# Comparison of electricity market designs for stable decentralized power grids

## TL;DR

This paper compares eight electricity market designs through a theoretical model, analyzing their impact on economic efficiency, costs, profits, and bidding honesty in decentralized power grids under uncertainty.

## Contribution

It introduces a comprehensive theoretical framework comparing various market design variants and their effects on market performance and strategic behavior.

## Key findings

- Uniform pricing with pay requested and curtailment performs best overall.
- The optimal market design balances economic efficiency and honest bidding.
- Certain designs reduce costs and improve grid stability.

## Abstract

In this study, we develop a theoretical model of strategic equilibrium bidding and price-setting behaviour by heterogeneous and boundedly rational electricity producers and a grid operator in a single electricity market under uncertain information about production capabilities and electricity demand. We compare eight different market design variants and several levels of centralized electricity production that influence the spatial distribution of producers in the grid, their unit production and curtailment costs, and the mean and standard deviation of their production capabilities. Our market design variants differ in three aspects. Producers are either paid their individual bid price ("pay as bid") or the (higher) market price set by the grid operator ("uniform pricing"). They are either paid for their bid quantity ("pay requested") or for their actual supply ("pay supplied") which may differ due to production uncertainty. Finally, excess production is either required to be curtailed or may be supplied to the grid. Overall, we find the combination of uniform pricing, paying for requested amounts, and required curtailment to perform best or second best in many respects, and to provide the best compromise between the goals of low economic costs, low consumer costs, positive profits, low balancing, low workload, and honest bidding behaviour.