The first brokered UK dark spread has been traded through UK-based brokerage Spectron. The trade, between Sempra and Scottish Power was a summer 2006 deal, representing 5,000 tonnes of coal (API#2) versus 15 MW of electricity. Spectron said to its knowledge, this was the first brokered dark spread in Europe.
Dark spreads represent the generating margin of coal-fired power stations and are calculated from the difference between power prices and coal prices, adjusted for fuel efficiency. "An efficiency ratio of 31.38% was used in the trade and looks set to become the standard, as this corresponds to a conversion rate of exactly 15 MW for every 5,000 tonnes of coal," Spectron said in a statement.
Dark spread interest has been steadily growing as traders have sought hedging and risk management tools for their coal and power exposures. For many, it is also a natural progression from trading the spark (gas to power) spread market, which has seen liquidity swell over the past year.
"The dark spread is of prime interest to our customers and the development of a standard tradable product was a process we were keen to be a part of," said Polly Stepan, head of UK power at Spectron.
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