How to Design Electricity Markets in the Age of Fluctuating Renewable Energy?

Growth in fluctuating renewable energy as a proportion of total output, together with the technological restrictions of conventional power plants, change the way electricity must be priced and thus the underlying design of the electricity market. This article investigates the cost recovery of different technologies and consumer behavior when prices are either predetermined or determined only in real time. The results show that the cost recovery of inflexible steam power plants is unaffected by higher shares of renewables. Predetermined prices alone are not sufficient to solve the cost recovery problem of gas-fired power plants, but substitute or complementary real-time prices are.