Purpose of Review <p>Contract for Difference (CfD) have been widely adopted across various countries and regions. CfD not only enable market participants to hedge against risks in the electricity spot market but also be used by government to support the development of renewable energy and new technologies, as well as to alleviate many regulatory and external issues such as market power. This review focuses on the mechanism and practice of CfD and the analysis of key issues.</p> Recent Findings <p>Currently, the excess profit recovery mechanism embedded in government authorized CfD and the capital repatriation it generates has played a crucial role in alleviating the surging electricity costs during the electricity price crisis caused by the Russia-Ukraine conflict. Moreover, in the final draft of the European Union’s electricity market reform, government authorized CfD have become one of the mandatory measures to support the development of renewable energy. But CfD exhibit certain drawbacks. Such as traditional CfD often lead to a “produce-and-forget” effect, as it suppresses spot market price signals. Consequently, power plants may prioritize maximizing production rather than responding to market price signals, leading to misaligned incentive. Furthermore, CfD can induce strategic bidding behavior of power generators in the intraday or balancing markets, distorting the intraday and real-time market.</p> Summary <p>This paper introduces the fundamental concepts, applications, key parameter design, and auction processes of CfD. Furthermore, it analyzes the critical issues associated with traditional CfD, aiming to provide valuable references for the future development and construction of CfD.</p>