark spread means the plant can cover its fuel costs; a negative spread means running the plant would lose money on fuel alone.
Result in $/MWh after unit conversion
Heat Rate Explained
Heat rate measures how efficiently a power plant converts fuel into electricity. It's expressed in BTUs of fuel per kilowatt-hour of electricity produced. Lower heat rates mean higher efficiency - the plant needs less gas to produce each unit of power.
- Combined-Cycle Gas Turbine (CCGT): 6,500-7,500 Btu/kWh - most efficient, baseload operation
- Simple-Cycle Peaker: 9,000-11,000 Btu/kWh - less efficient, used during peak demand
- Older Steam Turbines: 10,000+ Btu/kWh - least efficient, often retired first
Clean Spark Spread
The clean spark spread adjusts for carbon emission costs. In markets with carbon pricing (EU ETS, California cap-and-trade, RGGI), generators must account for the cost of CO2 emissions. Natural gas plants typically emit about 0.4 tonnes of CO2 per MWh generated.
Carbon intensity of 0.4 tCO2/MWh is typical for natural gas
Dispatch vs Do Not Run
Dispatch
Spark > $10/MWh
Plant is profitable on a variable cost basis. Generate electricity and sell into the market. Higher spreads mean greater profitability.
Do Not Run
Spark < $0/MWh
Running the plant would lose money on fuel costs alone. Keep the plant offline unless contractually obligated or system reliability requires it.
When to Use This Calculator
Use this calculator to evaluate gas-fired power plant economics:
- Analyzing whether to dispatch a generation asset
- Comparing profitability across plants with different heat rates
- Evaluating the impact of carbon pricing on plant economics
- Understanding power market fundamentals and gas-to-power spreads
Frequently Asked Questions
Disclaimer
This calculator is for educational purposes only and provides a simplified gross margin analysis for gas-fired power generation. Actual dispatch decisions involve additional factors including start-up costs, minimum run times, ancillary services revenue, capacity payments, transmission constraints, and contractual obligations. This tool should not be used as the sole basis for operational or investment decisions.
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