Mongolian energy sector anticipates a productive year ahead
The following is an interview with Minister of Energy and Member of Parliament D.Zorigt about projections for the Mongolian energy sector for 2016.
It was reported that the energy sector started working without any losses for the first time in history in 2015. Amgalan Thermal Power Plant commenced operation in 2015. Shall we start the interview from these matters?
The energy sector has accomplished many things and built several new facilities in the last three years. Amendments were made to legislations related to the energy sector last year, bringing progressive changes to the sector.
Our target for 2015 was to save on operational costs. We managed to reduce the cost of energy imported from abroad by 18 billion MNT and our operational costs decreased by some 20 billion MNT last year. Since we started regulating energy prices, the energy sector is now able to operate without facing economic losses.
In the past, the east side of Ulaanbaatar lacked heating sources needed for constructing new apartments and re-planning for ger areas. Mongolia can now supply heating to 50,000 to 60,000 more households as Amgalan Thermal Power Plant has commenced operation.
The energy sector had been facing losses for years because it couldn’t completely manage energy prices. Until recently, the sector’s loss amounted to 68 billion MNT a year. What is the Ministry of Energy doing to reduce losses and lessen the gap between production cost and sales tariff?
The ministry and government developed a policy to lessen the gap and submitted it to Parliament. Energy tariff policies are regulated by the Energy Law and Renewable Energy Law. We started to see results after taking many measures at Parliament and government levels. We’ve set reasonable electricity and heating prices that ensure we don’t face any losses. For instance, energy distribution centers distribute electricity, produced at a cost of 144 MNT, for 104.5 MNT [per kW], and heating, produced at a cost of 24,000 MNT, for 15,000 to 16,000 MNT to residents. The energy sector earns profit from energy sold to mining processing plants. Last year’s balance came out efficient because we offset losses with the profits made from processing plants.
Thermal Power Plants No.3 and No.4 has undergone large reforms. Can you tell us how these plants were reformed?
Thermal Power Plant No.3 had a 50 MW expansion built. It used to have a capacity of 130 MW, but now it has 180 MW. Thermal Power Plant No.4’s capacity has been enhanced by 123 MW. Currently, the plant has a capacity of 700 MW. This type of improvement hasn’t been done for about 30 to 40 years. In recent years, Mongolia has continued to supply approximately 20 percent of its energy demand from China and Russia. Considering this fact, it can be said that these projects were exactly what Mongolia needed. They were also completed in a timely manner within a short period.
Although power plants have been expanded, domestic energy needs are increasing every year. Mongolia needs new sources so that it can supply increasing energy needs. The most recently initiated project within this framework is a project to construct a power plant adjacent to Baganuur mine. When will this power plant start operation?
We have to consider the next 20 to 30 years’ outlook when planning out energy projects. For example, it’s necessary to predict the population growth from 2030 to 2040 and determine energy consumption of that time by making economic predictions.
The government has begun working on programs aimed at meeting energy demands of the next 30 to 40 years. Several large energy sources have been planned for construction within the scope of this program. The government has planned to build Baganuur power plant, Tavan Tolgoi power plant in Umnugovi Province, Eg River hydroelectric power plant, and Thermal Power Plant No.5.
Following the government’s decision to build a power plant with a capacity of 700 MW adjacent to Baganuur mine, a concessional agreement was established. The groundbreaking ceremony took place on December 23, 2015. The power plant should start distributing energy to central and eastern regions, as well as to Choir, Zamiin-Uud and Sainshand areas, by 2019.
One billion USD has been budgeted for this project. Has the financing been resolved?
It is the biggest concession project the ministry is carrying out at the moment. Investors will determine the risks and fund the project. Investors will be able to recover their investment 21.5 years after the power plant’s commencement. Once investments have been recovered, the terms require a transfer of ownership of the power plant to the government. In other words, we will not spend a single penny from the state budget or tax payers’ money to build this power plant. The government will not contribute in the project financing but cooperate by providing better infrastructure.
When will the construction of Eg River hydroelectric power plant begin?
The feasibility study and environmental assessments for the hydroelectric power plant have been completed. It was decided that the project will be financed through a loan from the Chinese government. The working groups has started building a paved road to the power plant, connecting power lines and constructing a bridge over Selenge River. Opening Eg River hydroelectric power plant will enable Mongolia to set its own energy standards. We will get a more reliable source of energy besides Chinese and Russian energy sources. The energy sector will start to work independently once Baganuur and Eg river power plants are commissioned. But Mongolia will continue cooperation with Russia and mutually assist when in need of additional electricity.
Eg River hydroelectric power plant is estimated to cost 700 million USD. Will all of this money be spent on construction work?
A French company that is considered to be one of the top 10 engineering companies of the world developed the power plant’s feasibility. The company stated that over 800 million USD is required for the project. Approximately 100 million USD has been spent on the infrastructure necessary for the project. 700 million USD is required for the hydroelectric power plant, but we will hold a tender and have companies submit their bids.
What kind of policy is the Ministry of Energy upholding for renewable energy? There are windmills in Tuv Province. Are they effective?
The biggest source for renewable energy in Mongolia was built and commissioned within the last three years. It is the 50 MW wind farm in Salkhit, located 70 kilometers southeast of Ulaanbaatar. It’s a major project with an investment of over 130 million USD. Investment was drawn from international banks and financial organizations, and foreign and Mongolian companies are working on the project. The wind farm is supplying energy to the central energy grid. Payment has been progressing normally. There were some challenges from 2013 to 2014, but these challenges were resolved last year through amendments made to the Energy Law.
Mongolia established a new tariff to support renewable energy. Other nations call this the “green tariff”. This tariff enable families using electricity to pay a tariff that will support the renewable energy sector to some extent. By opening Salkhit wind farm, we have created a favorable environment free of economic and financial difficulties for development projects for building solar, wind and hydroelectric power plants.
It seems that people are misunderstanding these green tariffs. Some people pointed out that the word “support” indicates paying voluntarily and complained that this tariff has been arbitrarily added to electricity bills. Can you comment on this?
Households and businesses receive four to five percent of the energy and electricity they use from Salkhit wind farm. Relatively high tariffs are specified in the law for supporting wind farms, solar and hydroelectric power. The tariff for wind energy is 160 to 180 MNT [per kW], 180 to 200 MNT for solar power, and 160 to 170 MNT for hydroelectric power. The government has set a target to supply 20 percent of the domestic energy demand from renewable sources by 2020, and 30 percent by 2030. Every country that successfully developed renewable energy have established tariffs to support this sector. Mongolia started this tariff in August 2015.
The initial investment for the wind farm was high and yet the operating cost is very low. Can you explain why?
Countries support renewable projects through policy as the initial investment is high and it takes a long time to recover costs. Only through this method can nations reduce coal use and contribute to the fight against global warming. Mongolia has followed this example and took its first step towards creating a cleaner and more sustainable future.
It was reported that province centers have been connected to centralized heating system. Is this true?
There are a minimum of 10 and a maximum of 80 steam stoves at each province center that supply heating locally. We set up centralized heating power plants at provinces, including Khuvsgul, Uvs, Khovd and Sukhbaatar, within the last three years to resolve air pollution issues caused by small power plants scattered around provinces. A centralized heating system will be built at the remaining provinces in the future.
The government recently issued a 50 percent discount to the energy tariff of families with electricity meters that track day and night usage separately. Can you elaborate on this?
Mongolia started using this type of tariff on October 1, 2015. The first electricity bill of the year of families in ger areas will be reduced by 50 percent as a result of the new measure by the government and Energy Regulatory Commission. This new tariff will not apply to only Ulaanbaatar but also 18 provinces. This tariff encourages people to use electric heaters instead of using coal for heat during winter. We plan to carry out this tariff in various forms in other regions starting from 2016.
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