Spark spread

A measurement of the difference between the price that a generator can obtain from selling one megawatt hour (MWh) of electricity and the cost of the natural gas needed to generate the MWh of electricity. Spark spread is a measure of potential profit for generating electricity on a particular day.

A key component in the spark spread equation is the heat rate (measure of efficiency) of the generating unit. A common measure for heat rate used in the trade press is 7,000 Btu/kWh. This heat rate is broadly representative of the efficiency of newer natural gas combined-cycle power plants. (By way of comparison, a plant that has a 50% efficiency rate has a heat rate of 6,824 Btu/kWh.) The most efficient natural gas combined-cycle power plants have heat rates somewhat below the 7,000 Btu/kWh threshold; they can make money even when the implied (breakeven) heat rate is a little below 7,000 Btu/kWh. Conversely, as the level of plant efficiency decreases, the spark spread diminishes—thus, older, less efficient plants have lower spark spreads than those with a heat rate of 7,000 Btu/kWh.