Spark and Dark Spreads
The spark spread is the power price minus the cost of the gas burned to make that power; the dark spread does the same for coal. “Clean” versions also deduct the cost of carbon allowances. Together they approximate a power plant's gross margin.
A gas plant makes money on the gap between what power sells for and what its fuel costs. The spark spread measures that gap; the dark spread does the same for coal.
- Category
- Commodities, Energy and Carbon
- Reading time
- 3 min
- Also called
- Clean spark spread, Clean dark spread, Generation margin
- Updated
Spreads in plain words
The spark spread is the electricity price received minus the cost of the gas needed to make it.1
The dark spread is the same comparison for coal-fired generators.2
A clean spark spread also deducts the emissions allowances needed to generate.3
How to calculate a spark spread
Get the power price
Take the $/MWh price for the period.
Get the fuel price
Take gas in $/MMBtu, per the EIA formula.1
Choose a heat rate
EIA's benchmark is 7,000 Btu/kWh for an efficient combined-cycle unit.1
Compute fuel cost
Multiply the fuel price by the heat rate in MMBtu/MWh.
Subtract
Power price minus fuel cost is the spread.1
Adjust for coal or carbon
EIA uses 10,500 Btu/kWh for the dark spread; subtract allowances for clean spreads.3
Worked examples
Example 1 — Spark spread
$32/MWhHypothetical power $60/MWh, gas $4/MMBtu, heat rate 7 MMBtu/MWh.
| Fuel cost | $4 × 7 = $28/MWh |
| Spark spread | $60 − $28 = $32/MWh |
This follows EIA's equation of power price minus gas price times heat rate.1
Example 2 — Dark spread
$33.75/MWhHypothetical power $60/MWh, coal $2.50/MMBtu, heat rate 10.5 MMBtu/MWh.
| Fuel cost | $2.50 × 10.5 = $26.25/MWh |
| Dark spread | $60 − $26.25 = $33.75/MWh |
EIA uses a 10,500 Btu/kWh heat rate for coal.2
Example 3 — Clean spark spread
−$1.30/MWhFrom Example 1, add carbon: 0.37 t CO₂/MWh at $90/t.
| Carbon cost | 0.37 × $90 = $33.30/MWh |
| Clean spark | $32 − $33.30 = −$1.30/MWh |
Deducting allowance costs, as the clean spark spread does, can turn a positive margin negative.3
Spark vs dark spread
| Aspect | Spark spread | Dark spread |
|---|---|---|
| Fuel | Natural gas | Coal |
| EIA benchmark heat rate | 7,000 Btu/kWh | 10,500 Btu/kWh |
| Carbon intensity | Lower | Higher |
| 'Clean' version | Minus gas-plant allowances | Minus coal-plant allowances |
How traders use spreads
Plant economics
Judge whether running a plant covers fuel.
Spread trades
Trade power against fuel Futures Contract as a pair.
Hedging generation
Generators Hedging margins forward.
Fuel switching
Compare gas and coal to spot switching points.
Advantages and disadvantages
Advantages
- Simple proxy for plant gross margin.
- Standard formula using public prices.
- Lets you compare fuels on one basis.
- Clean versions price carbon in.
Disadvantages
- Ignores operating, start-up and other costs.
- Results depend on the assumed heat rate.
- Very volatile with power prices.
- Location-specific; regional prices differ.
Going deeper
Read as far as you need. Each level builds on the one before it.
The gap
Beginner
Spark spread = power price − gas cost of making it.1
Heat rate matters
Intermediate
Older, less efficient plants have higher heat rates — they burn more gas for each kilowatt-hour — so their spread is thinner.1
Volatility and negatives
Advanced
Spark spreads are more volatile than crack spreads because power prices swing widely, and spreads can turn negative: EIA reports a 2023 dark spread averaging negative $14/MWh.2
Common mistakes
Wrong heat-rate units
Mixing Btu/kWh and MMBtu/MWh (7,000 Btu/kWh = 7 MMBtu/MWh).
Treating it as profit
Forgetting non-fuel costs.
Ignoring carbon
Using dirty spreads where allowances apply.
Comparing regions blindly
Power prices differ by location.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Spark spread = power minus gas cost.
- Dark spread = power minus coal cost.
- Heat rate converts fuel price to $/MWh.
- Clean spreads subtract carbon costs.
- It is a gross margin, not net profit.
Frequently asked questions
Why 7,000 Btu/kWh?
Can spreads be negative?
What is a clean spark spread?
Further learning
- Futures Contract
Power and fuel contracts.
- Hedging
Locking in margins.
- Trading Pair
Trading two legs.
- Volatility
Why spreads swing.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- U.S. Energy Information Administration. An introduction to spark spreads (opens in a new tab) Checked .
- U.S. Energy Information Administration. Spark and dark spreads indicate improved profitability of natural gas, coal power plants (opens in a new tab) Checked .
- SSE Energy Solutions. Energy overview, June 2024 (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.