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Glossary · Energy industry & energy transition

Clean Spark Spread

Clean spark spread gas-fired power plant electricity market natural gas EU Emissions Trading Carbon price power plant dispatch Contribution margin

The clean spark spread is the calculated margin of a gas-fired power plant per megawatt hour of electricity generated. Fuel costs and the costs of CO₂ allowances are deducted. The indicator compares the achievable electricity price with the two most important variable costs of generating electricity from natural gas. If the value is positive, a surplus remains after gas and emission allowances, which can help cover other costs. If it is negative, electricity revenues alone are not enough to pay for gas and allowances.

Formula and units

The usual unit is euros per megawatt hour of electrical energy (€/MWh_el). Three markets feed into the indicator: the electricity market, the gas market and the market for emission allowances under the EU Emissions Trading System. In simplified terms: clean spark spread = electricity price − gas price ÷ electrical efficiency − CO₂ price × emission factor of gas ÷ electrical efficiency. Electricity and gas prices must be stated in the same currency and the same energy unit. If gas or electricity is traded outside the euro area, the exchange rate must also be taken into account, because allowances are traded in euros.

The efficiency indicates how much gas energy is needed for one megawatt hour of electricity. A power plant with 50 percent efficiency needs two megawatt hours of gas energy for one megawatt hour of electricity. For real gas-fired power plants it is usually between about 50 and 60 percent. The CO₂ costs result from the emission factor of natural gas. According to the German Environment Agency (Umweltbundesamt), it is about 55.7 to 55.9 tonnes of CO₂ per terajoule for natural gas used in Germany, based on the net calorific value. The IPCC default value is 56.1 t CO₂/TJ. Converted, this is around 0.20 tonnes of CO₂ per megawatt hour of gas energy. At 50 percent efficiency, this means a good 0.4 tonnes of CO₂ per megawatt hour of electricity.

A common calculation error concerns the reference basis of the energy quantities. In the gas industry, natural gas is generally billed on the basis of the gross calorific value (Hs). Power plant efficiencies and emission factors, by contrast, usually refer to the net calorific value (Hi). For natural gas, the gross calorific value is roughly 10 to 11 percent higher than the net calorific value. Anyone who mixes the two reference bases underestimates the fuel and CO₂ costs per megawatt hour of electricity by about this order of magnitude. A sound calculation therefore always states which basis the gas price, efficiency and emission factor refer to.

Calculation example

The following values are freely chosen and are not current market prices: electricity costs 100 €/MWh, gas 35 €/MWh (based on net calorific value), and a CO₂ allowance €75 per tonne. An efficient combined-cycle gas turbine power plant with 55 percent efficiency needs about 1.82 MWh of gas per MWh of electricity. That costs about €63.6. This produces around 0.37 tonnes of CO₂, costing about €27.5. The clean spark spread is therefore around +€9/MWh. An open-cycle gas turbine with 38 percent efficiency has, at the same prices, gas costs of about €92 and CO₂ costs of about €40. Its spread is around −€32/MWh. The example shows that the spread always applies only to an assumed type of power plant. Without a stated efficiency, it remains unclear which plant is actually being assessed.

Published spread indices work with fixed standard assumptions. A widespread convention from the British market uses an efficiency of a good 49 percent and a factor of 0.411 tonnes of CO₂ per megawatt hour of electricity. Such index values are suitable as a market indicator. They say only limited things about the margin of a specific plant.

Distinction from spark spread and clean dark spread

The simple spark spread deducts only fuel costs. The addition "clean" does not mean that the power plant operates emission-free. It only means that the costs of emissions are included in the calculation. Burning natural gas still causes CO₂, even if per kilowatt hour of electricity it is usually significantly less than coal. The clean spark spread is therefore an economic indicator and not an environmental assessment. It does not capture upstream emissions, such as methane losses during extraction and transport.

The counterpart for coal-fired power plants is the clean dark spread. If the CO₂ price rises, this affects coal-fired plants more strongly than gas-fired plants because of their higher emission factor. If, on the other hand, the gas price rises sharply, gas-fired plants lose competitiveness despite lower emissions. Where gas and coal compete for position in the dispatch order, the interplay of the two spreads is regarded as an important short-term driver of CO₂ prices. Conversely too, the relative position does not depend on a single variable but on fuel prices, efficiencies and allowance prices together.

Legal framework of CO₂ costs

The fact that CO₂ costs enter the calculation at all follows, in the EU, from the Emissions Trading Directive 2003/87/EC. Under Annex I, the combustion of fuels in installations with a total rated thermal input of more than 20 MW falls under emissions trading. Installations for the incineration of hazardous waste or municipal waste are excluded. The consolidated version provides for a possible lowering of this threshold from 2031. In Germany, the Greenhouse Gas Emissions Trading Act (TEHG) implements this. It covers combustion units with a combined rated thermal input of 20 MW or more in one installation. For larger gas-fired power plants, the formula with the EU allowance price is therefore appropriate. For smaller installations below this threshold, the EU allowance price does not apply directly.

Significance for power plant dispatch

The clean spark spread represents one part of the short-term dispatch decision. Operators usually offer electricity in such a way that at least the variable costs are covered. These include fuel, allowances and other short-term items such as variable operating and maintenance costs. Allowances count as costs even if they are already in stock, because otherwise they could be sold on the market. Economists speak of opportunity costs here.

Nevertheless, the indicator alone is not sufficient for actual operation:

  • Start-up costs and start-up times: A spread that is positive in the short term does not justify a start if the expected run time does not cover the start-up costs.

  • Minimum load and technical limits: A power plant can keep running despite individual hours with a negative spread if shutting down and restarting would be more expensive.

  • Combined heat and power: If heat is extracted at the same time, heat revenues and heat supply obligations change the calculation considerably.

  • Other revenue sources: Income from balancing energy or redispatch is not included in the simple electricity sales price.

Not a measure of overall profitability

A positive clean spark spread does not yet mean that a gas-fired power plant pays off overall or that building it is worthwhile. Investment and capital costs, fixed costs, personnel, maintenance, grid connection, gas capacity costs, availability risks and regulatory requirements are missing from the indicator. It describes rather a short-term contribution margin of an existing plant. Anyone who wants to invest needs expectations over many years: about operating hours, price fluctuations, political rules and possible revenues from other markets.

Merit order, residual load and time dependence

In the electricity market, the clean spark spread is closely linked to the merit order and marginal costs. In hours with high demand and little wind and solar power, gas-fired power plants often set the price. The gas price and CO₂ price then act directly on the electricity price. If a less efficient gas-fired power plant sets the price, more efficient plants achieve a positive spread. If the plant itself sets the price, it only just covers its short-term costs.

With more wind and solar power, the informative value of the indicator changes. These plants have very low short-term marginal costs. In hours with high feed-in, the electricity price falls, sometimes to zero or below. The revenue opportunities of gas-fired power plants therefore shift to hours with high residual load. The spread thus becomes strongly time-dependent. Annual averages conceal whether the margin is high in a few scarce hours or remains low over many hours.

Security of supply and market design

An electricity system may need gas-fired power plants as flexible capacity even though they run only a few hours a year. Low or frequently negative spreads can put existing plants under economic pressure or prevent investment. This does not automatically imply a supply problem. Storage, load shifting, grid expansion, imports and other power plants can also contribute. However, the indicator shows whether the energy-only market generates sufficient short-term revenues for dispatchable capacity. If this is not the case, the so-called missing money problem and capacity mechanisms or a strategic reserve are discussed. The grid reserve must be distinguished from these: it serves mainly to resolve grid congestion and not to safeguard the market as a whole.

The spread makes the value of flexibility visible only through the achievable electricity price. If the market allows high prices in scarcity hours, flexibility is remunerated. If price caps, interventions or incomplete market rules limit scarcity signals, the spread reflects the value of the capacity held available only partially.

Proper use of the term

In debates, a high spread is often read as evidence of excessive profits and a low one as evidence of unprofitability. Both interpretations can be correct if the period, power plant type and cost assumptions are clearly stated. Comparisons that mix different gas prices, efficiencies, energy bases or CO₂ prices are problematic. Prices on the forward market and the spot market must also not simply be equated. Many operators hedge electricity, gas and allowances in advance. A spread based on current spot prices then does not describe the margin actually achieved. The indicator only becomes reliable when efficiency, price basis, period and cost components are stated. It then shows well how the electricity price, gas price, CO₂ price and power plant dispatch are related.

Sources

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Edited by eCMS on 11.11.2026 17:21

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