A Survey Comparing Centralized and Decentralized Electricity Markets

This paper surveys the literature relevant for comparing centralized and decentralized wholesale electricity markets. Under a centralized design, producers submit detailed cost data to the system operator the day before delivery, who then decides how much to produce for each generation unit. This differs from the decentralized design, which relies on self-commitment, and where producers send less detailed cost information to the system operator. US markets have converged on the centralized design, whereas the trend goes in the other direction in Europe. The paper discusses advantages and disadvantages of the two approaches and proposes suggestions for improvement of each design.