China’s power industry was built to support rapidly growing demand. As China’s economy matures and climate goals become priorities, the power sector has to adjust. Among the challenges are a lack of price responsiveness to demand and supply shocks, difficulty in integrating non-fossil fuels, and underdeveloped ancillary services markets that are needed to ensure flexible power production and storage capacity. Successful market reforms will require letting power prices fluctuate more freely based on market conditions, strengthening inter-provincial power trading and coordination of local power markets, and scaling up of ancillary services. If done successfully, market reforms will not only improve the efficiency in power generation but also ease the tradeoffs between climate goals and energy security.
This chapter examines the fiscal burden stemming from the challenges of Iraq’s electricity sector and discusses elements of a potential reform strategy to help the sector provide adequate supply while moving closer to cost recovery.