Energy Spark Spread

Strategy 14.4: Energy Spark Spread Trading. The spark spread is the theoretical gross margin from converting fuel into electricity: Spark Spread = P_electricity - H * P_fuel where H is the heat rate (MMBtu per MWh, typically 7-10). Trade when the spark spread diverges from its historical mean or the cost of production: - If spark spread is abnormally high: short electricity, long fuel (expect reversion). - If spark spread is abnormally low: long electricity, short fuel. Hedge ratio: h = H * F_electricity / F_fuel Required columns: electricity_price, fuel_price Falls back to a close-based two-asset spread if needed.