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Deploying high penetration of variable renewables represents a critical pathway for deep decarbonizing the power sector. The conflict between their temporal variability and limited system flexibility has been largely ignored currently at planning stage. Here, we present a novel capacity expansion model optimizing investment decisions and full-year, hourly power balances simultaneously, with considerations of storage technologies and policy constraints, such as carbon tax and renewable portfolio standards (RPS). Based on a computational efficient modeling formulation, all flexibility constrains (ramping, reserve, minimum output, minimal online/offline time) for the 8760-h duration are incorporated. The proposed model is applied to the northwestern grid of China to examine the optimal composition and distribution of power investments with a wide range of renewable targets. Results indicate that the cost can increase moderately toward 45% of RPS, when properly designing the generation portfolio: prioritizing wind investments, distributing renewable investments more evenly, and deploying more flexible midsize coal and gas units. Reaching higher penetrations of renewables is expensive and the reductions of storage costs are critically important for an affordable low-carbon future. RPS or carbon taxes to reach a same target of emission reduction in China will result in similar overall costs but different generation mixes. [ABSTRACT FROM AUTHOR]