Energy Insight E. Odjargal discussed Mongolia's energy sector policy, renewable energy development through competitive auctions, and the potential for transitioning to green energy with B. Yeren-Ulzii, Head of the Policy Planning Department at the Ministry of Energy.

Let's begin the interview by discussing the present energy landscape in Mongolia.

Before delving into the current state of Mongolia's energy sector, it's essential to understand the unique characteristics of our country. Mongolia boasts vast expanses, with low population density outside of Ulaanbaatar. Situated at a relatively high altitude in a cold and temperate region, our nation relies heavily on fire for heating during nine months of the year, as per Mongolian tradition. While we have ample coal and some oil resources, natural gas remains absent. Although discussions surrounding coalbed methane are ongoing, extraction and utilization have not yet reached significant levels. Notably, there is no natural gas beneath our oil f ields. Furthermore, our northern region is home to large rivers, which feed into Selenge Lake and ultimately f low into Baikal Lake, representing approximately 14% of the world's freshwater resources—a potential source of energy conversion. Given the cold climate, ensuring adequate heating is a critical concern. Mongolia has developed coal-fired thermal power plants (CHPs) over the past eight decades, and our energy system operates in parallel with the Buriyad energy system of the Russian Federation, with adjustments made accordingly. This interconnectedness has facilitated the transformation into a market-oriented society, with ongoing reliance on the parallel system of Russia for frequency and adjustment purposes.

Will our country's reliance on energy imports diminish through self-adjustment?

The energy sector of any nation requires a comprehensive system capable of self-adjustment. Understanding the intricacies of the energy system is crucial, as numerous factors interact within this complex framework. However, in our country, the energy system, in its true essence, has been deficient. To function cohesively, we require adaptable or swiftly manoeuvrable energy sources. Gas-fired power stations have not been developed in Mongolia, primarily due to the absence of gas during socialism and in the past three decades. Consequently, plans shifted towards harnessing the Eg River as the next adjustment source. Unfortunately, the implementation of large-scale hydropower plants has been hindered by ecological concerns regarding Lake Baikal, necessitating cooperation and understanding with neighbouring countries. Despite these challenges, our electricity and heat sources are expanding. With projects like the 50MW plant in Choibalsan and the inaugural block of Booreljuut set to commence operations this year, Mongolia has witnessed an increase of almost 800 MW in energy production since 2016—an impressive feat.

So our consumption is not catching up?

The installed energy capacity of our country has been increasing by an average of 5-6 per cent per year, while our consumption has been growing by 7-8 per cent, indicating a struggle to keep pace with usage. Particularly during active economic periods, such as in 2023 when favourable conditions like coal exports and increases in copper prices boosted the economy, there is a notable surge in energy consumption. This direct correlation between GDP growth and energy consumption underscores the challenge of meeting demand. Insufficient energy supply during winter months highlights the need for not only expanding electricity and heat production but also developing infrastructure for their transmission and distribution. However, due to limitations in the state budget and Mongolia's debt ceiling, investments in ancillary infrastructure remain insufficient. Consequently, enterprises and offices,  especially in Ulaanbaatar, face difficulties in securing technical requirements for electricity and heat. This summarizes the current challenges in the energy industry.

What is the current status of the Tavantolgoi power plant project?

Certainly, many solar and wind energy projects are slated for development in the Gobi region in the future. However, solar and wind energy alone cannot ensure the reliability of electricity supply in the region. A stable energy source is imperative. Hence, the construction of the Tavantolgoi power station is necessary. Currently, our central region adjusts its energy supply via the import line from Russia. Consequently, the energy system of the South Gobi region would be reliant on China's import line. This is not aligned with our energy industry policy. Therefore, the primary rationale for constructing a coal f ired plant with a non-variable base mode is to provide s table and reliable energy to the region. In essence, energy system planning entails devising policies to meet future consumption needs reliably, economically, and sustainably. While solar and wind energy are undoubtedly green sources, ensuring reliability should not be compromised. We must avoid creating an energy system that is excessively costly. If our electricity and heat become prohibitively expensive, it would hamper the competitiveness of our economy, leading to increased prices and costs for domestically produced goods.

How can our country expand its adaptable resources to the point where it can autonomously regulate its energy supply? It appears that hydropower plants could be constructed in various locations across the country without relying on bordering or neighbouring nations.

Indeed, relying solely on constructing a hydroelectric power plant in the Selenge river basin is not a viable option. We must explore alternative solutions. In this regard, our focus is on developing numerous small and medium-scale hydropower plants across the country, avoiding any potential conflicts with neighbouring nations. Currently, operational plants like Zavkhan, Taishir, Khovd, and the 12 MW Durgan HPPs are already contributing to our energy mix. We plan to construct a significant number of similar projects, which collectively will have a transformative impact on our energy system, akin to the Eg River hydroelectric power station. For instance, the Erdeneburen HPP project is scheduled to commence this spring, and discussions regarding the feasibility and financing of Baidrag's 30MW power plant are underway with international organizations. In addition to hydropower plants, we are also considering water storage power plant projects. While the Ministry of Energy policy has granted special permits to numerous private sector entities for these projects, unfortunately, many have not been successful due to a lack of government involvement and support. Recognizing the urgency, the Ministry of Energy is collaborating on the development of a water storage power plant in the central region alongside the implementation of the Baidrag HPP. Over 30 potential locations for water storage stations have been identified in the central region, with detailed s tudies conducted at two sites nationwide. Notably, the feasibility study for constructing a 100MW water storage s tation near the Yeruu River in Selenge province has been completed, and discussions on financing with the Asian Development Bank are ongoing. Our overarching policy emphasizes the construction of numerous low- and medium-level hydroelectric power plants to serve as a vital component of our power system adjustment s trategy, and we fully support private sector participation in this endeavour.

Essentially, we're discussing the importance of diversifying our sources of flexibility, correct? Relying solely on one technology is not feasible. Options such as water stations, water storage facilities, battery storage s tations, or gas stations all offer unique advantages and drawbacks. By leveraging a mix of these technologies, we can mitigate the weaknesses of one with the strengths of another. Therefore, it's imperative that we don't focus solely on developing water plants or battery storage as our primary means of adjustment in Mongolia. Instead, we should strive to develop our energy system in a manner that balances the strengths and weaknesses of each component, akin to maintaining a balanced diet for optimal health. The inauguration of the first battery s torage project, the 80MW power project, is already operational. Moving forward, a feasibility study has commenced in collaboration with the World Bank to construct 200MW battery accumulators near Choir and Mandalgovi substations in increments of 100MW each. This signifies that these projects are poised to become the mainstay resources for Mongolia's energy system adjustment in the near future.

Do we have a precise estimate of the proportion of renewable sources in Mongolia's energy system?

The global trend is shifting towards a green economy and renewable energy sources, and Mongolia is poised to align itself accordingly. However, as previously mentioned, Mongolia possesses its unique characteristics. With an extreme climate and harsh winters, ensuring a reliable supply of electricity and heat is paramount to national security. While we are committed to developing green energy sources such as solar and wind, we cannot afford to compromise on the reliability of our energy system merely because coal is deemed "unsightly." It is imperative that Ulaanbaatar's heat supply remains dependable in the foreseeable future. Hence, we must advocate for government policies and development s trategies that prioritize the establishment of a reliable energy system, while also considering economic efficiency. To achieve this balance, it is crucial to properly adjust the percentage of solar and wind energy sources within Mongolia's energy system. In 2015, the government adopted an energy policy outlining targets for renewable energy integration. According to this policy, the aim was to achieve 20 per cent of installed capacity by 2020 and 30 per cent by 2030. At the time, it was believed that such levels of renewable energy participation would foster the development of a robust and dependable energy system for our country.

The government's energy sector policy has undergone changes and may no longer be applicable. Can the concept of "Energy Recovery" be seen as a goal that aligns with our country's economy and energy consumption projections by 2030?

Yes, generally speaking. The Law on Development Policy, Planning, and Its Management was enacted in 2020, leading to the organization of existing policy documents within various sectors. As a result, the government's energy sector policy has been rendered invalid by resolutions issued by the Parliament and the Government subsequent to the adoption of this law. Nonetheless, ongoing monitoring of the industry's landscape persists. The primary implementation policy for our industry will adhere to the relevant target programs outlined in the New Recovery Policy and the Development Policy Planning Law. It can be inferred that the industry's planned projects are adequately encompassed within the framework of the "Energy Recovery" policy.

Discussions regarding investment disputes concerning renewable energy projects are not confined to the government level but extend to inter s tate discussions as well. What measures are being taken to address this issue?

These licenses were issued prior to the 2019 amendments to the Renewable Energy Act. During that period, due to low confidence among foreign investors in Mongolia, the renewable energy law intentionally increased tariffs, which were approved in USD. Consequently, seven solar and three wind power stations were constructed through private investment, playing a significant role in constituting approximately 20% of Mongolia's installed energy capacity. Technically, the potential size of our system will only be reached once an additional ten solar and wind farms become operational. Unfortunately, during that time, many private sector entities obtained special licenses exceeding these limits. Considering the total number of special licenses acquired, it amounts to nearly 50% of the installed power capacity, indicating an issuance of permits for resources surpassing actual needs. This has emerged as the primary challenge hindering the proper development of solar and wind resources in Mongolia. Approximately ten of these special permits, sanctioned by the government and the Energy Regulatory Commission, remain valid. While fair tariffs have been set, the adjustment will be determined by the stations themselves. The policy direction was established during a meeting of the Council of Ministers, resolving to implement the project with battery storage. We anticipate that the companies holding special licenses for new solar and wind projects will comprehend, accept, and collaborate with this solution.

How can the dispute with the German investor of the Sainshand wind farm be resolved?

The Sainshand Wind Park is among the three wind power plants constructed in our country, with two s tations owned by the Mongolian side. However, there is contention surrounding the contract due to the absence of strict specifications regarding the annual production volume. Naturally, the producer aims to sell and value all the energy it generates. Yet, in instances of low wind, production halts, resulting in f inancial loss. Conversely, the buyer is unable to purchase all generated energy due to Mongolia's energy system lacking its own adjustment source. Occasionally, other s tations are unable to produce energy when needed due to wind shortages. This discrepancy has sparked disputes in the past. Efforts are underway from both sides to resolve this conflict. The crucial step is for both parties to negotiate and agree upon the annual production and purchase amounts with the National Dispatch Center. If the Center cannot procure the agreed-upon amount, it will compensate accordingly. Essentially, the volume of energy to be sold and bought will be precisely determined after assessing technical capabilities from both perspectives. Given that these projects are f inanced through loans, mitigating project risks from the borrowers' end will enable investors to receive dividends to some extent. This proposed resolution hinges on the Working Group's ongoing discussions regarding fixing the annual purchase amount.

If this dispute is successfully resolved, will the next German investor be confident in proceeding with the Khanbogd Wind Park project?

The Khanbogd Wind Park project is among the licenses granted prior to the amendment to the Renewable Energy Law, as previously mentioned. The plant is slated to have a capacity of 250 MW, with an initial phase of 102 MW planned for implementation. However, even if the investor commences construction immediately and completes it next year, purchasing the energy produced by this company may prove challenging due to the lack of resources to adjust our Сentral power system. This could potentially lead to another dispute between the parties involved. In recent years, the cost of solar and wind energy sources constructed internationally has been rapidly declining. In light of this trend, it has been proposed to implement projects for constructing solar and wind stations with special licenses in our country, alongside the integration of battery storage. Under this arrangement, solar and wind stations would regulate their energy fluctuations using on-site battery storage and supply energy to the integrated grid of the central region with minimal fluctuation. Given these considerations, there are two sides to the argument. The Ministry of Energy has extended a request for cooperation in this direction to the company overseeing the "Khanbogd Wind Park" project.

What are the strategies for advancing the development of solar and wind power stations?

The core focus of the amendment on renewable energy is to foster and cultivate price competition through auctions, aligning with the international standard. This approach has yielded significant reductions in the cost of solar and wind electricity generation globally. Countries such as Uzbekistan and Cambodia have successfully lowered auction prices to 2-3 cents, mirroring Mongolia's climatic conditions. Kazakhstan, similar to Mongolia, initially faced high costs for renewable energy projects but has since seen prices drop to 2-3 cents for operational projects. Mongolia aims to follow this proven standard. 

Despite potential challenges such as high transportation costs and project capacity limitations, tariff increases may be unavoidable, though efforts will be made to keep them within the range of 4-5 cents. The Asian Development Bank, World Bank, and European Bank for Reconstruction and Development (EBRD), long-standing partners, have pledged full support for auctioning renewable energy projects. This support includes financial assistance to mitigate costs for participating companies, guarantee loan repayments, and potentially offer subsidized loans. International organizations are actively advocating for reduced tariffs on solar and wind energy in Mongolia, aligning with global goals to reduce greenhouse gas emissions and foster green economies. Consequently, Mongolia is transitioning to the implementation stage of solar and wind energy projects based on auction principles. Battery storage projects will also adhere to the auction principle, with investors responsible for investment, construction, utilization, and ownership. The government's role will primarily involve purchasing energy from the battery storage system and procuring electricity for charging, with minimal interference in other aspects. Collaboration with the World Bank, Asian Development Bank, and other financial institutions is ongoing to explore options for supporting the successful implementation of these initiatives, thereby alleviating risks for investors and participants. Efforts are underway to keep tariffs for network supply low, ensuring a conducive environment for auction participation and project success. Through risk reduction measures and government involvement, Mongolia aims to foster a sustainable and competitive renewable energy market.

Mongolia has an ambition of evolving into an energy-exporting nation in the future. How attainable and practical do you assess this objective to be?

Perhaps some individuals may misconstrue the notion of exporting energy scarcity. Our nation's energy market is relatively modest, reflective of our population size of 3.6 million. Envisioning significant export initiatives entails projects that dwarf our existing energy capacity manifold. Presently, Mongolia's installed energy capacity stands at approximately 1569 MW. However, the proposed export ventures under discussion boast capacities ranging from 5000 to 10000 MW. Consequently, these export endeavours operate independently of our domestic energy framework and are subject to separate deliberations. Should these projects come to fruition, we envisage unlocking opportunities for accessing affordable energy.

Each nation is charting its unique path towards a green transition. How does Mongolia plan to navigate this transition, particularly within its energy sector, considering its distinctive characteristics? Additionally, is there a timeframe commitment to the international community?

Honestly, many countries, international organizations, and individuals tend to perceive energy solely as electricity. However, energy encompasses both electricity and heat supply. Consider our country's power stations, which generate both heat and electricity concurrently. If we convert the combined electricity and heat into a single energy unit, we find that three-quarters of it is heat and the remaining quarter is electricity. This ratio underscores the significant role of heat consumption. For countries like ours, with substantial heat demand and cold climates, transitioning to clean energy will be a protracted process, spanning beyond a mere 5-10 years. While Mongolia may eventually achieve green electricity generation, possibly reaching around 80 per cent of energy consumption from green sources, addressing heat supply in an environmentally friendly manner poses a formidable challenge. Providing heat directly to numerous buildings through solar and wind energy is economically daunting, given the purchasing power limitations of consumers. Consequently, developing "green" heat supply solutions that align with consumers' f inancial means will necessitate time and innovation. A pivotal approach to expediting progress in this realm involves minimizing heat loss in buildings and enhancing s tandards and regulations accordingly. In essence, attaining green solutions for buildings characterized by high heat loss presents considerable difficulty, making it a formidable endeavour.

What challenges and tasks will the energy sector of our country face in 2024?

Mongolians tend to rely on intuition and gut feeling when making decisions. That would be my answer to your question.

Last year, our country's energy consumption peaked at 1,600 MW, while simultaneously limiting the load to 200 MW. How do we plan to manage the upcoming winter?

50 megawatts from Choibalsan and 150 megawatts from Booreljuut will be added to the grid. However, with our current high economic activity, increased usage is expected. Hence, we cannot guarantee passing the winter without any restrictions. We need to make arrangements accordingly.

Thank you for the interview.