Renewable Energy Sources (RES) have prompted an additional burden on power system planners due to their stochastic nature. Hence it increases the need for Ancillary Services (AS) in power system. In deregulated electricity markets, AS has become an important issue because they are necessary for reliable and secure operation of a power system. Operating Reserve (OR), considered in this paper, is a measure of generators ability to increase their output under contingencies. ISO uses this service either for balancing purpose or for replacing the energy that had been scheduled to be provided by the unit that malfunctions. Thus establishing an efficient market for reserve services has become crucial. The premises of this paper is the development of penalty based Short-Term Market (STM) for the procurement of energy and OR. The effects of stochastic behavior of WPP on Social Benefit (SB) and Procurement Cost (PC) are investigated for the development of efficient STM. The proposed approach has been analyzed on IEEE-30 bus test system by implementing a sequential dispatch approach on various market structures. The results obtained under different market scenarios shows that there is a mandated requirement of effective penalty mechanism in order to discourage the imbalance behavior of RPPs. (C) 2017 Elsevier Ltd. All rights reserved.