The suitable energy development model for Mongolia’s conditions is distributed sources 

B.Bayanjavzan from Energy Insight interviewed P.Tovuudorj, commissioner of the Energy Regulatory Commission, Ph.D. in technical science, and consulting engineer of Mongolia.

What are the Energy Regulatory Commission's (ERC) actions in implementing state energy-saving policies? 

Since the passage of the Energy Saving Law in 2015, efforts have been made to educate the public, identify responsible energy consumers, and establish consumption thresholds at Cabinet meetings. A responsible consumer in Mongolia is defined as an individual, enterprise, or organization whose energy use exceeds government-set limits, with 216 enterprises accounting for about 60% of total energy consumption. In alignment with these efforts, more than 300 energy efficiency managers have been trained by ERC, and over 110 experts have been certified through new energy audit programs. Responsible users, particularly enterprises, conduct energy efficiency audits and develop action plans for improvement.

Currently, there is an international trend to minimize energy consumption per unit of production, driven by the United Nations Sustainable Development Goals. As Earth's primary energy resources are finite yet their demand is infinite, sustainable development goals emphasize the prudent use of resources for future generations. Moreover, countries like Mongolia, which heavily rely on briquette fuel and emit CO2, are striving to mitigate climate change and global warming impacts. Energy conservation is thus crucial amid these global challenges.

 Is our country's energy conservation law truly effective?

The perfection of this law remains questionable, but its existence is beneficial. Energy efficiency transcends sectoral boundaries, encompassing interdisciplinary aspects. Therefore, regulatory requirements aim to coordinate sectors, localize international cost effectiveness standards, and employ both coercion and incentives. Under this framework, ERC implements regulatory coercion for responsible consumers, mandating energy audits within specified intervals to assess consumption patterns. However, introducing effective incentives remains a challenge. Recognizing the need for updating the Energy Saving Law, a Working Group led by State Secretary N. Tavinbekh of the Ministry of Energy has been established. This group collaborates with Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) to develop the law's concept. The legislative submission process is expected to span 1-2 years, involving steps such as public consultations and economic assessments.

Are peak load tariffs effective for energy conservation, and are they suitable for our country's conditions?

One challenge in promoting energy efficiency is the perception of energy as a low-cost commodity. Despite the actual energy cost being MNT 256, household electricity averages only MNT 140 per unit in our country. The ERC's priority is to align energy prices with actual costs, starting with enterprise peak load tariffs. In the near future, ERC plans to propose implementing peak load tariffs for household consumption to create incentives for efficient energy use.

Mongolia faces energy shortages from November to February between 17:00 and 22:00, with last year's peak consumption reaching 1,636 MW, growing annually by 10-11 percent. In collaboration with the USAID's Mongolia Energy Governance Program, the "Adjust Electricity Usage 17-22" campaign was launched in November 2023 to encourage efficient energy use during peak hours. External research organizations are assessing the campaign's impact, which will continue until new energy sources are operational. Rather than mandating lifestyle changes, the campaign promotes reducing inefficient consumption by using energy-efficient appliances and scheduling tasks like laundry and ironing after 21:00.

During the Covid-19 pandemic, energy consumption surged by 100 MW when the government initially waived energy bills for 1.5 years. Subsequently, switching to charging for excess usage compared to the previous year reduced consumption by 60-70 MW within two days. Raising public awareness about energy conservation and efficient practices can prevent future energy shortages in our country. While adjusting the night tariff slightly lower to MNT 112 on two-tariff meters during winter months, maintaining a higher peak load tariff is crucial.

Can the bill display peak usage categorized by type?

Implementing the peak load tariff and integrating it into the system pose technical challenges. Specifically, the transition from dual to triple tariff meters is limited by technical constraints. In Mongolia, this transition to smart meters is expected to take 2-3 years. Currently, over 90% of the Darkhan and Selenge distribution networks are equipped with smart meters. However, in Ulaanbaatar, there are only 15,000 smart meters out of 400,000, with the rest using dual tariff meters. Technical reforms will be required to enable the shift to triple tariff meters, allowing for categorization of peak usage on bills. For instance, if a household's electricity bill totals MNT 100,000, and MNT 70,000 is attributed to peak hours from 17:00 to 22:00, households can consider energy-saving measures during that period.

What is your stance on the liberalization of energy prices?

In 2022, energy prices for enterprises saw a 38% increase. However, household energy is currently sold at a price much lower than its production cost, necessitating an adjustment to bring it in line with actual costs. I view energy price liberalization as aligning prices with costs and implementing periodic indexing. Indexation refers to adjusting electricity prices based on changes in production costs, taking into account factors like exchange rates and the consumer price index. It does not always mean prices will rise; they can decrease if inflation declines and economic conditions improve. Unfortunately, energy prices in our country are adjusted only every 2-3 years, posing a risk of financial strain on companies due to rising costs. It would be prudent to consider adjusting prices semi-annually or quarterly instead. 

Globally, few unregulated mechanisms exist where consumers and suppliers freely negotiate prices. Most countries, except for some in Europe, regulate energy prices through governing bodies. Given that energy is a monopoly industry, regulation is crucial in ensuring that sector enterprises operate sustainably. According to the Energy Law, tariffs set by the ERC should cover operational costs, factor in inflation, and allow for reasonable profit margins. Currently, the existing prices do not even cover operational expenses, posing a risk of disruption in the energy sector unless corrected.

What policies does our country endorse to promote the development of distributed energy resources?

The Renewable Energy Law of 2019 mandates annual adjustments to the buying and selling prices of energy from distributed sources. In 2021, the ERC approved a peak load supply tariff of MNT 220 per unit for enterprises from distributed sources, which has not been updated since then and is overdue for revision.

Currently, both the selling and buying prices from distributed sources to the network are set at the same rate. The Renewable Energy Act specifies purchase prices for larger solar sources. In contrast, other countries support distributed sources through tariff policies, selling energy to the grid at higher rates during peak periods. For instance, in the United States, 60-70% of investments in renewable energy sources are tax-deductible. Vermont, despite its small size, has achieved high energy independence with widespread adoption of solar panels due to state tax incentives for distributed generation. Thus, distributed sources should not be underestimated despite their smaller scale.

The significant contribution of distributed sources to our energy system and the achievement of positive outcomes would be feasible when 10,000 to 100,000 households adopt them. Implementing a government initiative such as "100,000 Solar Roofs" supported by tax and tariff policies is crucial for industry development, enhancing citizen comfort, and ensuring reliable energy supply amidst current energy shortages.

Is one of the solutions for ensuring efficient and reliable power supply over long distances in Mongolia distributed sources?

Mongolia's vast territory and sparse population present unique challenges for ensuring a reliable and efficient energy supply. Globally, the trend in energy development favors decentralized and autonomous systems. Hence, the suitable energy development model for Mongolia is distributed sources, which are connected to the distribution network at voltages below 35 kV.

Currently, 331 soums in Mongolia are fully integrated into the national energy grid. However, the extensive length of transmission lines often exceeds their optimal power transmission capacity. For instance, a 110 kV line is ideally suited for distances of approximately 200-300 km, but in Mongolia, these lines are stretched over 800 900 km. Consequently, there are 53 locations at the end of these long lines experiencing voltage drops below 200 volts, far below the standard 220 and 380 volts required for households and businesses. As demand increases, these voltage drops worsen, affecting the reliability of electricity supply. While basic appliances like lights and TVs may function, the insufficient voltage poses significant challenges for developing small industries and supporting economic activities effectively. Thus, despite electricity being technically available, its reliability and adequacy remain critical issues for sustained economic development in these regions.

Currently, distributed energy resources are emerging in Mongolia. Supported by a USD 30 million grant from the International Climate Investment Fund, a program promoting renewable energy is underway in the Western Region. The government's commitment to achieve 100 percent renewable energy in this region was backed by the Asian Development Bank and the World Bank, which provided a 10-year principal repayment exemption and a 40-year loan with an annual interest rate of 0.7 percent. As a result, various solar power plants have been constructed, including a 10 MW plant in Myangad, Khovd by the World Bank, a 10 MW plant in Serven, Govi-Altai by the Asian Development Bank, a 5 MW plant in Borkh, Zavkhan with battery storage, a 50 MW plant in Murun, and others in Umnugovi, Uvs and Telmen, Zavkhan.

Expanding distributed resources to other provinces is crucial. While large-scale projects are beneficial, they require significant financial investment. Therefore, developing 30-100 MW coal, solar, and wind power stations in central locations across 21 provinces is proposed. Additionally, installing smaller 500 kW and 1 MW solar units at 53 substations with voltage drops, along with Voltage Source Converter (SVG) devices to stabilize voltage, is feasible.

Current regulatory frameworks in Mongolia pose challenges to energy system development. Requirements for 18-20 personnel per station, regardless of capacity, due to safety and labor regulations, may impact the economic viability of smaller stations. Many countries manage renewable energy stations of similar capacity remotely, suggesting a need to update policies, regulations, and standards to support distributed resources effectively.

The regulation of our country relies heavily on imported energy. How do you envision domestic solutions and opportunities for adjustments?

The integrated energy structure of any country ideally comprises coal plants suitable for base load, nuclear power plants, hydroelectric plants with strong maneuverability for peak loads, and renewable sources such as solar and wind. Together, these elements create a system that ensures energy security and reliability. However, Mongolia's current energy structure predominantly relies on coal-fired plants and intermittently operating solar and wind plants. Complicating matters further, the power purchase agreements are adjusted to CHP-4 and imported energy from Russia.

A hydroelectric power plant, which can swiftly generate energy upon opening its gates and cease production just as quickly upon closure, is highly suitable for our needs. In contrast, coal-fired plants suffer from poor maneuverability, requiring 4-5 hours to fire up from a cold furnace before they can start generating energy. This extended startup period poses risks of malfunctions and delays in our energy system, prompting us to rely on imported energy during these times.

For instance, on January 19, 2019, CHP-4 supplied 420 MW of energy at 06:00 during the lowest load period, and 660 MW at 19:00 during peak demand, resulting in a 240 MW difference. These fluctuations, occurring 2-4 times a day, have contributed to damage to the furnace's heating surface. Given these challenges, resources capable of adjusting to varying modes are crucial in our context.

In Mongolia, the construction of hydroelectric power plants faces delays due to various factors, leading to consideration of storage plants as an alternative. These facilities store surplus energy during off-peak hours and release it during periods of high demand. Globally, 96 percent of energy storage plants are hydroelectric, with the remainder using battery technology. While hydroelectric plants have been established for over a century, battery technology is relatively new, emerging only in the past two decades.

According to the "Energy Sector Policy" set in 2015, Mongolia aimed to achieve a 20 percent energy reserve by now. However, no major power plants have been completed, largely due to the expectation that the private sector would undertake construction. Yet, building power plants carries risks beyond what private entities typically assume. In many developing countries, such projects are government responsibilities due to their substantial risks. This was a key factor leading to the halt of the CHP-5 project. The government's strategy is to convert the revenue from Erdenes Tavan Tolgoi into dividends rather than subsidizing energy costs with Erdenes' funds. However, this revenue could be utilized to expedite power plant construction and enhance energy security. As a security analyst, I advocate for allowing the private sector to invest in renewable energy and low-investment projects, while emphasizing the government's role in constructing large-scale coal-fired power plants, especially as international loans for such projects have become scarcer. Therefore, it is crucial for the new government to address these issues promptly and take on the responsibility of building power plants. Currently, Mongolia faces a critical situation regarding the security of its energy system.

How do you envision the future direction of Mongolia's energy sector? Currently, we are basically “chasing after” our consumption.

In my view, our focus should be on maintaining a balanced ratio of energy export and import. It's impractical to claim energy independence while halting exchanges at the borders. If we import from China, let's also export to them. We should pursue projects that develop large scale renewable energy sources in the Gobi region with an eye toward export. As the old saying goes, "Look to your own resources for solutions, rather than relying on others to provide them." Efforts should be made to ensure technical readiness to meet domestic demands in the wake of challenging times.

Thank you for the interview.