This paper presents a novel differential protection of power former, a type of high-voltage graded insulated cable wound generator. The false differential current associated with the distributed capacitance of power former stator windings is analyzed. Based on the investigation results, the winding capacitance can be equivalently arranged on the terminal and neutral of the generator respectively in a reasonable partition. And the phase voltages at the terminals are utilized to estimate the capacitive currents, which can be compensated to improve the sensitivity of the differential protection. Extensive simulation results prove that this compensation scheme can improve the reliability of the current differential protection of power former.