"Mongolia has potential to fully supply China`s annual energy consumption, using only solar energy source"

O.Ariunbileg

2017-01-27 11:17 GMT+8

We interviewed with D.Gankhuyag, CEO, Clean Energy Asia LLC on whether renewable energy is a factor to get rid of air pollution and dependence on energy import. 

CHP5 WILL BE TRANSFERRED TO THE GOVERNMENT AT ITS 26th YEAR FOR FREE 

-It is estimated that Mongolian energy demand will be increased 3-4 times by 2030. Public voices against air pollution enabled ger district households to use electric heater, using the free nighttime electricity discount. This expects to increase the energy demand. Could Mongolian energy sector be able to supply such electricity demand today?
-Mongolia is a small market with population of over three million people and has only two main consumers: mining industries and households, meaning that energy consumption is relatively low. In 2016, the country used 5.6 billion kilowatt hours of electricity. Increase in energy demand varies depending on the economic situation of the country. According to the multi-year average, when major mining industries such as Oyu Tolgoi commences its operation, energy demand increases by 10 percent per year, while an average annual growth is ranging between 3-4 percent. However, increase in energy demand of the country is still low. As you said, energy demand might grow 3-4 times by 2030. Hence, it will directly accompanied by the number of newly established manufacturers. Free nighttime electricity discount could not affect the capacity. Nighttime electricity use of households accounts for only 3-4 percent of the total energy capacity of the country. 

In 2016, the country used 5.6 billion kilowatt hours of electricity. 

-Your company has entered into bid for Combined Heat and Power Plant Number 5 Project (CHP5). A Consortium consisting of ‘GDF SUEZ, Sojitz, POSCO Energy and Newcom was selected as the preferred bidder. What is the reason for delaying the CHP5 project? What proposals have you included in your project?
-The CHP5 Concessionaire, consisting of Engie (new name of Gdf Suez, 30%), Sojitz Corporation (30%), Posco Energy (30%) and Newcom LLC (10%) have signed concession agreement announced by the Government of Mongolia in 2012. It was the biggest mega project announced as a concession. The implementation process has slowed down for more than four years as the project model was new and there were many uncertainties with the legal and commercial terms. We have reported the problems to the Ministry of Energy. However, the Government has not officially said to stop the project. Funding model of the project is brand new. In other words, financial institutions will fund the project based on the agreements made between the Government and other organizations as well as licenses. Simply, it is an unsecured loan, which is very hard to get.

-Concession agreement means that you transfer the plant to the Government after building and operating the plant for certain period of time?
-The project is to be developed under a Build-Own-Operate-Transfer scheme via a 25-year Concession Agreement. Plant then transferred to the Government at its 26th year for free.

-So the private company will bear all the risks of the project for 25 years, right?
-Indeed.

-Does Mongolia really need CHP5?
-There are many answers for that question. International organizations that have worked in Mongolia for many years including World Bank, International Financial Corporation, Asian Development Bank and European Bank for Reconstruction and Development consider that the world`s coldest capital city which is home to a half of total population really needs a combined heat and power generation facility. Thus, the talks on the plant have started in 2008 and Asian Development Bank developed the bid materials and announced the bid in 2011.

-Will CHP5 enable 70-80 percent of ger district households to use electric heaters?
-Yes. Current CHPs have capacity to generate 1000 MW electricity. The gross installed capacity of CHP-5 will be 450 MW. In order to provide rising energy and heat demand, we need a reliable source that can boost the capacity by 50 percent. Moreover, all CHPs are located in the western part of the city. Therefore, it is significant to supply reliable energy and heat to Bayanzurkh and Nalaikh districts, which are expanding to the East. 

-Will ger district households be able to use electric heaters during the day as well after CHP5 construction?
-Of course. Mongolia has 5.6 billion kilowatt hours of energy consumption, of which 20 percent is imported from Russia and China. Oyu Tolgoi LLC imports 1 billion kilowatt hours of energy from China and the country imports 300-400 thousand kilowatt hours of energy from Russia annually.

Mongolia has 5.6 billion kilowatt hours of energy consumption, of which 20 percent is imported from Russia and China. 

If we commission CHP5, the country`s dependence on imported energy will be stopped. Second, the CHP5 will solve the lack of thermal infrastructure, resulting increase in construction of housings. However, one CHP can`t solve all the problems, because energy sector is a comprehensive system. Our electric and heat distribution systems are worn out and their capacity has declined. Therefore, we should focus on how to improve the system and how to distribute a new supply.

-The problem is all CHPs is facing budget deficit today. Thus, should we really need to build unprofitable CHP again? Will electricity tariff increase or decrease? How did you estimate the risks?
-According to the market regulation, nobody will invest in unprofitable project. CHP5 is a business project funded by the project financing. Electricity tariff is a sore point to all countries. We can`t earn profits from old CHPs as they were built in different social system, using different financial schemes. But new CHP must be able to pay the debt and earn certain amount of profit. Thus, the Energy Regulation Committee reported that electricity tariff would be at least 7 US cent.

WE HAVE POTENTIAL TO FULLY SUPPLY THE ENERGY CONSUMPTION OF CHINA, IF WE USE ONLY SOLAR ENERGY SOURCE 

-How much renewable energy source do we have?
-Mongolia is spread out on total of 1.5 million sq.km. By solar and wind energy resources  capacity Mongolia is in leading position. It is estimated that area of more than 400 thousand sq.km of Southern region of the country is able to produce energy using solar and wind sources. We have potential to fully supply the energy consumption of China, if we use only solar energy source. China became the largest energy consumer of the world in 2014 with its annual 3.6 trillion kilowatt hours of energy demand. As we mentioned before, Mongolia`s consumption of energy totaled 5.6 billion kilowatt hours annually.

-How about solar energy source?
-We are able to supply 20 percent of Chinese total energy consumption, using our solar energy source. If we commercialize our solar and wind energy and supply it to the two neighboring countries, we will be able to diversify our economy and expand export. Providing integrated energy system to Northeast Asian countries and connecting Asian super grid has been on talks quite rapidly in recent years. Korea, Japan, China, Russia and Mongolian Government and businesses are involving this mega project. If this mega project will be implemented successfully, Mongolia would export its solar and wind energy. 

-We are able to solve the start-up cost for renewable energy through this mega project, right?
-Yes, indeed. If we look at renewable energy trends, technology has improved, efficiency has increased while unit tariff has reduced. Especially, solar energy has been developing rapidly. Thus, renewable energy tariff will become cheaper than traditional energy soon.

SALKHIT WIND FARM PROVIDES PER kWh ELECTRICITY FOR 9.5 US CENT. HOWEVER, OYU TOLGOI LLC IS PURCHASING ELECTRICITY FROM CHINA AT 13 CENTS.

-How much power is providing by 50MW Salkhit wind farm?
-50MW Salkhit wind farm is the first large-scale renewable energy plant. It has been operating successfully in over three years, providing power to around 100 thousand families per year. A certain percentage of the capital city consumers are supplied with renewable energy.

-How much percentage?
-About three percent of the capital city consumers.

-How about economic benefits?
-At the beginning risks were high for Salkhit wind farm. It was the first independent energy producer funded by project financing. Newcom group initiated and implemented the project for 10 years funded the project with its own profit and loans in cooperation with European Bank for Reconstruction and Development and Dutch Development Bank. Per kWh electricity price is 9.5 US cent. That sounded very expensive at first. Some people were saying that we will always purchase energy from Russia at low price. However, today we purchase 1 kWh electricity for 11 US cent and the price is increasing every year. In addition, there is no other way for our country to accept the increase in price as we are dependent on them for the reliable source especially during the harsh winter. In particular, if Russia stops the energy supply in winter, our energy system can not operate independently. Our daily life is too dependent from electricity. However, Salkhit wind farm must not change electricity tariff for 20 years.

If Russia stops the energy supply in winter, our energy system can not operate independently.

-Even the farm is faced with budget deficit?
-The assumptions were made the project profitability at 9.5 cents. Oyu Tolgoi is purchasing their electricity from China at the rate of 13 cents. Suppose if we are dependent on imported electricity supply for another 10 years it is inevitable the price increase up to 15 or 20 cents. Therefore the point here is the long term sustainability of the energy sector itself.

-Do you agree that renewable energy is the solution to get rid of air pollution and it will change the energy sector condition?-Where is the location of Tsetsii wind farm?
-It locates to the South of Tsogttsetsii soum, 100 km away from Oyutolgoi mining site. If operation of Oyu Tolgoi expands, we will have opportunity to supply renewable energy to Oyu Tolgoi. We are studying the opportunity. Mining companies support eco friendly, new technologies. Our Tsetsii wind farm will connect to central grid through Tavantolgoi substation. Also, we will have opportunity to supply solar and wind energy to other mines in future. 

-Definitely. But it is relative. For air pollution, the main producers are ger district and old vehicles. Salkhit wind farm offset 150 thousand tons of CO2 emissions, that is equivalent to building 400 green parks similar to Children's Park in UB. Our Tsetsii wind farm is expected to offset same amount of CO2 emissions. Solar and wind energy will become the most reliable and environmentally friendly source in the future as development of technology. It is just a matter of time.

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