CHP – time to buy gas and sell electricity for Q1 2021?

22 Dec

The Spark Spread for Q1 2021 is the highest it has been in the last 3 months. Of course, it could get better (the joy of commodity markets) but it could also get worse. What is important is:

Understanding what it means for your CHP.
Tracking it over time to identify ‘tempting’ opportunities to fix.

What is the Spark Spread?

If you have a natural gas fuelled CHP and operating hours are driven very much by heat demand rather than electricity the financial benefits are directly linked to what you pay for gas vs. what you sell the electricity for. This is known as the Spark Spread, more precisely it is:

The value of the electricity MINUS the cost of the gas used to generate it.

Your own personal Spark Spread therefore depends on the electrical efficiency of your CHP. For a relatively modern, well maintained CHP the electrical efficiency should be c. 40%. So taking yesterday's prices:

Gas is 46p/Th = £15.69/MWh.
To generate 1MWh of electricity you will burn 2.5MWh of gas at a cost of £39.23
Peak electricity is £65.95/MWh.
So the Spark Spread is £65.95 - £39.23 = £26.72/MWh

What about other running costs?

Of course there are many other operating costs associated with CHP. If your CHP is >2MWe there is Carbon Price Support (CPS). Your installation might be in the EU Emissions Trading Scheme (EUETS) which will soon become the UKETS. The price of gas quoted in energy market reports is ‘on the beach’ i.e. excludes transport costs. The value of the electricity excludes any Embedded Benefits. Also, let’s not forget CHP Operation and Maintenance costs……..

This is why I recomend producing a detailed cost model for your own CHP, including your own site-specific details. But, monitoring the Spark Spread can be a useful prompt for you to review the figures and decide if ‘now’ is a good time to lock in an operating margin for your CHP.

If you need help with anything from gas and electricity contract negotiation and operating cost models to CPS and CHPQA returns get in touch on 07971111053 or tim@nowthenenergy.co.uk