In recent years, Germany and China, as global leaders in renewable energy development, have both been promoting the full participation of renewable energy generation in power market transactions. However, as national subsidies are gradually being phased out, the issue of ensuring investor returns has become increasingly prominent.
In August 2024, the German Federal Ministry for Economic Affairs and Energy (BMWE) published the “Electricity market design of the future”, which outlines options for a secure, affordable and sustainable electricity system. To achieve significant growth in renewable energy supply and demand, a reliable and efficient investment framework is essential. Future systems must ensure cost recovery and market stability, potentially through mechanisms such as Contracts for Differences or Capacity Payments. The Coalition Agreement of the new German government foresees to finance the construction of energy infrastructure through a combination of public guarantees and private capital, led by the core principles affordability, cost-effectiveness, and energy security, and with the goal of enabling renewable energy to achieve self-financing entirely through the market.
China’s power market is undergoing rapid development, with the goal of fully establishing a unified national market by 2029. Since the implementation of the “grid parity” policy, subsidies for centralised wind and PV projects have been gradually phased out. Similar to Germany, China is also advancing market-based pricing for wind and solar energy grid integration in a sliding subsidy scenario. Meanwhile, at the subnational level, China is resolving the barriers of inter-provincial renewable energy consumption through market mechanisms. However, this transition brings the return uncertainty for upfront investment cost, due to the fluctuating electricity prices of renewable energy in market-based transactions. It also challenges renewable energy investment in the future.
To explore and share innovative policies and market designs for renewable energy market participation, the IKI Energy Project and the “Sino-German Energy Transition Project (EnTrans)”, under the framework of Sino-German Energy Partnership, together organised a workshop on 11 February 2026. In the context of the full marketisation of renewable energy electricity trading, participants discussed how China and Germany at both national and subnational level can better incentivise the stable and sustainable development of renewable energy from the perspectives of institutional mechanisms as well as investment and financing. Experts further shared their perspectives on the market-oriented development of renewable energy and discussed policy responses to increasing price volatility and investment uncertainty.
In Germany, with the rapid expansion of renewable energy, the power system is increasingly facing challenges related to generation variability, system stability and rising occurrences of negative electricity prices. Current policy discussions therefore focus on improving the investment framework, strengthening incentives for system flexibility and reserve capacity, and exploring mechanisms such as capacity markets to ensure security of supply and stable investment conditions.
In China, market-based electricity trading has expanded significantly, with provincial spot markets widely implemented and the inter-provincial spot market entering formal operation. As renewable energy increasingly participates in electricity market transactions, new market participants such as energy storage and virtual power plants are also entering the market. At the same time, market rules, regulatory mechanisms and information systems continue to be improved to support the further development of a unified national electricity market.
The roundtable discussions were structured around international and Chinese perspectives and focused on key issues including market mechanisms, investment frameworks, system flexibility and the evolving role of conventional power generation in systems with high shares of renewable energy.
From the international perspective, participants highlighted that the increasing market participation of renewable energy may lead to lower electricity prices and reduced investment incentives. Strengthening stable investment and financing frameworks will therefore be essential. Instruments such as Contracts for Differences (CfD) can help hedge market risks and provide more predictable revenues for investors. At the same time, enhancing system flexibility through measures such as energy storage, flexible grid connections and improved market rules will be important for addressing price volatility and negative price periods.
From the Chinese perspective, experts emphasised that the focus of policy discussions has shifted from enabling the participation of renewable energy in the electricity market to ensuring that such participation can be implemented in a stable and well-functioning manner. Further improvements are needed to better reflect the value of flexibility, environmental benefits and system services within market mechanisms. At the same time, the role of coal power is gradually evolving from continuously providing baseload power to a balancing resource, supported by capacity pricing mechanisms and participation in ancillary service markets. Strengthening demand-side flexibility and improving market coordination will also be important to support the large-scale integration of renewable energy.
China and Germany face common challenges in integrating high shares of renewable energy into electricity markets, particularly in balancing investment incentives with system stability and enhancing system flexibility, including demand-side participation. As renewable energy development enters a more mature stage, topics such as ancillary services, flexibility resources, capacity markets, and the coordination between electricity and carbon markets are becoming central to future discussions. In this context, active exchanges, dialogue, and mutual learning between Chinese and German experts undoubtedly provide valuable experience and insights for jointly addressing practical challenges and building more robust and sophisticated power markets.
