Contract for Difference

A financial agreement used to manage price risks between two parties. In the context of energy and carbon markets, a CfD is typically a contract between a government and a private entity, such as an energy producer. The agreement ensures that the producer receives a fixed price for their output (e.g., electricity) regardless of market fluctuations. If the market price is lower than the agreed fixed price, the government pays the difference; if it's higher, the producer pays the difference to the government. This mechanism helps stabilize revenues for energy projects, particularly in renewable energy sectors, and supports investment in low-carbon technologies.