C6etSolutions             emissionsoffsetsmanagement

The Clean Carbon Spread

EU emission trading commenced in January 2005. Countries covered by the European Union Emissions Trading Scheme insured generators had to consider the cost of carbon dioxide emission allowances that came under the cap and trade regime, resulting in the Clean Spark Spread.

The Clean Spark Spread is calculated using a gas emissions intensity factor of 0.411 tCO2/MWh. Therefore, the clean spark spread is calculated by subtracting the carbon price per tonne (multiplied by 0.411) from the ‘dirty’ spark spread, i.e. Clean Spark Spread = Spark Spread – (Carbon Price*0.411).

Clean Spark Spread

The clean spark spread or "spark green spread" represents the net revenue a generator makes from selling power, having bought gas and the required number of carbon allowances. This spread is calculated by adjusting the cost of natural gas for the efficiency of the generation, and subsequently applying the market cost of procuring or opportunity cost of setting aside an emissions allowance; such as a European Union Allowance (EUA) in the European Union Emissions Trading Scheme (EU ETS).

Let S: spark spread, E: electricity price, G: gas cost, Ng: number of carbon credits necessary to cover gas operation, Pcc: price of a carbon credit.

Then the Clean spark spread is defined as:

Clean Spark Spread =PE -Pg/Nel -Ng x Pcc