The International Energy Association warns that electricity is too cheap in China and its power system needs an urgent overhaul.
The message is meant to be a wake-up call not just for China's energy industry but also for western businesses who must encourage China to adopt more innovative energy technologies.
The IEA calls for sweeping change in China's electricity market because the current situation is unsustainable. Too much electricity is wasted by consumers and by networks, so too many power plants are being built to meet this demand.
Every two years, China adds as much power generation capacity as the total installed capacity in France or Canada. The country is now the biggest electricity consumer in the world after the US and its needs keep on growing.
What's worse, too much pollution is being released into the atmosphere, particularly by coal-fired plants that produce 70% of China's electricity.
In a report released yesterday, the IEA calls for prices to be increased so that they better reflect the cost of the resources used.
Now, China apologists will argue that the IEA is overstepping the line. After all, profligacy and waste are concepts normally associated with the west.
On a per-capita basis, US electricity consumption is fifteen times greater than in China, while in Spain, electricity consumption keeps hitting new records due to greater use of air conditioning.
In addition, China has suffered severe power shortages for years, so there hardly seems a case for applying the brakes.
But soaring demand from China's booming economy has already made it the world's second largest power consumer and China's emissions of carbon dioxide, the most common greenhouse gas, are rising at more than twice the rate of the US.
Clearly, there has to be a better way. And China should be encouraged to find it, argues the IEA.
China has the opportunity to leapfrog reformed systems elsewhere by integrating energy efficiency and environmental goals into its regulatory framework for competitive power markets."
That may sound wishful thinking, but the country is moving in the right direction.
Since China first embarked on an effort to gradually liberalise its power sector, much progress has been made, says the IEA. Power generation has been separated from transmission, and distribution systems improved. Experiments with wholesale markets are getting off the ground and there is now an independent regulator.
China should be congratulated for these steps, says Claude Mandil, executive director of the IEA, but "important challenges remain."
One of the most urgent is to encourage the building of cleaner, more efficient plants.
Western businesses and governments have invested heavily in clean energy research. For example, the European Commission is backing a research project called Near Zero Emission Power Generation. But not many of these initiatives have trickled down to developing nations like China, which continue to built power plants using yesterday's "dirty" technologies.
China, nevertheless, seems willing to adopt cleaner technologies, such as integrated gasification combined-cycle (IGCC), although the track record for IGCC in the west is not that promising, according to this article in the San Francisco Chronicle.
The IEA says China could encourage its power companies to build cleaner generating plants by imposing higher fees for pollution. The would benefit western equipment giants like GE and Alstom, who offer technologies like wet flue gas desulphurisation that can be retro-fitted to existing plants.
But there are also smaller vendors that could reap rewards from a clean-up of China's energy business.
For example, US company Wahlco has supplied China Light & Power with a flue gas conditioning system to reduce the fly ash emitted by power plants burning low-sulphur coal.
