The spark spread is a typical metric used to quantify the benefits of combined heat and power (CHP) generation. Based on the difference between gas and electricity prices, it can reveal the savings in $/MWh of running CHP, given by the difference in cost between buying electricity from the grid and generating it onsite with a CHP unit. In calculating the spark spread, the CHP plant’s heat rate is adjusted to account for the improved system efficiency as a result of using the waste heat. At a constant fuel price, the savings due to operating CHP increase as the price of electricity increases. At a constant price of electricity, the savings increase as the fuel price decreases. The best case for a CHP operator is high electricity prices and low fuel prices.
When the spark spread is positive, it is economically beneficial to operate the CHP unit. When the spark spread is negative, the CHP operator is losing money by generating electricity rather than buying directly from the grid. However, if the building has an inflexible heating demand and no other means of generating heat, shutting off CHP generation may not be an option.
Today, most swings in the spark spread are due to fluctuations in natural gas prices. As a result, in some cases CHP is economically viable only seasonally when gas prices are low. It is less common for the spark spread to drift downwards because of falling electricity prices, which in the U.S. have increased steadily or remained constant over the past 50 years. However, increased use of renewable energy, which has a near-zero marginal operating cost, could change this.
Most CHP generators today run at a high capacity factor, constantly producing heat and electricity to capture operational cost savings. However, with increasing use of variable renewable energy like wind and solar photovoltaics, and the adoption of real-time electricity pricing for CHP generators, a constant CHP output may no longer be optimal. There may be times when the CHP generator is either forced by the grid operator to ramp down to avoid over-generation (when renewable generation is high), or when it is simply not economical to run the CHP because the price of grid electricity is so cheap that the spark spread is negative. At these times, the CHP operator will need to have an alternative way to meet heating demand, be it through an electric boiler, heat pump, or with thermal storage.
U.S. Environmental Protection Agency. “Combined Heat and Power.” link