Spark spread

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The spark spread is the theoretical net income of a gas-fired power plant from selling a unit of electricity, having bought the fuel required to produce this unit of electricity. All other costs (operation and maintenance, capital and other financial costs) must be covered from the spark spread.

The term dark spread refers to the similarly defined difference between cash streams (spread) for coal-fired power plants. These indicators of power plant economics are useful for tracing energy markets. For operating or investment decisions published "spread" data are not applicable. Local market conditions, actual plant efficiencies and other plant costs have to be considered.

Further definition of clean spread indicators include the price of carbon dioxide emission allowances (see: Emission trading).


Contents

[edit] Definition of spark spread

Spark spread = Price of Electricity - (Price of Gas / Plant Electric Efficiency)

Both prices in the above formula must be in the same currency and must refer to the same energy unit (usually MWh), plant efficiency being a dimensionless number.

A precise definition of a spark spread that has to be given by the source publishing such indicators. Definitions should specify energy (electricity and fuel) prices considered (delivery point & conditions) and the plant efficiency used for the calculation. Also, any plant operating costs that may be included should be stated. (see: Methodology of Powernext).

Typically, an efficiency of 0.5 (50 %) is considered for gas fired plants, and 0.38 (38%) for coal fired plants Methodology of Powernext). In the UK, an unexplained non-rounded efficiency of 49.13% is used for calculating the spark spread.

As of August 2006,UK dark spreads were in the range of 10-30 £/MWh, while UK spark spreads were in the range of 4-9 £/MWh.

[edit] Clean spread

In countries that have ratified the Kyoto protocol, generators have to consider also the cost of carbon dioxide emission allowances that will be under a cap and trade regime. Emission trading has since January 2005 started in the EU.

A clean spark spread represents the net revenue a generator makes from selling power, having bought gas and the required number of carbon allowances. Whereas part of the carbon allowances is provided to the power plant operators free of charge, any additional production of electricity will require purchase of carbon allowances.

Clean dark spread refers to an analogous indicator for coal fired generation of electricity.

[edit] Spark spread as loss of revenue

Spark spread can be used to assess the loss of revenue if the power station is switched from a normal running scenario to one they are held in reserve say to provide power when a large population of wind or renew-ables becomes unnable to generate.

In theory, the power station operator would be indifferent to such non running as long as he was paid the spread he would have earned during the normally expected number of hour run. In fact if paid the expected Spark Spread for the hours he had expected to run before the wind farms were built, and his station did not run, the operator would be better off, because he would not incur the variable operating and maintenance costs, i.e. O&M costs which are proportional to the electric energy produced.

An assessment of the lost revenues is needed if some power plants, such as wind turbines, have absolute priority (must run plants). A dispatching authority will in this case order the other plants to decrease power. Normally, plant operators are entitled to receive compensation for such interventions. In a competitive electricity market the situation can be handled by a balancing mechanism, in which any unbalance from the schedule (typically a day-ahead schedule) is penalised, either using the price from a balancing market or a calculated price.

[edit] Spark spread as cost of replacement power for intermittent renew-ables

In some opinion http://eeru.open.ac.uk/conferences.htm#jan06 spark spread is a good indication of the likely cost of retaining the existing mix of power station ready to make up any short fall in power from say wind turbines or other renew-ables. This is because if the power stations are paid the spark spread it would have earned for the kWh that hitherto it would have generated it would be no worse off. In it would in fact be slightly better of since variable O and M costs would be avoided.

Thus since UK spark spreads were in the range of 4-9 £/MWh - on average £7.5/MWh, or 0.75 p/kWh, we can asses the likely cost of relegating existing power stations to a standby role for a large penetration of renew-ables as being around 0.75p/kWh.Engineman 14:52, 19 November 2006 (UTC)


See Triads http://en.wikipedia.org/wiki/National_Grid_UK#Triad_Demand

[edit] External links

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