Energy in Mongolia
Comparing 2019 and 2020 results, Mongolia’s energy leaders continue to see Russia and Sustainable Cities as Critical Uncertainties while Exchange Rates and Extreme Weather Risks are increasingly perceived with higher uncertainty. Action Priorities centre on digitalisation and technology issues, breaking with 2019 which saw Hydro and Coal leading the Action Priorities section.
Russia is increasingly perceived as an uncertainty. Mongolia’s and Russia’s energy sectors are strongly connected as the latter is a lead supplier of the former’s fuel and power demand. In September 2019, Mongolia and Russia signed a permanent treaty on friendship and comprehensive strategic partnership. While relations are based on cooperation, uncertainties persist around the vulnerability associated with over-reliance on a single supplier.
Exchange Rates remain an uncertainty particularly with regard to crude oil import costs Mongolia’s crude oil import bill rose in 2019, prompting the government to introduce the Automatic Fuel Pricing Mechanisms to calculate fuel prices in line with border prices and foreign exchange rates.
Sustainable Cities remain a Critical Uncertainty. City air and soil pollution are a critical issue as they affect most Mongolian cities - nearly 45% of the country’s population. Growing urbanisation further aggravates the issue. A ban on low-grade coal for domestic use has been introduced. In December, 2019 the Asian Development Bank (ADB) approved a 160 million US Dollar loan to support air quality improvements in Ulaanbaatar, the country’s capital.
Electric Storage is perceived as the most actionable issue. Mongolia is working on developing a regulatory and business framework to integrate battery technology into the energy network. In September 2018, the ADB-supported Upscaling Renewable Energy Sector Project received a USD 14.6 million grant to develop a 40.5MW distributed renewable energy system in western Mongolia. The programme uses solar PV and wind power along with battery storage and energy management systems and is aimed at reducing import dependency and improving affordability and environmental sustainability.
Digitalisation is also identified as an Action Priority. The Ministry of Energy declared 2019 as “The Year of Smart Energy” and developed policy documents on smart energy systems. The Wide Area Monitoring Systems (WAMS) and Integrated metering system are due to be introduced in 2020.
Electricity Prices enter the Action Priority section with lower uncertainty. Mongolia has one of the cheapest electricity and heating tariffs in the region, which discourages investment in the energy sector. In 2019, the country increased the electricity tariff by 16% and the heat tariff by 10%. It is also working on amending its tariff methodology to make it more transparent and effective.
Mongolia has adopted a national air pollution mitigation plan in March 2017 in response to its severe air pollution. The plan aims to reduce the current levels of air pollution by 80 percent by 2025. However, the Mongolian government is also planning more than six new coal power plants over the next decade in the absence of a coherent national energy strategy. The dominance of coal in the Mongolian energy plans for new power facilities in Ulaanbaatar, together with the country’s ageing power plants, transmission and distribution networks, have contributed to the creation of a highly inefficient energy sector.