Decarbonising the power sector by 2040 requires substantial investment in variable renewable energy sources (VRES). Since VRES output is intermittent and location specific, it necessitates flexible production, for example hydro storage, and transmission-network expansion.

Yet, in a deregulated electricity industry, flexible producers’ objectives are not necessarily aligned with society’s, which means that policymakers must proactively devise market-based mechanisms to mitigate undesirable economic or environmental outcomes. Likewise, transmission planning, although regulated, will need to adapt to the altered landscape in order to ensure a competitive power system.

We will develop game-theoretic models that (i) reflect agent behaviour in a market with high VRES penetration and (ii) distil regulatory mechanisms to resolve conflicting objectives. Our methodological innovation will support policymakers in crafting a welfare-enhancing transition to a flexible and robust renewable power system.