What is the spark spread?
The spark spread represents the theoretical gross profit margin for a power plant. The spark spread is the difference between the cost of natural gas and the cost of electricity. If the cost of fuel becomes higher than the cost of electricity, then power plants will shut down until the market corrects itself with a shortage of electricity and, therefore, a higher price. Therefore, electricity prices are dependent on the cost of natural gas. If fuel costs increase, then electricity prices will follow. The spark spread will typically be a positive number. This prevents a power plant or cogeneration plant from becoming no longer feasible due to increased fuel costs. Wholesale and retail electricity costs will follow natural gas costs since a great deal of power available on the spot market is generated from natural gas.
