The Energy Sector

The climate in Mongolia – with winter temperatures in the range of -4^o F to -40^o F – creates very significant heating demand. The heating season is long, extending over eight months from September to May. The high heating load makes combined heat and power plants (CHPPs) for power generation efficient in terms of both energy utilization and economics. Of the total generation in the country, domestic generation accounts for 81%, and imports account for the remaining 19 percent. Over 90% of the domestic generation comes from CHPPs, with the remaining 10% coming from renewable generation (hydro, solar, and wind).

The CHPPs are fired with coal, which is abundant in the country. Looking to the future, Mongolia has significant renewable potential. Development of this large wind and solar potential in the South Gobi region can bring new, zero carbon supplies to the Central Region Integrated Power Grid (CRIPG), which is Mongolia’s largest of four regional power grids. In the long-term, the country can become an exporter of renewable electricity to other parts of Asia.[1]

The Mongolian power sector functions within a legal framework established by three major laws:

• Energy Law: Originally passed in 2001 with major amendments passed in 2011 and 2015, this law sets up a framework for relationships between energy (electricity) generation, transmission, distribution, dispatching, and supply activities.
• Renewable Energy Law: Passed in 2007, this law covers the regulation of the generation of power using renewable energy sources and its delivery.
• Energy Conservation Law: Passed in 2015, this law provides a framework for achieving efficient use of energy. 

The Ministry of Energy of Mongolia provides guidance and sets policy at a broad level for the country’s energy sector. Another important player in Mongolia’s energy sector is the Mongolia Energy Regulatory Commission (ERC). The ERC is an independent regulatory agency and was established in 2001. It regulates matters related to energy (electricity and heat energy) generation, transmission, distribution, dispatching, and supply in accordance with the Energy Law of Mongolia. In addition, the ERC is authorized by Mongolia’s Energy Conservation Law to implement and coordinate energy efficiency policy in the country.

 

Our Work

With support from the Bureau of Energy Resource’s (ENR) Power Sector Program (PSP) at the U.S. Department of State, NARUC provides capacity building to the ERC through the ENR-NARUC Mongolia Electricity Regulatory Partnership. The partnership supports Mongolia’s transition to a competitive wholesale electricity market that can promote Mongolia’s economic growth, efforts in sustainable development, and energy safety and reliability.

 

Focus Areas and Selected Engagements

Electricity Market Development

The ERC oversees a Single Buyer Model (SBM) electricity market operated by the National Power Transmission Grid Company. This system uses an automatic cash flow mechanism that includes spot and auction markets. The SBM purchases electricity from the power plants operating in the central region of the country and imports electricity from Russia, which it then sells to the distribution companies. In June 2015, the parliament of Mongolia promulgated a resolution regarding “State Policy on Energy Sector/2015-2030/.” The main objectives of the policy are to build the energy security of the country, assure the sustainability of energy sector development, and create a basis for faster deployment of renewables in the future.

A long-term goal of this policy is to improve the energy sector management structure and to transition from a SBM to a competitive wholesale market that is efficient, economical, and environmentally friendly. Under the ENR-NARUC Mongolia Electricity Regulatory Partnership, NARUC is providing technical assistance  to the ERC as it works to facilitate this process. NARUC will develop an analysis of wholesale market development with a focus on assessing the country’s current framework. The resulting analysis report will contain recommendations for an improved regulatory framework and steps that ERC staff and leadership can consider during the transition to a competitive wholesale electricity market. It will also aid the ERC in providing transparency and greater regulatory certainty for key stakeholders, further helping to create a favorable investment climate.

The transition will result in a competitive market that provides price transparency, least-cost dispatch, price signals for new investments by the private sector, and a reallocation of risk from public institutions and customers to private investors.

 

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