Payment mechanisms for electricity markets with uncertain supply

This paper provides a framework for deriving payment mechanisms for intermittent, flexible and inflexible electricity generators who are dispatched according to the optimal solution of a stochastic program that minimizes the expected cost of generation plus deviation. The first stage corresponds to a pre-commitment decision, and the second stage corresponds to real-time generation that adapts to different realizations of a random variable. By taking the Lagrangian and decoupling in different ways we study two payment mechanisms with different properties.