Mongolia Energy Situation

Energy Situation

The power system of Mongolia accounts for 3% of GDP and supplies 80% of the population with electricity. The system is considered to be a major branch of the economy and infrastructure sector of Mongolia and it strongly influences the social and economical viability of the country. Approximately 80% of the consumed electricity is generated in coal-fired power plants, 4% is produced by diesel generators and 3% by renewable energy sources (mainly hydropower). The remaining 13% is imported, mainly from the Russian Federation.

In 1989 the total electricity consumption amounted to 2,900 million kWh. In the period between 1990 and 1998 electricity consumption dropped tremendously owing to the transition to a market based economy whereby a major portion of the industrial companies was closed. Due to the lack of financial resources, the energy sector faces huge problems to maintain and repair the existing equipment which is in obsolete condition. The Mongolian government has taken actions for the rehabilitation of equipment and auxiliaries by using foreign loan and assistance. From 1998 to 2007 the average annual consumption increased by 3.7% and reached a level of 3,000 million kWh in 2007. On average, the industrial and construction sector accounts for 62% of the energy consumption. The housing and communal service sector consumes 24% and the transportation and communication sector 4%. The rest, 10%, is consumed by the remaining sectors of the Mongolian economy. The totally required capacity in Mongolia is 740 MW at present and will increase to 780 MW in 2010.

Energy systems

The power system of Mongolia consists of the three unconnected energy systems (Central, Western and Eastern Energy System), diesel generators and heat-only boilers in off-grid areas.

The Western system provides three province (Aimag) centres and its 22 district (Soum) centres with electricity imported from Russia. The peak load of the imported electricity reaches 8.0 MW. Currently, there is no own generation capacity. It is planned to build two smaller coal plants with a capacity of 24 and 40 MW respectively to reduce dependency on Russia

The Eastern Energy System is based on the 36 MW Choibalsan Power Plant. The plant supplies the Aimag and Soum centres of the Dornod and Sukhabaatar provinces with electrical power.

The Central Energy System consists of five heat and power cogeneration power plants of Russian design, for base load operation, interconnected by a 220 kV line with the Russian-Siberian grid, one transmission network and four distribution networks. The system supplies power to the cities of Ulaanbaatar, Darkhan, and Erdenet and to the centres of 13 Aimags and about 150 Soum centres. The total capacity of the central grid is 680 MW or 840 MW including the maximum potential supplies from Russia. The total load currently amounts to 740 MW and is expected to increase to 780 MW by next year.

Concerning the Western and Central systems, the Mongolian operators are not able to balance the demand and supply in the grid adequately. The missing balance load has to be compensated by additional supplies from Russia which comes at a high price.

Although there has been some improvement in recent years, the country's coal-power-heat supply system remains in poor condition, and is unable to meet the basic supply requirements of industrial and commercial enterprises and the urban population. Power system losses remain very high. In addition to exceptionally high losses and internal use in the CHP plants, losses and faultily metered or unmetered consumption in the electricity distribution system are in excess of 25%. Poor bill collection and revenue management practices cause further financial losses. Although the financial situation has improved substantially since mid-1996, it remains precarious, due to the high system losses, revenue collection difficulties and insufficient tariff levels (especially for heat) to cover the service cost. Financial information systems are insufficient and/or inappropriate, and skills and procedures need to be developed to undertake proper financial planning. Hardware, software and skills in Mongolia are inadequate for efficient operation of the main generation and transmission system, and interfaces with distribution systems.

Future Developments

The MoE (Ministry of Energy) is in the planning process of constructing two coal-fired power plants (24 MW and 40 MW), supplying the Western system. Chinese investors plan to construct a gigantic 4,800 MW coal power station in southern Mongolia during the next decade. It will be supplied with coal from Mongolia but the electricity generated is exclusively transmitted to China. It can be seen as a Chinese power station in Mongolian territory which will also not be connected to the central grid.

Problem Situation

The Mongolian annual State budget depends by a portion of 40% on the income generated by exploitation of resources, mainly copper. The economic boom in recent years, which also allowed implementing big infrastructure projects such as the massive 7,000 km grid extension programme, has declined rapidly. The annual budget deficit already accounted for 12% in 2008. Whereas in mid-2008, 35% of the whole population were considered to be below the poverty line, this value has increased to 42% by the end of 2008.

The electricity supply of off-grid Soums and settlements is based on diesel generators. Heat is provided through heat-only boilers. However, the high fuel costs and the low financial ability of the consumers hamper the generation of electricity. Therefore the Government of Mongolia intends to extend the national grid (220 kV and 110 kV transmission lines as well as 35 kV distribution lines) in order to connect off-grid Soums. The grid extension will be financed by the state budget and the development fund of Mongolia. At the moment around 330 Soums and about 200 settlements are connected to the grid, while twelve Soum centres are supplied through decentralised (renewable) energy sources. The original grid extension programme includes the construction of 7,000 km of power lines; to current date 2,300 km have been realised. In some areas transmission lines are already constructed but not taken in operation because no power plants are feeding in as yet.

According to the objectives of the Mongolian government the share of power produced by renewable energy sources should reach 20% in 2020; the current governmental programme, however, aims at 3 to 4%. Full coverage of the country by grid extension is doubtful from a technical as well as economic perspective due to high investment costs and high electrical losses to cover long distances and little demand on the countryside. Renewable energy could contribute to a reliable and cost-efficient electrification of remote rural areas.

According to the Energy Authority the extended grid will reach the Western regions including Zavkhan and Altai Aimag in 2011. Even when the grid reaches the Soum centres, which will be already provided with electricity through isolated renewable energy plants, these will be kept in operation in order to decrease power deficit and to increase the quality and stability of the service supplied.

Institutional set up and actors in the energy sector

All Mongolian power plants are state-owned, equally divided among the Ministry of Energy, the Ministry of Finance and the State Property Committee by one third each. Several operating companies are in charge of operating and managing the power plants and the transport and distribution grids. Most operating companies are state-owned and others are based on public-private partnerships.

Energy Authority

The Energy Authority (EA) has been established in March 2009 in order to achieve an efficient operation and management of power plants and installations and to secure proper maintenance. The EA is not only responsible for the operation of all power plants in Mongolia, but also supervises all operating companies. Due to its short existence, the EA is still seeking for its role and position. The director of the EA emphasized that it is not the EA’s intention to fully control electricity sector in Mongolia, which means that there will be room for existing and new private companies to operate at least the distribution systems.

Energy Regulatory Authority

The Energy Regulatory Authority (ERA) executes its duties and responsibilities to regulate energy generation, transmission, distribution, supply and dispatching. It approves prices and tariffs, awards licenses to operators, and monitors compliance with terms and requirements of licenses. Furthermore, it is supposed to protect equally the rights of both consumers and licensees according to the relevant laws, regulations and codes of the ERA enacted by the Energy Law. USAid supports the ERA in the transition process towards a structure in conformity with market tariffs. The ERA also influences the tariffs of isolated plants and grids. On the basis of an ERA methodology, the licensee determines the tariffs, which has to be approved by the Aimag Government first and by the ERA thereafter.

Altai Uliastai Energy Supply

The Altai Uliastai Energy Supply (AUES) was found a few months ago due to the construction of the 11 MW Taishir Hydro Power Plant nearby the city of Altai. AUES is owned by the Ministry of Energy, the Ministry of Finance and the State Property Committee one third each. The composition of the Supervisory Board is already determined and the board will consist of the technical director of the Energy Authority, a director of the bureau of the Aimag government and a representative of the State Property Committee. At the time of the mission the composition of the Executive Board was still unknown. The executive director was already appointed and he had employed a director and the chief engineer.

AUES will be responsible for power generation in the region and for the operation of the grid. Electricity will be delivered to Altai through a 47 km long 35 kV transmission line and to Uliastai (135 km, 110 kV) and from there to 19 Soums. Backed by a strong political will at present, discussions about the future responsibilities of AUES are ongoing. It seems likely, however, that they will also be responsible for the operation of the regional distribution grid, including the hydro power plants of Bogdyn, Tosontsengel, Tsetsen-Uul, Zavkhanmandal and several diesel installations. Despite its potential future importance, it has to be stated that AUES is currently an organisation which mainly exists on paper and is not yet in a position to take its envisaged role.

Uliastai Energy Company

The Uliastai Energy Company (UEC) was established in October 2004 to operate the 2 MW Bogdyn HPP, the 6.2 MW diesel power plant and the distribution grid in Uliastai. The Bogdyn HPP has been rehabilitated with financial support of KfW from 2005 until 2008. The maximum annual generation, which was 1.5 million kWh before the rehabilitation, could be increased to 9 million kWh. The power plant can usually operate between May and October. Due to the current water deficiency, Bogdyn runs with a reduced capacity of 750 kW and electricity can only be provided for six to eight hours a day. Taishir HPP cannot run at the moment for the same reason. Only if these two plants run on a regular basis, a 24h supply can be guaranteed once the regional grid is in operation. In winter, supplies will be restricted whereby in particular the ger (yurt) districts will only receive power for two hours in the morning and six to seven hours in the evening.

The UEC is owned by the Aimag government but the operating company has been privatised (supported by the GTZ RE-project) which was a new and innovative model in the Mongolian energy sector. After a tendering process, 51% of the operating company is in the hands of the private company “Mongol-Erden” and 49% is owned by the Aimag government. Although no final decision has yet been taken, it can be expected that the UEC will be owned by AUES in the long term. The EA and the State Property Commission will send a delegation to Uliastai by July 2009 to clarify the outstanding property issues. According to the director, it is likely that UEC will continue to exist and remain responsible for the operation of the Bogdyn HPP. The UEC will also keep operating the Uliastai diesel power plant until the Taishir HPP will be in operation.

The financial situation of the current public-private company UEC is far healthier than that of the old, fully state-owned operating company. It succeeded in reducing debts but also raising salaries. It decided to make their staff responsible for the operational management to a larger extent which resulted in a decreased number of unplanned standstills. Due to lower operational costs and an increased generation of the Bogdyn HPP, UEC increased its profitability. Some of the profits have been reinvested in the company and the remaining portion was divided among the owners.