With demand for electricity on the rise, and a national drive to boost renewable power production gathering strength, investor interest in Mongolia’s fledgling wind energy industry looks set to grow.
The government aims for renewable sources to account for at least 20% of power generation capacity by 2020, up from 3% today. It is also keen to export renewable energy, although significant investment will be required if Mongolia is to achieve its objectives.
Second wind farm deal sealed
On February 19, the German firm, Ferrostaal Industrial Projects, announced plans to invest $120m in the Sainshand wind farm project, which is located in Mongolia’s Gobi Desert. Managing directorKlaus Lesker said the company would take on the role of project developer, while working with local partners to boost foreign investment. A power purchase agreement and operating licences have already been signed. Once completed, the 52-MW facility will provide power for the national distributor.
Operations at the wind farm, Mongolia’s second such venture, are expected to begin in late 2015. The country’s first wind energy facility, a 50-MW farm located to the south of the capital in Salkhit, is run by Clean Energy, a renewable energy company jointly owned by Mongolian conglomerate Newcom, General Electric Pacific, the European Bank for Reconstruction and Development, and the Netherlands Development Finance Company. The $120m venture began operating in mid-2013 and feeds into the national grid.
Wind and solar combined account for around 5% of Mongolia’s 955-MW installed capacity, Ministry of Energy figures show. With the ministry forecasting peak demand to reach 2321 MW by 2020, the country will require significant investments in generation capacity over the coming several years.
While coal-fired plants – which account for the vast majority of capacity – are being upgraded and expanded, one alternative is to build additional wind farms. In an interview given to OBG, B. Unenbat, the CEO of Newcom, described local wind resources as “good-to-excellent, equivalent to 1100 GW of wind electric potential”.
Further government incentives may be necessary to boost investment, however. The state has already introduced initiatives such as feed-in tariffs for producers at above-market rates over extended terms. Last year also saw an easing of restrictions on foreign investment.
According to Unenbat, an increase in public-private partnerships (PPPs) in the energy sector could help the country secure its energy independence. “Mongolia’s private and public sectors need to increase cooperation and collaboration to ensure we are all on the same page, with clear and defined roles for each project, creating a win-win scenario for all parties,” he commented.
Mongolia has, in addition, set its sights on carving a niche as a distribution centre for renewable energy. President Elbegdorj last year mapped out plans to utilise the country’s wind energy resources as a means of exporting power to China and elsewhere in Asia.
Taiwan is also keen to tap the industry’s potential, signing a memorandum of understanding with Mongolia on renewable energy development in February, which set out terms for establishing strategic partnerships in the sector, building links and promoting greater use of wind and solar power.
While Taiwan will be providing training to Mongolian officials in energy sector management, Taipei is also focusing on the investment and business opportunities that are opening up. Taiwan’s Ministry of Economic Affairs said in a statement that the agreement would allow local companies greater access to an “extensive market” with vast renewable energy sources.
Mongolia’s drive to diversify its energy sources stems from both rising demand and an awareness of the damage inflicted on the country’s ecosystem by fossil fuels.
Many Mongolians use coal for household heating, which exacerbates the problem. The World Bankestimates that pollution rates in the capital of Ulaanbaatar are among the highest in the world.
The knock-on effects of Mongolia’s pollution problems are evident. According to the UN Environment Programme, average temperatures have risen by 2.1°C over the past six or seven decades, approximately three times faster than the global average. Concerns are growing that higher temperatures could, in the future, lead to a loss of pastureland, a permafrost thaw and glacial melting.
A drive to boost growth across Mongolia’s renewable energy sector will help address these issues, while providing opportunities for companies along the supply and management chain.