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Mongolia and Energy

Mongolia 

 

 

 

 

 

 

Mongolia’s heat and electricity supply system functions in the central system but is in poor condition and with high losses. Both electricity and heat demands are expected to increase in the range of 4 to 5 percent annually between now and 2020. Heat access is a matter of human survival for Mongolia's 2. 5 million citizens. Hence, the key priorities and challenges facing Mongolia’s energy sector in the medium-term are:

anchor link Improving Reliability and Efficiency of Energy Services
anchor link Facilitating Public-Private Investments for System Expansion
anchor link Increasing Energy (Heat and Electricity) Access in Rural and Peri-Urban Areas


Improving Reliability and Efficiency of Energy Services

Mongolia’s heat and electricity supply system functions in the central system but in poor condition and with high losses. Nearly all provincial capitals have some electricity supply either by the central system or by small diesel-fired power plants in isolated grids. But low reliability and efficiency (both economic and operational) of heat and electricity supply, particularly in the rural areas, has been a consistent problem. Solutions require investment in system rehabilitation, technical assistance to improve system management, and the strengthening of reforms to improve efficiency and commercial viability.

The key sub-sectors of coal, space heating and electricity form an intertwined energy supply value chain. Financial sustainability is an issue across the chain. The electricity and heat system went through a major unbundling in 2001 creating 18 companies most of which are still operating under government ownership and control. A regulator is in place. A handful of companies are being groomed for privatization (including under an IDA project focused on UBEDN, the major distribution company in Ulaan Baatar). But the sector is beset by liquidity problems. The balance sheets of coal-power-heat enterprises are carrying arrears in the range of $100 million (9 percent of 2002 GDP). Huge economic and operational inefficiencies along the supply chain keep costs high and price subsidies are at an unsustainable level, particularly in heating where subsidies amount to 3.5 percent of GDP. At the end of 2002, the energy and mining sectors accounted for a quarter of Mongolia’s total outstanding foreign debt: the energy and coal sector enterprises had external debt in the range of $300 million (27 percent of 2002 GDP). The sector has a weak capacity to service this debt.

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Facilitating Public-Private Investments for System Expansion

Both electricity and heat demand are expected to increase in the range of 4 and 5 percent annually between now and 2020. The electricity capacity of 788MW would need to increase by at least 500 MW over the next 15 years. Medium-term electricity sector investment needs are estimated at $65 million per year. The priorities for the medium term have been identified as:

  • the refurbishment of the major combined heat and power (CHP) plant #4 (which serves 70 percent of base load demand)
  • gradual decommissioning of ‘must run’ CHP#3
  • upgrade of national dispatch center and de-bottlenecking of transmission system
  • the addition of thermal base load capacity to serve heat, particularly in Ulaanbaatar, and
  • the development of a medium-sized hydropower plant for system regulation, peaking, and to reduce the reliance on imports from Russia to meet peak load.

Additional heat demand over the next 15 yrs of about 150 MW will be met through a combination of (a) expansion of the combined heat and power plants; (b) introduction of energy efficiency investments, particularly at the substation level and reduction of water losses; and (c) heat-only boilers. Overall investment required for this heating sector expansion is estimated to be around US$ 150-200 million.

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Increasing Energy (Heat and Electricity) Access in Rural and Peri-Urban Areas

Heat access is a matter of human survival for Mongolia’s 2.5 million citizens. While 72 percent of the population has access to electricity (primarily supplied by the central inter-connected system), the inter-connected grid only provides subsidized heat supply to 47.1 percent of households in UB and 35.4 percent of the population in district centers. This means that nearly 64 percent of the rural population relies on traditional stoves. Coal is used for home heating in coal stoves that burn continuously throughout the winter. Poor households spend about a third of their annual budget on coal purchases.

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Mongolia

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