Welfare optimal reliability and reserve provision in electricity markets with increasing shares of renewable energy sources

We develop an analytical model to derive the competitive market equilibrium for electricity spot and reserve markets under uncertain demand renewable generation. The first-best of resembles result a centralized co-optimization involved. then welfare-optimal provision reserves. At first-best, cost capacity is balanced against expected outages. Comparative statics numerical application based on German secondary imply increase with growing share Furthermore, generation decreases level reliability as measured in energy not served since required reserves balance higher deviations will be more expensive, resulting trade-off between costs served.