An 18.7 million USD loan for a solar power plant was recently signed by the Asian Development Bank (ADB), Leading Asia’s Private Infrastructure Fund, Sermsang Power Corporation Public Company Limited and Tenuun Gerel Construction LLC.
Director General of ADB Private Sector Operations Department Michael Barrow gave an interview to talk about the project in detail.
ADB has signed its first renewable energy loan agreement with the Mongolian private sector. Can you tell us about this agreement and what it means for Mongolia?
This is the first private sector financing for us in the energy sector in Mongolia. It is also the first time we’ve brought some Japanese money that we manage with the Japan International Cooperation Agency (JICA) in Mongolia. It’s one of the first solar power systems with commercial-based financing from overseas in the country.
So what does this mean for Mongolia? Mongolia has a lot of advantages when it comes to solar power. You have a lot of land available, which is critical for solar power. You have a lot of sunlight which is also important. You have a very dry and cold climate which is interestingly the best climatic conditions for solar power and makes the panels more efficient. So, the conditions are fantastic and at the same time, Mongolia is growing and it needs more power.
Right now, Mongolia is heavily dependent on coal-fired power – 90 percent of your power generation is from coal. Coal has some unfortunate effects. One of them is that it has to be mined and another is its greenhouse gas effect.
Right now, Mongolia has twice the average of greenhouse emission per head, which is quite high. It’s a small country but on a per person basis, it’s still quite high. Also, in terms of personal health. I seem to be lucky. Whenever I come here, it’s blue skies and nice in Ulaanbaatar, but I know about the problems with the smog in the city, and obviously, it’s bad for the health. Anything the country can do to reduce the reliance on coal and fossil fuels is better.
Mongolia has a wonderful resource in solar, which is indigenous and stays and doesn’t need to be imported. From that perspective, it’s well set up. We’re very happy to support the first project. We came with some JICA money to finance the debt for the project. We’re happy to do that again for future projects but we’re hoping that for future projects, we set an example for other financers and more investors will come to the private sector around Asia and globally. We hope to bring more and more investors interested in working in Mongolia's solar sector by setting a good example of what can be done.
What do you plan to do within the framework of this project?
This project will deliver 15 megawatts of power. That’s roughly, 22.3GWh per year of electricity delivered into the system, which will help avoid 26.4 tons of carbon dioxide emissions a year. That’s just the basic numbers.
The project is near the new airport so it will supply to the central grid, and obviously, supply electricity to the new airport as well. The project is going to provide an important, though still to a small part of the overall electricity demand of Mongolia and it is really setting an example for what we hope for a lot of other projects coming after this. That is the key thing. I mean, one project is good but if we can set the example and have many other projects coming like this, then we really make a difference to the power generation mix in Mongolia.
When do you plan to start producing 22.3 GWh of solar-powered electricity annually?
We were at the project site on March 20 and I’m happy to see that it’s already on a pilot basis before the final commissioning, which is happening any day now. Already on a pilot-basis, the plant is producing power and it is producing power almost at the expected capacity of the plant. It started producing almost two months ago and it is now supplying electricity into the central grid, so it’s already providing that support to the Mongolian energy sector.
Are you saying that the project is already complete?
Yes. What happened was the Japanese tie and the Mongolian sponsors started the project with their own money because the project had to be built during the right season, summer, in Mongolia. So they started the construction in April last year in order to have most of the work done on site before the cold season. A lot of work happens after the buildings are complete. The project sponsors used their own equity money to do the work and get to completion. Our money is coming in to replace some of that early equity money and for the long-term financing. The project has just started operating this year.
What are the expected outcomes from the project on a longer-term basis?
The specific outputs for the project are as I mentioned before. We know how much power it’s going to supply into the system, we know how much carbon or greenhouse gas is going to be avoided, and we will monitor these things to make sure that is happening. This project will run for many years. The contract sale is 12 years but beyond that it’ll keep on producing as long as the sun is up and the panels are maintained.
What is important beyond that is what else is done to provide clean power into the Mongolian system. We have to find good projects and strong sponsors, but we are already talking to possible project sponsors about other solar projects in Mongolia. We’d like to do new things. For example, one of the technologies that is becoming increasingly important for the renewable energy, specifically solar power, is battery storage.
The only problem with solar power is that it only generates power when the sun is shining. Otherwise, it’s not generating. What we can do is put large-scale batteries together and when the sun is shining, it charges the batteries and when it isn’t shining, the batteries will discharge power into the system. That’s something for the future. We hope that it’ll be a new development. There’s a lot that can be done and we’re happy to support from our ADB public sector and our private sector is working on the energy efficiency front to make the existing coal power projects more efficient, or to also help the population in Ulaanbaatar to have cleaner fuel to burn at home for example.
How does ADB evaluate Mongolia's renewable energy potential?
First of all, ADB has been working with the Ministry of Energy and the government of Mongolia for a long time now. I think we started our work on particularly renewable energy sector from 2010 and in 2015, we did a big project with the government in preparing the renewable sector for private sector partnership. That's part of the work we’ve done over the years to get the country ready.
There has been some resource mapping, which shows that Mongolia has about 4,800 terawatt-hour resource which is very abundant. With that, you have to do other works in terms of preparing the grid – the powerlines, etc. – to take all of that power. Battery storage will also help in maintaining power throughout the day and system. Honestly, the potential right now is enormous. The key challenge is to get the financing and sponsors to come in and do these projects.
Right now, financing from the domestic side is still not very long-term and quite expensive. That’s why if we can support local banks, we do support local banks in Mongolia, and if we can provide financing and bring other financing from overseas with long tenor at reasonable price, we can help support the power sector in Mongolia.
As you mentioned before, Mongolia has abundant renewable energy resources. Why hasn’t this type of project been carried out in the country until now?
Any country that is embarking on renewables has challenges because it has to attract the attention and interests of investors and financers. Until recently, Mongolia was not on the map for all of these developers. Now, that is hopefully changing. The other thing is that there had to be a lot of work done on this resource mapping to see the condition and find the right place to do the project. When we did this project, we helped the sponsors in terms of the preparation and due-diligence of the project with some money we had from the Canadian government. That was very helpful in preparing the ground for due-diligence.
Also, work needed to be done on the government side to get the right conceptual framework for power – you have to have a power purchase agreement to provide and sell power on a long-term basis, you have to set tariffs, and overall, the grid has to be prepared to take solar power. This work has been done over the last two or three years. Now that this work has been done and the example has been set, we are very hopeful that this will open doors to a lot more interest from financiers to come to Mongolia and work with Mongolian companies to do many more projects.
What is ADB’s future plans in the Mongolian renewable energy sector?
We have a very strong commitment and major targets for climate change financing. The target is at 75 percent of everything we do should have a strong climate change elements. Basically, most of what we do is going to be focused on climate change around Asia, which includes Mongolia.
Overall, we have a mission to do solar, wind, and by the way, there may be potential to develop geothermal in Mongolia, and other forms of renewable projects across Asia. We would certainly hope to do a follow-up in Mongolia. You do have so many advantages for renewable energy and the need is so strong.
Our plan specifically in Mongolia is to do more. We need to find sponsors for the projects but we have a lot of capital to deploy and we’re very happy to support many projects in renewable energy in Mongolia.