Spark Spread

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DEFINITION of 'Spark Spread'

The difference between the market price of electricity and its cost of production. The spark spread can be negative or positive. If it is negative, the utility company loses money, while if it is positive, the utility company makes money. This measure is important because it helps utility companies determine their bottom lines (profits). If the spark spread is small on a particular day, electricity production might be delayed until a more profitable spread arises.

BREAKING DOWN 'Spark Spread'

"Spark spread" is also the name of a trading strategy based on differences in the price of electricity and its cost of production. Investors can profit from changes in the spark spread through over-the-counter trading in electricity contracts. Energy derivatives allow investors to hedge against or speculate on changes in electricity prices.


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RELATED FAQS
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    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  3. To what extent do seasonal factors influence the utilities sector?

    Seasonal factors have a large impact on the utilities sector, with a significant increase in demand during the summer and ... Read Full Answer >>
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    Some of the world's largest utility companies, by market capitalization, are Duke Energy (U.S.), GDF Suez (France) and the ... Read Full Answer >>
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