In most electricity markets the price paid to every is set by the most expensive one running.
This is pricing, and it is widely reported as a scandal and widely defended by economists.
Both reactions are once the purpose of the arrangement is stated.
Demand must be met continuously and s must be told, minute by minute, whether to run.
A single price that clears the market that instruction without anyone issuing it.
If a plant's costs exceed the price, it does not run, and the system has selected the cheapest available set.
Paying each its own costs instead would remove that signal and would reward .
The scandal is therefore not that the mechanism is irrational but that it distributes a .
When gas sets the price, every wind and nuclear plant receives the gas price for output that cost far less.
That transfer is large, it is not a payment for anything, and it is the part the public objects to.
The economically coherent response is to keep the price signal and tax the separately.
This is harder than it sounds, because a tax that is announced in advance changes investment decisions.
An investor who expects the returns from a high-price year to be taxed will require a higher return in normal years.
The cost of that reappears in the price, some years later and attributed to something else.
Governments therefore prefer levies, which do not affect past decisions and destroy the credibility of future ones.
There is no design that avoids both problems, and pretending otherwise has been the main obstacle to reform.
A political system able to say that a exists could choose a point on it.
A political system that must present every choice as costless will keep choosing the option that hides the cost longest.