Spark spread

Okay kiddo, do you remember that your house needs electricity to turn on the lights, TV, and computer? The electricity comes from power plants that use different types of fuel like natural gas, coal, or oil to generate it. Remember how we talked about how we need to pay for things we buy? Well, the power companies also have to pay for the fuel they use to generate the electricity we use.

Now, imagine you are working in a power company and you have to decide which fuel to use to generate electricity. You know that each type of fuel costs a different amount, right? So, you need to compare the cost of fuel with the price you can sell the electricity for. The difference between the cost of fuel and the revenue you get from selling the electricity is what we call the spark spread.

Spark spread is a formula you use to calculate how much profit you will make from generating electricity. It is calculated using the price of natural gas, coal or oil and the price of electricity. A high spark spread means you will make more money generating electricity, and a low spark spread means you will make less money.

For example, let's say the price of natural gas is low, and the price of electricity is high, then the spark spread will be high, and the power company will make a huge profit. But if the price of natural gas is high, and the price of electricity is low, the spark spread will be low and the power company will make less money.

In summary, spark spread is a way to measure the profitability of generating electricity using different types of fuel. It is essential for power companies to use spark spread to make sure they are making money while providing electricity to us.