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Dark Spread Swap


An energy swap that involves the exchange of the dark spread, i.e., the variable primary energy price of coal and the variable electricity price between the parties to the contract. More generally, the coal price is increasingly being linked to other energy prices and market developments, such as the price of a specific country’s power, any sudden increase or decrease of CO2 prices, or performance of specific oil stocks. This swap can be traded directly, were utilities active in the financial market can buy physical coal on the basis of the margin they can lock in on the correspondent financial swap or on the dark spread they can attain. The market is moving in a direction that makes the difference between the spark spread (the gross margin of a gas-fired power plant) and the dark spreads more transparent and easier to employ as a basis for coal supply contracts.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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