What is a spark spread?
The spark spread is the difference between the wholesale power price ($/MWh) and the cost of natural gas needed to generate that power — expressed in $/MWh using the plant’s heat rate. It is a margin indicator for gas-fired power plants: a positive spread means gross margin per MWh; a negative spread means the plant would lose money on fuel alone. The name refers to the “spark” that turns gas into electricity.
How it’s calculated
Units: Power is quoted in $/MWh; natural gas in $/MMBtu; heat rate in MMBtu/MWh (how much gas is needed per MWh of electricity).
Formula: Fuel cost per MWh = gas price × heat rate. The spark spread is power price minus that fuel cost.
Spark spread ($/MWh) = Power price ($/MWh) − Fuel cost ($/MWh)
Heat rate: Modern combined-cycle gas turbines (CCGT) often have a heat rate around 7 MMBtu/MWh (about 50% efficiency). Lower heat rate = more efficient; older or peaker plants may use 9–10+ MMBtu/MWh.
Why it matters
Generators use the spark spread to decide when to run gas plants and to hedge (e.g. sell power, buy gas). Traders trade spark spreads as a single product (power minus gas × heat rate). Analysts use it to compare gas-fired profitability across regions and over time.