Countries representing more than 65% of greenhouse gas (GHG) emissions and more than 70% of the world economy have committed to achieving net-zero emissions by mid-century. A critical aspect of achieving the goal is decarbonising the power sector by promoting variable renewable energy (VRE, like solar and wind power). The transition calls for thoughtfully considered and practical mechanisms designed to ensure both reliable supplies and zero-carbon production. These issues are important in Germany and China, as major industrial economies that share a vision to GHG reduction. The applicants from Germany and China will bring early career scientists into an existing collaboration to conduct in-depth research on market and policy mechanism design to accelerate the decarbonisation of the power sector in the EU and China, by answering the following three questions.a) How to provide proper price signals for VRE investment, considering the decreasing cost of generating VRE combined with the increasing cost of integrating VRE into existing power systems.b) How to provide proper price signals for conventional power generation investment and operation, given that high VRE penetration will affect the reliability of the power system.c) How to use subsidies, taxes, regulatory standards, etc. to align private incentives with social welfare to achieve optimal levels of investment in energy storage and operation of these systems at utility scale.

The joint team will extend an existing partial equilibrium model that evaluates policies and provides recommendations according to simulation results. This will provide practical tools to evaluate the cost-effectiveness, environmental impacts, reliability impacts, and regional impacts of carbon pricing, direct VRE support, capacity mechanisms, and other climate and energy policies, providing valuable insights to policymakers about mechanism design for decarbonising the power sector with different levels of VRE penetration. The project will strengthen the cooperation of the joint team and promote further research and policy cooperation between Germany and China.