A futures contract that has the spark spread as underlying. This implies that an investor buys or sells the price differential, instead of directly buying or selling either of the two underlying commodities. More specifically, this cash-settled structure is based on buying (selling) electricity futures and simultaneously selling (buying) natural gas futures.
The spark spread, from a generator’s perspective, constitutes the difference between spot market prices for electricity and natural gas, expressed in equivalent terms through the nominal heat rate of a given gas-fired plant. However, and in addition to linking spot electric power prices and gas prices, spark spread futures are instrumental tools for linking spot and forward markets for gas and electricity.
