1) A long-term swap agreed bilaterally, generally between generators and electricity supply companies, and referenced to prices in the relevant pool. CFDs have been issued by some governments to encourage constructions of particular forms of low-carbon or carbon-free generation such as nuclear, to be used within an otherwise free market mechanism.
2) A short-dated swap agreement used to minimise the basis risk between the daily published Platt’s quote for dated or physical Brent in a specific time window in the future and the forward price quote for a specific month. Settlement of a CFD is based on the published price difference at a designated time.
* see also electricity market reform
Commodity trading and risk management is a subject that is necessarily complicated, and is becoming more so. The Energy Risk Glossary seeks to disentangle and clarify the jargon by providing definitions of commonly used energy and commodity market terms.
These include definitions related to a variety of underlying energy products, as well as technical terms about the many instruments and benchmarks used by energy market participants.
Many of the most recent terms to have been added to our glossary stem from the actions of regulators since the 2008 global financial crisis. The onset of rules, such as the US Dodd-Frank Act and European Market Infrastructure Regulation, has markedly increased the cost and complexity associated with commodity trading. Perhaps they have also increased the need for a handy reference guide such as this.
The glossary is extensively cross-referenced, making for easy and thorough searches. We hope you find the latest edition of the Energy Risk Glossary to be a useful resource.
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