The Clean Dark Spread is a key profitability metric for a coal-fired power plant, representing the theoretical margin after subtracting the costs of coal and carbon emission allowances from electricity revenue. It is a critical indicator used by energy traders and policymakers to assess the economic viability of coal power under carbon pricing regulations.
The Clean Dark Spread (CDS) is a fundamental indicator in the energy markets, specifically used to measure the gross profit a power generator can expect from producing electricity using a coal-fired power plant. It provides a real-time snapshot of profitability by comparing the revenue from selling a megawatt-hour (MWh) of electricity to the costs of the required inputs: the coal itself and the mandatory carbon allowances needed to cover the resulting emissions.
This metric is vital for power producers, commodity traders, financial analysts, and policymakers. For a utility company, a positive and high Clean Dark Spread signals that running their coal plants is profitable. Conversely, a low or negative spread indicates that coal generation is economically unviable, incentivizing a switch to other energy sources like natural gas (see Clean Spark Spread) or renewables, or even shutting down the plant. This makes the CDS a powerful barometer for the impact of carbon pricing systems like the EU Emissions Trading System (EU ETS).
The calculation for the Clean Dark Spread incorporates three key variables:
- Electricity Price: The market price for one MWh of wholesale electricity.
- Coal Price: The cost of the physical coal required to generate one MWh of electricity. This is adjusted for the specific thermal efficiency of the power plant (e.g., a 36% efficient plant needs more coal per MWh than a 42% efficient one).
- Carbon Allowance Price: The market price of carbon allowances, such as European Union Allowances (EUA), needed to cover the tonnes of CO₂ emitted during the generation of one MWh. This is the "Clean" component of the spread.
The basic formula is:Clean Dark Spread = Electricity Price – (Coal Cost / Efficiency) – (Emissions Factor * Carbon Price)
Concrete Use Cases
- Operational Decision for a Utility: An energy provider in Germany checks the Clean Dark Spread and the Clean Spark Spread (for natural gas). If the CDS is €-5/MWh and the Clean Spark Spread is €10/MWh, the company will maximize the output of its gas-fired plants and reduce or halt generation from its coal fleet to avoid losses and capture the available profit.
- Investment Analysis for a Homaio User: An investor holding EUAs on Homaio's platform monitors the Clean Dark Spread. They observe that as EUA prices rise, the CDS consistently falls, pushing several coal plants into unprofitability across Europe. This trend validates their investment thesis that rising carbon costs are effectively driving decarbonisation in the power sector, reinforcing the value of their carbon allowance assets.
For more information on the key instruments affecting this spread, you can learn more about the EU Emissions Trading System (EU ETS). For live and historical data, a high-authority source is the European Energy Exchange (EEX) market data page.