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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