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Clean Dark Spread

Clean dark spread coal-fired power plant electricity market coal EU Emissions Trading Carbon price power plant dispatch Contribution margin

Definition

The clean dark spread is the calculated short-term margin of a coal-fired power plant per megawatt hour of electricity generated. The costs of coal and of CO₂ allowances are deducted. The indicator therefore shows how much of the electricity price remains after the two most important variable costs of coal-fired generation have been paid. It is usually stated in euros per megawatt hour of electrical energy (€/MWh). In business terms, it is a simplified contribution margin for a standardised power plant unit. Like its sister indicators, it is a calculation convention. Its exact value therefore depends on the prices, efficiencies and conversion factors used by the respective data provider.

The term links three markets: the wholesale electricity market, the market for power plant coal and the market for emission allowances under the EU Emissions Trading System. If the electricity price rises, the spread widens. If the coal price or the CO₂ price rises, it narrows. Combustion installations with a total rated thermal input of more than 20 MW fall under the EU Emissions Trading Directive 2003/87/EC. Installations for the incineration of hazardous or municipal waste are excluded. This covers practically all coal-fired power plants. For every tonne of CO₂ emitted, they must surrender an allowance. According to the case law of the Court of Justice of the EU (CJEU), electricity generators must in principle obtain these allowances through auctions instead of receiving them free of charge.

Calculation

In simplified terms: clean dark spread = electricity price − coal costs per MWh of electricity − CO₂ costs per MWh of electricity. The coal costs per MWh of electricity result from the coal price per MWh of fuel energy divided by the electrical efficiency. The CO₂ costs result from the fuel-related emission factor divided by the efficiency, multiplied by the allowance price. The dark spread without the qualifier “clean” includes only the electricity price and fuel costs.

Conventions have become established for published reference values. In its 2013 methodology, the price service ICIS describes the following approach: the basis is the price of imported coal delivered to Amsterdam-Rotterdam-Antwerp (CIF ARA, often referred to as API2) in US dollars per tonne. This price is converted into local currency and divided by 6.978 MWh per tonne, which corresponds to a calorific value of 6,000 kcal/kg. The standard efficiency is 35 per cent. For CO₂, ICIS uses the IPCC factor of 0.34056 t CO₂ per MWh of fuel energy (based on the lower heating value). This results in around 0.973 t CO₂ per MWh of electricity. S&P Global Platts publishes dark spreads for efficiencies of 35 and 45 per cent and likewise uses the conversion factor 6.978. Because real plants differ in efficiency, coal quality and procurement, such values are benchmarks and not plant data.

Worked example

For a deliberately simplified example, the following assumptions apply: the electricity price is €100/MWh, coal costs €90/t and an emission allowance costs €70/t CO₂. The figures serve only as an illustration and are not market data. €90/t divided by 6.978 MWh/t gives about €12.90 per MWh of fuel energy. At an efficiency of 35 per cent, the coal for one MWh of electricity therefore costs around €36.85. The CO₂ costs are 0.973 t times €70, and thus around €68.11. The clean dark spread is about −€4.96/MWh. A unit with 45 per cent efficiency needs less coal for the same quantity of electricity (around €28.66) and emits less CO₂ (around 0.757 t, or €52.98). Its spread would be about +€18.36/MWh. The example shows that at high CO₂ prices, efficiency largely determines whether a coal unit covers its variable costs.

Hard coal, lignite and the word “clean”

“Clean” here does not mean that coal-fired electricity is clean. The qualifier merely indicates that CO₂ costs are included. Market-standard clean dark spreads refer to exchange-traded imported hard coal. For lignite there is no comparable market price, because it is usually mined in open-cast mines directly next to the power plant and is not traded internationally. Analyses for lignite units therefore have to work with estimated extraction and supply costs. One statement in the previous version needs to be corrected from a technical standpoint: lignite does not cause higher emissions per MWh of electricity because its energy content per kilogram is low. What matters is that it releases more CO₂ per unit of fuel energy. Depending on the mining area and year, the German Environment Agency (Umweltbundesamt) reports around 103 to 114 t CO₂/TJ for German raw lignites, and around 93 to 94 t CO₂/TJ for raw hard coal in power plants. In addition, older units often have lower efficiencies.

Comparison with the clean spark spread and the merit order

The corresponding indicator for gas-fired power plants is the clean spark spread. ICIS uses a standard efficiency of 49.13 per cent and 0.18404 t CO₂ per MWh of gas (based on the higher heating value). This gives around 0.37 t CO₂ per MWh of electricity, and thus clearly less than the just under 0.97 t of a coal unit with 35 per cent efficiency. If the CO₂ price rises, the clean dark spread therefore falls about two and a half times as much as the clean spark spread. This relationship helps determine where coal-fired and gas-fired power plants stand in the merit order. If the clean dark spread falls permanently below the clean spark spread, the use of coal may shift to gas. However, this presupposes that enough gas-fired power plants are available and that gas prices do not work against it.

Limits of the indicator

The clean dark spread does not measure the full profitability of a power plant. It takes into account neither investment and capital costs nor fixed operating and personnel costs, maintenance or decommissioning obligations. Other variable costs are also missing, for example for auxiliary materials, flue gas cleaning, logistics or grid charges. ICIS expressly points out that operating costs beyond fuel and CO₂ are not included. A positive spread therefore only shows that fuel and CO₂ costs are covered in the hour, day or forward product under consideration. It does not guarantee that a power plant makes a profit over the year.

Actual power plant dispatch likewise does not follow automatically from a single spread value. Coal units have minimum loads, long start-up times, start-up costs and poorer efficiency in partial-load operation. If the spread is positive for only a few hours, a start can still be uneconomic. Conversely, a unit may keep running at a slightly negative spread if shutting down and restarting would be more expensive. In addition, operators often hedge electricity, coal and allowances early on the forward market. Their actual margin can then deviate considerably from the current daily spread. For the dispatch decision, what counts is the current replacement value of an allowance. Even an allowance bought cheaply earlier or received free of charge has opportunity costs, because it could be sold instead.

The spread also depends strongly on the situation in the power system. In hours with high residual load, that is, high demand with little wind and solar power, coal-fired power plants can set the price. With high renewable feed-in, by contrast, the electricity price falls. The spread then becomes small or negative, and coal units are pushed out of the market. Grid bottlenecks and available power plant capacity change the picture further.

Context for security of supply and the coal phase-out

A low or negative clean dark spread shows that market operation is unattractive at the assumed prices. It does not say whether a power plant is needed for system security, for example in the grid reserve or for redispatch. In such cases, revenues and costs arise outside normal wholesale trading. A persistently weak spread can influence maintenance, investment and decommissioning decisions. How far emissions actually fall, however, also depends on statutory decommissioning paths, the expansion of renewable energy, grids, storage, flexibility and demand.

The indicator is most informative over time and in comparison with the clean spark spread. If it is positive over a longer period, available coal units are likely to run a lot. If it is frequently negative, they run less often and more likely only at price peaks. There is no direct counterpart for wind and solar plants, because in operation they pay neither for fuel nor for CO₂ allowances. The clean dark spread thus answers a limited but important question: at given market prices, does a typical coal unit cover its costs for fuel and emissions? Anyone who reads it as a complete statement about profit, security of supply or climate impact overstretches the indicator.

Sources

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Edited by eCMS on 11.11.2026 17:17

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