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ASIAN ENERGY SECURITY WORKSHOP May12-15, 2004 Beijing, China

Explore the energy sector development in Mongolia and the implications of a regional alternative path for the country. Discuss the current status, challenges, and potential opportunities for improvement in the Mongolian power sector.

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ASIAN ENERGY SECURITY WORKSHOP May12-15, 2004 Beijing, China

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  1. ASIAN ENERGY SECURITY WORKSHOPMay12-15, 2004 Beijing, China • ENERGY SECTOR DEVELOPMENT IN MONGOLIA • LEAP MODEL, AND IMPLICATIONS OF A REGIONAL ALTERNATIVE PATH FOR MONGOLIA Ts.Sukhbaatar, Ch.Oyunchimeg and S.Zoljargal MONGOLIAN ENERGY ASSOCIATION Tel:976-11-329745 Fax:976-11329228; E-mail:mea@mobinet.mn

  2. Mongolia at a Glance Population 2.4 million 55% urban, 45% rural 30% live in the capital, Ulaanbaatar Economy GDP: approx. more than US$1billion Inflation: 8-10% GDP per capita: about US$450 Public investment: approx. 20% to energy sector

  3. Mongolian Power Sector Installed Capacity: over 1000 MW Generation: 2,355 Gwh Revenues: about 100 million US$ Coal Production: about 5 million tpy (virtually almost all power comes from coal) 2015 projected electricity demand: 5,400 Gwh 2015 projected installed capacity: 1500-1800 MW

  4. Power Consumption • 59.2% of total electricity is consumed by the industrial and construction • 3.4% by transport and communications • 1.4% by agricultural sector • 25.4% by household and household services • 10.6% by other sector

  5. Map of Mongolian Power system

  6. Restructuring in Energy Sector

  7. Conditions were in Mongolia The following conditions were existed for Mongolian Energy Sector: • Government role was overwhelming • Energy sector operation were centrally formulated and controlled • Revenues can not cover the investments

  8. The main context for Restructuring • Traditionally, utilities have been large, capital intensive, not subject to competition • Centrally planned utilities designed to meet predetermined production targets • Economic criteria did not support decisions • Result was major inefficiencies in system

  9. Why Restructure? • Improve financial sustainability and increase efficiency • Attract additional private and public capital, improve the technologies • Use economic criteria: price of services sold has to be in line with production costs

  10. Energy Sector Reform • Energy Law, 2001 • New Regulatory Framework • Unbundling • Commercialization/Privatization

  11. Energy Law Parliament formulate the state policy on energy, make decisions regarding construction of a nuclear power plant Government organize implementation of energy policy and legislation on energy Ministry Implement the Law on Energy and other decisions of the Governmnet Regulatory body regulate relations on production, transmission, distribution, dispatching of energy, import and export of electricity, construction of energy facilities and energy consumption

  12. New Structures • Generation companies • Distribution companies • National Dispatching Center • Electricity Transmission Company • Energy Regulatory Authority

  13. Objectives of the Energy Regulatory Authority • Review and approve tariffs; • Issue Licenses; • Protect equally the right of Licensees and the Consumers; • Create conditions for fair competition among producers and suppliers

  14. Regulation • Consumer protection against discriminatory pricing • Equitable cost recovery for suppliers • Prices based on reasonable costs and returns on investment required for high quality service • Provide enabling environment for investors • Energy efficiency and demand side management

  15. Current Status of Energy Sector • Rehabilitation and upgrading of grid systems has progressed • Tariffs have been increased and will be adjusted as needed • Electricity in off-grid aimags and soums is very expensive, above tariffs • Coal production has improved but efficiency still needs to be increased

  16. Issues on Power Supply

  17. Energy Sector Inefficiencies and Remedies • Introducing competition is a priority but the reality is that one power plant produces almost 70 percent of total electricity, and this will limit competition. • Regulating existing companies while trying to attract new ones.

  18. Energy Sector Inefficiencies and Remedies Promotion of Inter-regional energy trade opportunities to develop projects of which could provide cheaper energy, while at the same time encouraging domestic producers to become more competitive in a small market - as gas and oil pipelines - and high voltage electricity transmission lines Example: the Western Energy System (WES) buys electricity from Russia but if it generated its own electricity by using diesel fuel it would be five times more expensive.

  19. Energy Market • Promoting integrated resource planning and demand side management as companies try to improve their operating cost structures. • Facilitating the development of an energy services industry as generating and transmission companies try to increase profits • Privatization and market reforms that should reduce technical and non-technical losses in the context of a small market.

  20. Technical and non-technical losses • Inefficient operation, including high technical and administrative loss, is still remaining in the energy sector, • There is a lack of energy saving technology and methods available or used in the country, • The focus has always been on the production and supply of energy, while almost ignoring potential ways and technologies to reduce energy consumption by customers

  21. Expanding access to energy for the poor • The cost of supplying electricity is almost always less than that of supplying petrol or kerosene but it is still expensive to provide these services. • Subsidies may be needed but when extended to all consumers, they are generally a wasteful use of scarce resources. Thus, lifeline tariffs would have to be very carefully targeted (and transparent) to help only those that need assistance.

  22. Expanding access to energy for the poor (continued) • Subsidizing access could be one method of assisting low-income households, and the subsidy could take the form of prolonged but scheduled repayments or extending micro-credit facilities. • Cross subsidies to pay for increased access could be provided by increases in fuel taxes for coal, petroleum products, and even firewood and dung in rural areas

  23. Energy and Environment • Environmental standards are comprehensive but organizations are still too weak to enforce these regulations. • Less activities to the Kyoto agreement requirements and CDM promotion

  24. Power Development in Future

  25. Improvement of the reliability, quality and efficiency of existing coal, heat and power delivery systems, projects have been and will continue to be implemented to meet this goal Restructure ownership and regulatory framework aimed at full commercial accountability and asset management approaching comparable international best practices. Entities have been corporatised, they are operating increasingly as commercial entities, and once operating on a sound financial basis, they could be partially or fully privatized Strengthen institutional regulatory capabilities in policy formulation and in their implementation. The Energy Regulatory Authority will be given the commitments needed to become an independent body that will provide transparency in its operations and decision-making processes Goals in near Future

  26. Power in Rural Area • increase financial sustainability of utilities • provide affordable modern energy services • access for all households • efficient public & private participation

  27. Power Supply Mechanisms Isolated Areas • declining operational (generation) subsidies • renewable energy utilization (hydro, wind, solar) • targeted cross-subsidies for the Poor, such as progressive, life-line tariffs (first 10-20 kWh below cost) • specific mechanisms to connect ger area clients • connection to the grid • increase financial viability of utilities

  28. Energy Conservation: Promoting Efficiency and Environmental Sustainability • Building legislative framework - Drafting a new Energy Conservation Law • National Energy Management Program (NEMP) • Developing Energy Service Companies (ESCO)

  29. Future Investments • Transmission line of 110/220 kV in Huvsgul, Baynhongor • Durgun and Taishir hydropower Plant • To construct transmission line from Choir 220 kV substation to provide ‘Tsagaan Suvraga” and “Oyu Tolgoi” copper and non-ferrous metal mines • To construct a Thermal Power Plant at “Tavan tolgoi” anthracite Coal mine and connect to the centralized grid • To construct 100 MW hydropower Plant on the Orkhon river • Interconnection of Western and Eastern Electric Systems

  30. Map of Mongolian Power system

  31. The main objective of the Energy Sector Development of Mongolia is to create a financially sustainable energy sector that will provide cost-effective energy access, thereby enabling poverty reduction and greater private sector and civil society participation. Moreover, Mongolia’s energy sector should be developed within a regional energy context, while at the same time taking advantage of new technologies and sources of energy that might further promote economic efficiency and environmental sustainability Gonclusion

  32. MONGOLIA LEAP MODEL, AND IMPLICATIONS OF A REGIONAL ALTERNATIVE PATH FOR MONGOLIA

  33. General background information for using the LEAP Application • Work on LEAP modeling has been started since end of 2004 • LEAP Working Group comprised of 3 members • We have encountered in gathering with data sets and a lack of practical experiences to work with LEAP. • We made scenario on LEAP modeling based on collected data prepared by Mongolian National Statistic Office and Energy balances.

  34. LEAP Base Data Set Collection General datasets are developed for the following scenarios : • Key variables • Demand • Transmission and Distribution • Electricity Generation • Coal Mining • Resources

  35. Tree model structure for LEAP

  36. Tree Structure Model for Power Generation sector

  37. Mongolian energy sector’s end users: • Residential • Urban Area Households • Rural Area Households • Commercial • Commercial units • Monopoly and other Industries

  38. Electricity 12% 15% 15% Heating 10% 25%

  39. Mongolian Coal Sector • Proven geological reserves 150 billion metric toes. • Over 90% of explored deposits are located within the Central Economic region • About 40 coal deposits are being mined

  40. Coal sector demand increase anticipation: • in 2005: 8 mln tones • In 2010: 12 mln tones

  41. Coal export of Mongolia • Recently in Mongolia Coal is being mined above the local demand and started to import to other country

  42. Assumptions of Business-As-Usual-Scenario The Business-As-Usual-Scenario is based on a set of assumptions derived either directly or through interpretation of official state-level forecasts and plans of Mongolia.

  43. Assumptions of Business-As-Usual-Scenario (continued…) Scenario shows that coal fuel will still play an important role in future of Energy generation while other renewable energy sources will be increased accordingly.

  44. Mongolian LEAP Working Group has collected all available data sets and developed Business-As-Usual Scenarios as a first phase. • Then we have encountered with some difficulties due to a lack of practical experiences and couldn’t follow up with alternative scenarios. We come to the Workshop with data sets to find solutions with LEAP to have more experience for using this model and develop future implications of a Regional Alternative Path for Mongolia.

  45. Next Steps for developing future scenarios • In order to develop complete scenario for Mongolia will be needed to consider following issues as a next step: • Reconsider existing paths based on year 2000 balance and its future tendency • Add demand cost • Implementation of Energy-Efficiency Measures • Further estimates of Environmental Emissions

  46. Thank you very much for your kind Attention MONGOLIAN ENERGY ASSOCIATION Tel: +976-11-329745 Fax: +976-11-329228 E-mail: mea@mobinet.mn http: www.energyassociotion.mn

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