Mongolia has been toying with solar and wind energy for the past few years, issuing statements about how it would like to 25% renewables by 2020. We have seen a handful of investments from outside the country in the past few years, as recorded in our Deals database, with solar installations in the Gobi Desert, Tuv Aimag and Dornogovi in 2018/19 adding up to 62 MW between them, and the 55 MW Sainshand Wind Farm completed in 2017 by French firm Engie and other European contractors.
Mongolia has asserted this 20% to 25% level of electricity supply from renewables by next year, and yet it current sits with some hydro, and about 80% of electricity from coal, and has had to go cap in hand to international development banks, to try to make any progress at all.
That Sainshand wind farm was financed with $120 million mostly from the European Investment Bank and the European Bank for Reconstruction and Development.
And we were also dimly aware that China’s State Grid Corporation has pointed out earlier this year that Mongolia’s total wind and solar capacity could reach as high as 1,200 GW as it talked about getting energy from Mongolia to help with its Winter Olympics in 2022.
But even so nothing really quite prepared us for the deal which broke in PV Magazine earlier this week from the China General Nuclear Power Group which is preparing a huge investment of around $2.5 billion to add 1 GW of solar and 2 GW of wind in Inner Mongolia, which is being prepared at breakneck speed for some time in 2021.
It seems so glaringly obvious that Mongolia needed help and that with both its sunshine levels, and its wind speeds, it was an ideal location for both solar and wind, but that it simply had no money to invest in them. The country has just 3 million people and is one of the most sparsely occupied on the planet, and consists of 1.5 million square kilometers of flat, mountainous and desert terrains.
So the right answer for it economically is instead of asking for money, is to pay neighbors with electricity, for project development, and ask for some electricity in return. Mongolia sits smack in the middle of China and Russia, and has the chance to export excessive renewables to either. Instead it has chosen to ask China for help in building out its first 3 GW, given that its entire energy requirements as a country are at present just 800 MW of capacity, and at the very least two thirds of that capacity will head off to the south to China. Mongolia can then either repeat the trick with Russia or get China to lend it more cash for a second tranche of renewables, and sell spare electricity to Russia, to pay back China. Either way it can almost overnight stop importing over 10% of its energy needs from Russia, which will help the balance of payments quite a bit.
For its own part, China was staring at the “gift horse” that was Mongolia and not realizing it is just another 1.5 million square kilometers of space where it can lay down renewables without anyone objecting.
Both ends seem to have sorted out their transmission issues – and are ready to attach this huge energy resource, and for China’s part, it will attach it to the grid and use it as part of its 6 GW subsidy-free wind resource to power the 2022 Winter Olympic Games, which implies there is more to come from elsewhere. In January this year Chinese authorities said that much of that 6 GW would come from Mongolia, but some of it in smaller project sizes of 100 MW to 200 MW.
Prior to this Chinese deal Mongolia had issued sufficient licenses to build 200 MW of solar itself and 450 MW of wind power in the near future – so it had plans to move away from coal already. This was achieved by setting a Feed In Tariff for both to attract developers. This will not apply to the Chinese build out, which will be subsidy free, and supply Beijing at the same price as existing coal plants.
Developers should take a long hard look at maps of countries where electricity is in demand, and take a look at their neighbors and ask the question – if it cheaper to put the generation cheaply next door, and spend more on extra transmission instead.