Impacts of renewable energy subsidies on multi-timescale electricity markets under increasing renewable penetration in China

The rapid expansion of renewable capacity in China is increasingly depressing wholesale electricity prices and exacerbating revenue inadequacy for renewable generators. This cost-recovery pressure has made the contract-for-difference (CfD) mechanism a major subsidy instrument for renewable energy in China. However, this out-of-market revenue-stabilizing mechanism raises concerns about its impacts on electricity market operation. Increasingly frequent negative prices in China further motivate a systematic assessment of how this CfD mechanism affects wholesale markets. Here, the impacts of the CfD mechanism on price formation, settlement composition, and participant profitability in multi-timescale electricity markets are investigated. A multi-timescale electricity market model incorporating the CfD mechanism is developed within a bi-level optimization framework. Strategic bidding by heterogeneous market participants is modeled at the upper level, with market clearing performed at the lower level. The top-down decomposition of contract positions across the annual, monthly, and spot markets is formulated together with CfD-related constraints. A hierarchical deep reinforcement learning framework is designed to decompose multi-timescale bidding decisions into stage-specific learning tasks. Market-feasible demonstrations are further embedded to guide exploration in large continuous bidding spaces, achieving a 25.4% increase in the average reward of renewable agents. Results show that an 80% CfD coverage ratio substantially increases the negative spot price share to 39% in the high renewable scenario. Moreover, CfD-based settlement (200.6 CNY/MWh) overtakes market-based settlement (105.4 CNY/MWh) as the dominant component of the load-side settlement composition. Compared with expanding coverage alone, jointly adjusting coverage ratios and settlement prices may help manage the trade-off between revenue support and potential market distortions.