Contract for difference (CFD)
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