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Commercial builders and property owners have very specific energy needs to power their operations. Important decisions must be made about the type of energy that is ideal to power buildings and critical systems, whether it’s propane, natural gas, electricity, or a combination of energy sources. Several factors go into this decision – location, resilience, building size and, of course, energy costs. An important consideration for determining energy costs is “spark spread.” Spark spread is the price difference between the local electric utility and other energy sources in a given market. We will illustrate spark spread by comparing electricity and propane.
In many U.S. markets, electricity has high rates, peak pricing, and mandatory brown outs. For commercial operations, it may be a more cost-effective solution to use propane to offset electric demands. The use of propane is particularly viable in states with high electric rates, lower propane rates, and limited electric infrastructure.
Calculating the Economic Value of Spark Spread
Electricity is measured in kilowatts while propane is measured in BTUs. To accurately measure spark spread, we must calculate how many kilowatts are in a BTU. One gallon of propane is equal to 27 kilowatts of electricity or 91,500 BTUs.
Regional Variations and Market Analysis
The cost of electricity and propane can vary by region, state, and even locality. Some regions are more favorable to propane than electricity, and vice versa.
Let’s use Kansas as an example and take the average electric price compared to the average propane price across the state:
- A gallon of propane is $1.79 for one gallon
- The electricity price is 15 cents per kilowatt
- $0.15 x 27 kW = $4.05 for the electric
The electric equivalent of a gallon of propane costs $4.05, while one gallon of propane is just $1.79. This is a $2.26 difference, with a favorable spark spread for propane. Propane may be more expensive in another market, while the electric price is the same, making the spark spread slightly less.
This equation has been performed across the U.S. based on state averages, as shown on this map . The green areas have a more favorable spark spread for propane, the blue areas are moderately favorable for propane, and the yellow areas are neutral or slightly in favor of electricity. It’s important to remember that these are averages and energy prices are constantly in flux. This map demonstrates a snapshot in time, but is useful to understand how spark spread is calculated and the general regions where propane is a favorable energy choice.
Challenges and Considerations in Making Energy Decisions
Ideally you would use local utility bills for the most accurate spark spread calculations. State averages do not provide accurate comparisons as there can be many variations to consider, including geography, population, infrastructure, and more.
Determining a more specific spark spread for your location requires looking at the local utility prices for electricity and comparing that to local propane prices. To account for the true cost of electricity, it’s best to take the entire bill cost at the end of the month and divide that by how many kilowatts were used that month, which provides an apples-to-apples price per kilowatt. Using the monthly bill ensures that taxes, distribution fees, and flat fees for grid upgrades are included in the equation.
Spark spread is just one component of energy decision-making, not the only factor. You must also account for demand or peak charges for electricity in specific municipalities, which can significantly impact spark spread. Certain markets are more favorable than others.
Resilience, dependability, and environmental aspects of different fuel types should also be considered when making energy choices. Propane provides grid relief, as facilities can reduce their reliance on electricity. In turn, this reduces the use of coal and natural gas needed to produce electricity. Propane was declared a clean fuel by the EPA. It has lower carbon emissions than diesel and the average U.S. grid-sourced electricity, further supporting propane’s environmental benefits. Builders in electric-heavy regions can utilize propane to supplement electricity use. Propane can also be used for backup power or dual-fuel systems.
Spark Spread: Comparing Propane Prices and Electric Rates
Other benefits of propane are that it is independent of the electric grid, existing utilities, and infrastructure. Propane is stored in tanks on property, thus providing on-site energy and power generation capabilities. Electricity is generated in power plants and transmitted through power lines. Because propane is generated on-site, with minimal transmission, users enjoy more efficient and cost-effective energy.
When evaluating energy choices for an existing commercial facility or new building, keep these benefits in mind. When making energy decisions about your operation, compare local propane prices and electric rates. Knowing the spark spread calculations will help determine the right energy for your facility.
