48030-001: Strategy for Northeast Asia Power System Interconnection

Technical Assistance Consultant’s R eport

Project Number: 48030-001 February 2020

Mongolia: S trategy for Northeast Asia Power S ystem Interconnection (Cofinanced by the Climate Change Fund, the People’s R epublic of China R egional Cooperation and Poverty R eduction Fund, and the R epublic of Korea e-Asia and Knowledge Partnership Fund)

Prepared by E lectricite de France Paris, France

For the Ministry of E nergy, Mongolia

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents.

TA 9001-MON: Strategy for Northeast Asia Power S ystem Interconnections

EDF References: CIST – DCO – PhL – 19 - 188

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents.

Strategy for NAPSI Draft Final report - May 2019

FOREWORD The project Team would like to thank:

- The Ministry of Energy of Mongolia for easing direct discussions with the National Dispatching Center, TRANSCO and Public Entities in Mongolia

- The ADB’s Country Coordinators of Mongolia, People’s Republic of China, Republic of Korea, Japan for their support: Mongolia: Mr. Byambasaikhan PRC: Ms. Geng Dan (Danna) ROK: Mr. Jung-Hwan Kim Japan: Mr. Omatsu Ryo and Mr. Shota Ichimura

Here is the Project organization:

EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

TABLE OF CONTENTS

EXECUTIVE SUMMARY ...... 10

1. INTRODUCTION...... 22

2. OBJECTIVE OF STRATEGY FOR NAPSI ...... 22

3. ORGANIZATION OF THE PROJECT ...... 22

3.1 THE STEERING COMMITTEE ...... 22

3.2 PROJECT ORGANIZATION IN 6 MODULES ...... 23

3.3 THE PROJECT TEAM ...... 26

3.4 SCHEDULING ...... 28

4. STUDY RESULTS ...... 29

4.1 DESCRIPTION OF MODULE 1: INCEPTION ...... 29 4.1.1 The goals of Module 1 ...... 29 4.1.2 Main findings ...... 29

4.2 DESCRIPTION OF MODULE 2: MARKET AND POWER TRADE ASSESSMENT ...... 30 4.2.1 The goals of Module 2 ...... 30 4.2.2 Main findings ...... 30

4.3 DESCRIPTION OF MODULE 3: PLANNING AND EVALUATION CRITERIA (ASSUMPTIONS FOR THE STUDIES) ...... 38 4.3.1 The goals of Module 3 ...... 38 4.3.2 Main findings ...... 38 4.3.2.1. Analysis of the 4 key drivers ...... 38 4.3.2.2. Ranking methodology ...... 42

4.4 DESCRIPTION OF MODULE 4: MONGOLIA ENERGY SECTOR PROFILE AND PROJECTIONS ...... 44 4.4.1 The goals of Module 4 ...... 44 4.4.2 Main findings ...... 45 4.4.2.1. Impact on conventional fleet with Energy Policy (2030) ...... 45 4.4.2.2. Development of renewable energy in Mongolia for exportation ...... 46 4.4.2.3. Wind and Solar power - potential assessment ...... 46

4.5 DESCRIPTION OF MODULE 5 POWER SYSTEM INTERCONNECTION STUDIES ...... 51 4.5.1 The goals of Module 5 ...... 51 4.5.2 Main findings ...... 52 4.5.2.1. Planned generation development in Mongolia ...... 52

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4.5.2.2. Impact of renewables development on Mongolia power system ...... 53 4.5.2.3. Development plan of NAPSI for exporting of renewables ...... 55 4.5.2.4. Identification of Sites for Interconnections to China ...... 55 4.5.2.5. Identification of Sites for Interconnections to ROK ...... 57 4.5.2.6. Interconnection Russia-ROK through DPRK ...... 58 4.5.2.7. Identification of Sites for Interconnections to Japan ...... 59 4.5.2.8. Russia-Japan Interconnection with Deep Marine Cables...... 60 4.5.2.9. Identification of Sites for Interconnections to Russia ...... 61 4.5.2.10. Investment costs ...... 64 4.5.2.11. Recommendations and sequencing of Northeast Asia interconnection projects ...... 66

4.6 DESCRIPTION OF MODULE 6: POWER TRADE AND REGULATION ...... 70 4.6.1 The goals of Module 6 ...... 70 4.6.2 Main findings ...... 72 4.6.2.1. Regulation framework at regional level ...... 72 4.6.2.2. Interconnector financing ...... 73 4.6.2.3. Interconnector cost recovery by transmission right auctions ...... 73 4.6.2.4. Mongolia grid update through 500kV HVAC ...... 74 4.6.2.5. Mongolia conventional generation cost recovery ...... 75 4.6.2.6. New regulation for improving attractiveness of private foreign & local investors ...... 75 4.6.2.7. Preliminary assessment of the financing capability ...... 76

5. WORKSHOPS ...... 82

5.1 Workshop 1 in Ulaanbaatar Mongolia On June 20th, 2017 ...... 82

5.2 Workshop 2 in Gwanju Republic of Korea on November 2st, 2017 ...... 83

5.3 Workshop 3 in Tokyo Japan on March 8th, 2018 ...... 83

5.4 Workshop 4 In Beijing China on October 26th, 2018 ...... 84

5.5 Workshop 5 in Ulaanbaatar Mongolia on February 28th, 2019 ...... 85

ANNEX 1: THE STEERING COMMITTEE MINUTES OF MEETING ...... 86

ANNEX 2: THE ACTIVITIES AND OUTPUTS OF THE TORS ...... 140

ANNEX 3: EDF ...... 142

ANNEX 4: CHINA EPRI ...... 147

ANNEX 6: NOVA TERRA ...... 149

ANNEX 7: PROPOSITION OF COMPLEMENTARY STUDIES IN THE FRAME OF A PROJECT EXTENSION ...... 151

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LIST OF TABLES

Table 1 : Mongolia Wind and Solar best potential ...... 11 Table 2 : Interconnection investment costs ...... 14 Table 3: Investments costs according to the scenarios of the Project ...... 18 Table 4 : Summerized investments costs according to the scenarios of the the Project ...... 18 Table 5 : Investments costs according to the variation scenarios ...... 19 Table 6 : Summerized investments costs according to the variation scenarios ...... 19 Table 7 : Participants to the Project Team ...... 27 Table 8 : Scheduling of the Project ...... 28 Table 9 : Demand and generation dataset (outside coal, gas and fuel oil, which are optimized by the model) ...... 32 Table 10 : Conventional needs in the frame of the State Policy on Energy 2015-2030 ...... 45 Table 11 : Score 4, main results for Solar and Wind ...... 47 Table 12 : Cost assessment for Wind Power ...... 48 Table 13 : Cost assessment for Solar Power: ...... 48 Table 14 : Detailed interconnection costs per country according to the 3 scenarios of the Project ...... 64 Table 15 : Summerized interconnection costs per country according to the 3 scenarios of the Project ...... 65 Table 16 : Solar & Wind Investments in Mongolia with NEA Interconnection Grid ...... 69 Table 17 : Summarized Solar & Wind Investments in Mongolia with NEA Interconnection Grid ...... 69

EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

LIST OF FIGURES

Figure 1 : Mongolia best areas for Wind and Solar development ...... 11 Figure 2 : Mongolia electrical sub-systems ...... 13 Figure 3 : 220kV grid by 2020 ...... 13 Figure 4 : 5GW Renewable exportation from Mongolia by 2026 ...... 13 Figure 5 : 10GW Renewable exportation from Mongolia by 2036 ...... 14 Figure 6 : 100GW Renewable exportation from Mongolia by 2036 ...... 14 Figure 7 : the 3 scénarios of the Project ...... 15 Figure 8 : Example of NAPSI Authority organization ...... 16 Figure 9 : Illustration of the recommended interconnector cost recovery methodology ...... 16 Figure 10 : Recommended Mongolia’s grid upgrade ...... 17 Figure 11 : Step 1 Mongolia RE exportation 5GW by 2026 ...... 19 Figure 12 : Step 2 Mongolia RE exportation 10GW by 2036 Interconnection of Mongolia-China-Korea including Russia ...... 20 Figure 13 : Step 3 Mongolia RE exportation 10GW by 2036+ Interconnection of Mongolia-China-Korea-Japan including Russia ...... 20 Figure 14 : Step 4 Mongolia RE exportation 10GW by 2036+ ...... 20 Figure 15 : Step 5 Mongolia RE exportation 100GW by 2036+ Target ...... 20 Figure 16 : Data collection of the Inception ...... 29 Figure 17 : The main scenarios used in the study ...... 31 Figure 18 : Generation mix (in energy) compared to current and other projected pie charts 33 Figure 19 : Generation mix and deviations (in energy) in NEA for the 2036 scenarios ...... 33 Figure 20 : Results of the Cost-Benefits Analyses: annual gains in the 2036 scenarios ...... 34 Figure 21: Impact of interconnection and RES in Mongolia on the CO2 emissions of the power sector in NEA ...... 36 Figure 22 : Overview of Module 3 ...... 38 Figure 23 : System Safety rule analysis ...... 40 Figure 24 : The 5 Mongolia Sub-systems ...... 40 Figure 25 : demand forecast in Energy ( GH) ...... 41 Figure 26 : Demand forecas in Power (MW) ...... 41 Figure 27 : Best Solar and Wind locations ...... 47 Figure 28 : Mongolia GDP and Renewable Energy Investment ...... 49

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552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

Figure 29 : Solar and Wind CAPEX For Mongolia ...... 49 Figure 30 : Illustrative Power Connection for Large Renewable Generation Base ...... 53 Figure 31 : Illustrative Power Connection for Large Renewable Generation Base ...... 54 Figure 32 : Converter stations in SGCC grid Scenario 1 ...... 56 Figure 33 : Converter stations in SGCC grid Scenario 2 ...... 56 Figure 34 : Converter stations in SGCC grid Scenario 3 ...... 56 Figure 35 : Converter stations in KEPCO grid Scenario 1 & 2 ...... 57 Figure 36 : Converter stations in KEPCO grid Scenario 3 ...... 58 Figure 37 : Converter stations in Japan grid Scenario 1 & 2 ...... 59 Figure 38 : Converter stations in Japan grid Scenario 3 ...... 59 Figure 39 : Water Depth across the Sea between Japan and Russia Far East ...... 60 Figure 40 : Illustrative HVDC Cable Route between Japan and Russia Far East ...... 61 Figure 41 : Operation and Interconnection between Mongolia and Russia ...... 61 Figure 42 : Possible 500kV AC Interconnection between Russia and Mongolia ...... 62 Figure 43 : Converter stations in Russia Siberia grid Scenario 1 & 2 ...... 62 Figure 44 : Converter stations in Russia Far East grid Scenario 1 & 2 ...... 63 Figure 45 : Converter stations in Russia Siberia grid Scenario 3 ...... 63 Figure 46: Converter stations in Russia Siberia grid Scenario 3 ...... 63 Figure 47 : Sequence of NAPSI Interconnection Development according to the Project results ...... 68 Figure 48 : The African Power Pools ...... 70 Figure 49 : Interconnection capacity of SIEPAC ...... 71 Figure 50 : The 5 synchronous zones of Europe power interconnection ...... 71 Figure 51 : The NAPSI Authority organization ...... 72 Figure 52 : Illustration of the recommended interconnector cost recovery methodology ...... 73 Figure 53 : Recommended Mongolia’s grid upgrade ...... 74 Figure 54 : Mongolia risk assessment methodology ...... 78 Figure 55 : Pro and cons analysis for coal in Mongolia ...... 80

EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

PHYSICAL UNITS

bbl barrel (1t = 7.3 bbl) cal calorie (1 cal = 4.1868 J)

Gcal Giga calorie

GWh Gigawatt-hour h hour km kilometer km² square kilometer kW kilo Watt kWp kilo Watt peak (solar PV) kWh kilo Watt hour (1 kWh = 3.6 MJ)

MBtu Million British Thermal Units (= 1 055 MJ = 252 kCal)

one cubic foot of natural gas produces approximately 1,000 BTU

MJ Million Joule (= 0,948.10–3 MBtu = 238.8 kcal)

MW Mega Watt m meter m3/d cubic meter per day mm millimeter mm3 million cubic meter

Nm3 Normal cubic meter, i.e. measured under normal conditions, i.e. 0°C and 1013 mbar (1 Nm3 = 1.057 m3 measured under standard conditions, i.e. 15°C and 1013 mbar) pu per unit sqm Square meter t ton toe tons of oil equivalent tcf ton cubic feet

°C Degrees Celsius

EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank AUES Altai-Uliastai Energy System BOOT Build Own Operate and Transfer CAPEX Capital Expenditure CC ADB ‘s Country Coordinators CEPRI China Electric Power Research Institute CES Central Energy System (Mongolia) CHP Combined Heat Power EA Executive Agency (here Mongolia Minsitry of Energy) EDF Electricité de France EES Eastern Energy System (Mongolia) ERC Energy Regulatory Commission GDP Gross Domestic Product GEIDCO Global Energy Interconnection Development Cooperation Organization GESP Generation Expansion Simulation Programme GHI Global horizontal irradiation GIS Geographical Information System HDU Hangzhou Dianzi University HVAC High Voltage Alternative Current HVDC High Voltage Direct Current IEA International Energy Agency IRENA International Renewable Energy Agency KEPCO Korea Electric Power Corporation LCC Line-Commutated Converters (HVDC) LCoE Levelized Cost of Electricity LOLP Loss of Load Probability MoE Ministry of Energy (Mongolia) NAPSI Northeast Asia Power System Interconnection NDC National Dispatching Center (Mongolia) NEA North East Asia NRA National Regulatory Administration OECD Organization for Economic Co-operation and Development O&M Operation and Maintenance OPEX Operational expenditure PRC People’s Republic of China PV Photovoltaic RES Renewable Energy Source ROK Republic of Korea SC Steering Committee TA Technical Assistance TPA Third Party Access TPP Thermal Power Plant ToRs Terms of Reference TR Transmission Rights TRANSCO Mongolia Transmission Grid TSO Transmission System Operator

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552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

UNESCAP United Nations Economic and Social Commission for Asia and the Pacific USD United States Dollar VOLL Value of Lost Load VSC Voltage Source Converter (HVDC) WACC Weighted Average Cost of Capital WES West Energy System (Mongolia) WLC Weighted linear combination

EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

EXECUTIVE SUMMARY

The Northeast Asia region (NEA) is today 25% of Global GDP and 40% of Global CO2 emissions. “Strategy for Northeast Asia Power System Interconnection” is a support to Mongolia State for entering the NEA interconnection discussions between People’s Republic of China (PRC), Republic of Korea (ROK), Japan and Russia with a consensual project using Mongo- lia’s abundant potential in Solar and Wind renewable energies. This 2-year Project (2017-2019) is using innovative R&D methodologies and models for the generation, grid/system and market studies. The Project consists in 3 Master Plans over the next 20 years (2016 - 2036):  Wind and Solar Renewable Energy in Mongolia  Grid / System: NEA interconnection  Electricity Market: NEA Power Trade The results of the studies have been presented in open workshops organized in the NEA countries and validated in the Steering Committee of the Project were most of the main stakeholders including the national Utilities of the 5 countries are represented.

For the Mongolian Renewable Energy Master Plan, a comprehensive Wind and Solar power potential assessment in Mongolia has been carried out. A dedicated robust Geo- graphic Information System (GIS) model has been realized using the latest available wind and solar resource data on locations and technologies, so as to select suitable sites. In particular, key environmental and regulation constraints have been taken into account in order to remove excluded areas incompatible with future Wind or Solar PV development. The model comprises 300 layers of data. Due to the vast wind and solar resource, a dedicated ranking methodology has been implemented in the GIS model in order to help select preferred potential areas. The ranking methodology is based on a multi-criteria analysis applied to:  Energy capacity of the Solar and Wind sites only to minimum: . 10 MW Wind farm (10 km2) and wind speed 6.5 m/s . 5 MW Solar PV farm (0.25 km2) and GHI 1500 kWh/m2  Logistics proximities with a cost driver for installation & O&M of : .Existing roads (paved or unpaved): access to future sites .Cities/villages: accommodation of O&M staff .Proximity to railways/train station .Proximity to existing Transmission 220 kV substations for Scenario 0 only (maximum 200 km .Slope of suitable terrains for PV panel installations < 20°

The GIS-based Multi Criteria Analysis using Weighted Linear Combination has provided 5 Scores for Wind and Solar PV potential areas. Preferred areas for future development have the highest score (best resource and best location). Score 5 is only related for 3GW of wind in Western Mongolia and consequently is not appropriate for exportation toward South East of Mongolia.

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The main results are for the preferred Score 4, the Wind and Solar results for power potential and suitable areas are described in the following table 1:

Table 1 : Mongolia Wind and Solar best potential

Wind Capacity Solar Capacity

Score 4 Score 4

Capacity GW 191 1,166

2 Area km 38,000 29,000

Number of areas 223 2,574

The study has confirmed the huge potential for both Wind and Solar Power for future exportation. Reminder: today’s power peak of Mongolia demand is around 1GW. By the way, most of the best sites for wind and solar are situated in the same locations close to the direction of exportation towards China (the Gobi desert is part of this region) as shown in figure 1:

Figure 1 : Mongolia best areas for Wind and Solar development Using latest efficient and reliable technologies, wind turbines and solar PV modules are able to cope with harsh site weather conditions. Due to the outstanding resource, Wind power is likely to be cheaper than Solar PV in the short and medium term but PV modules and Balance of System improvements expected could bring down Solar PV LCoE in the long term at the same level as Wind power. That is the reason why we decide to take the assumption that the development of Wind and Solar will be 50/50. Wind and Solar developments in Mongolia are the most competitive compared to the other NEA countries Provided a new strong reinforcement of the national grid in Mongolia, the scenarios 5GW in 2026, 10GW in 2036 and even 100GW are feasible for exportation.

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For the Grid / System NEA Interconnection Master Plan, a dedicated GESP model has been used. This study presents strategies to facilitate the exportation of large scale renewable generation form Southeast of Mongolia (including the Gobi Desert) and identifying and prioritizing interconnection projects that are necessary to evacuate renewable generation to load centers in NAPSI countries. Several scenarios are considered for the study for target years 2020, 2026 and 2036.  The goal of the scenario 0 is to determine the capacity of the Mongolian grid by 2020. As- suming the existing 110kV grid in the southeast of Mongolian will be completely up- graded to 220kV, a total power of 300MW can be connected. Therefore, in this scenario, no new interconnection between NAPSI countries will be scheduled.  Scenario 1: exportation of 5GW of renewable generation by 2026  Scenario 2: exportation of 10GW of renewable generation by 2036  Scenario 3: exportation of 100GW is proposed for providing perspective and test the feasibility and impact of such a development would have on NAPSI interconnections. Sce- nario 3 will be considered as a target probably after 2036 (indicated by “2036+”). A dedicated GESP model has been realized for the interconnection study including:  Mongolian existing power network and future exportation grid for collecting the future individual Solar and Wind power installed in southeast with multi voltage levels collecting renewable from individual wind turbines and solar panels, which is stepped up progressively to the 500kV substation for connection to neighboring countries.  Northeast China grid that plays a pivotal role in NAPSI interconnection for identifying sites for interconnector with southeast Mongolia  For the other NEA countries, the most suitable sites and locations for interconnectors based on the strength of local transmission system. NAPSI interconnection schemes have been developed taking into consideration economic and energy exchange between different countries, technology development and geographical / geological conditions. A dedicated set of assumptions for supply/demand for each of the 5 NEA has been developed taking into account the existing grid and power projects in short and medium terms. Regarding electricity transmission technologies, high voltage direct current (HVDC) technologies are recommended for the interconnection because they are advancing rapidly in both capacity and operating voltage levels. Current LCC-HVDC can operate at 800kV and above with design capacity of over 8GW. VSC-HVDC, due to its inherent advantage and operational flexibility, are developing rapidly, and are expected to match the capacity and operating voltage of LCC HVDC in the future. In addition, submarine cables that are capable of being laid and operating 3000m under the sea offer the opportunity to significantly shorten the length of the interconnectors, such as Russia Far East and Japan.

For Mongolia, several strategies combining HVAC and HVDC technologies have been studied for both:  evacuating renewable power from southeast  unifying the national grid which is today divided in 5 sub-systems slightly connected to each other as shown on figure below:

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Figure 2 : Mongolia electrical sub-systems Developing the future national grid in HVAC technologies appears to be the most suitable solution requiring lower amount of total investment and providing the best flexibility to expand as Solar and Wind power develops. This is illustrated in figures below:

Figure 3 : 220kV grid by 2020

Figure 4 : 5GW Renewable exportation from Mongolia by 2026

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Figure 5 : 10GW Renewable exportation from Mongolia by 2036

Figure 6 : 100GW Renewable exportation from Mongolia by 2036 The corresponding grid costs are described in the table below in m$:

Table 2 : Interconnection investment costs

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Regarding the Power Trade Master Plan, a dedicated market model has been used based on scenario approach as for Grid/System NEA Interconnection Master Plan as described in the figure below:

Figure 7 : the 3 scénarios of the Project The result of the studies are as follows:  The interconnection will be cost-effective due to important differences in marginal costs between the 5 involved countries.  The interconnection would already be cost-effective if it were existing today  Solar and Wind power from Mongolia will find a market in the 4 other countries  The NEA region is today 25% of Global GDP and 40% of Global CO2 emissions. Exporting the abundant Renewable Resources of Mongolia in Solar and Wind through the future NEA Power System Interconnection (NAPSI) will help for cutting the CO2 emissions of the region and meeting the Paris agreement Regarding the organization of the NEA Power Trade, the main recommendations are the followings:

 Promote a strong coordination among the Regulators of Mongolia, PRC, ROK, Japan and Russia . For establishing a common set of rules . For organizing and monitoring the National Regulation modifications If no Regulators are designated in some NEA countries so far, the Ministry of Energy can represents the country.

 Create a NAPSI Authority for managing the interconnection infrastructures and for ruling the harmonization of the national Regulations at regional level: . Development of a Regional Regulation regarding: . Mission to National Regulatory Authorities (NRAs) . Free regional market for all players . Power trade contracts standardization . Institutionalization of competitive mechanisms . Regional Grid Code: Clear common rules . Transmission rights: Development of comprehensive methodology . Same priority for domestic demand and export commitments

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. Modification of the National Regulations regarding: . Third Party Access (TPA): Transparent and non-discriminatory access to interconnection has to be guaranteed for all players especially IPP . Independence of National Regulatory Authorities (NRAs) encouraged by law

Figure 8 : Example of NAPSI Authority organization

The report recommends also the elaboration of a NEA Grid Code

 Finance the interconnectors according to the Regulated regime between 2 TSOs, letting open the option of a financing wholly or partly by the private sector. The advantages of a strong coordination between the regulators/ministry of Energy of the 5 countries is that it is possible to organize additional grants to complete the profitability of the projected interconnectorand compensate the benefit for the other TSOs of the ring that are not involved directly by the new interconnection.

 Organize the Interconnector cost recovery by Transmission Right (TR) auctions. This mechanism in operation in Europe is based on a separation between 2 businesses: . The business of Interconnection service . The business of Generation The value of this mechanism is that the cost of Transmission through the interconnector can’t affect the cost of generation, avoiding the risk that the low price energy produced in the exporting country could become non cost-effective in the importing country.

Figure 9 : Illustration of the recommended interconnector cost recovery methodology

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To sum up how it works: . The interconnection business make sense each time there is a price difference between the 2 countries: the exporting country (low price) and the importing country (high price). The difference between high and low price is called the Economic Congestion Rent. . The 2 involved TSOs sell through auctions the Transmission Rights to Traders through Auctions. The price paid for the TRs represents a cost for the Trader. . The Trader buys energy in the exporting country and sells it in the importing country. The profit between the sale and the purchase of energy due to the congestion represents a revenue for the Trader. . The profit of the Trader is the difference between his revenue based on the congestion rent and his cost of transmission rights. The result is that the generation company sells more energy through the interconnection at cost-effective low price of the exporting country while the traders make profit on the interconnection service only in buying the low price energy of the exporting country and selling it into the high price importing country.

This methodology ensures that no Transmission costs will be added to generation cost and this is very important so that the cost-effectiveness of the Solar and Wind electricity produced in Mongolia remain the same in the other countries.

This principle guaranties free access in all the national markets to the most cost-effective electricity provided: o The Independence of TSOs (encouraged by policies) o The creation of a Balancing market o The designation of the Market operator: TSO or separate entity

Regarding Mongolia, the main recommendations are the followings:

 Upgrade the Mongolia Transmission Grid in 500kV HVAC for exporting the high volume of Renewable Energy produced in Mongolia to unifyng the 5 existing sub-systems

Figure 10 : Recommended Mongolia’s grid upgrade

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 Organize the financing and cost recovery of the recommended 500kV HVAC grid upgrade: . Option N°1: consider the Mongolia Grid Upgrade an interconnection part of the NEA Ring and organize it by the NEA coordination (preferred solution through the NAPSI Authority) through a Built Own Operate Transfer (BOOT) . Option N°2: consider the Mongolia Grid Upgrade an interconnection between China and Russia and organize it through a Built Own Operate Transfer (BOOT) by a Russian & Chinese consortium. The report suggest for both options the same cost recovery methodology that is the same as recommended above: through Transmission right auctions based of congestion rent valoriza- tion.

 Develop a specific Regulation for favoring attractiveness of private foreign and local investors in Renewable Energies (and also Conventional) . For giving enough visibility on the renewable energy policy targets . For ensuring foreseeable and stable Revenues . For guarantying the Grid Operation: Priority dispatch / no curtailment . For guarantying the Grid connection with enough capacity on short and long run . For improving the Contractual and Legal maturity . For developing adequate Financing facilities . For getting liable pre-permitted sites . gets reliable pre-permitted sites

The cost of the action plan is the following:

Table 3: Investments costs according to the scenarios of the Project

That can be summarized in this table:

Table 4 : Summerized investments costs according to the scenarios of the the Project Exportation Solar & Wind Grid from Mongolia investments investments Total to NEA countries in Mongolia in NEA 5GW 5.5b$ 7.4b$ 13b$ 10GW 10b$ 9.1$ 19b$ 100GW 85b$ 63b$ 148b$

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The cost-effectiveness of each scenario has been checked in Module 2 report. However, another action plan can be considered starting with minimal interconnection between Russia-Mongolia-China and Republic of Korea. Step 1: Mongolia export 5GW Step 2: Mongolia export 10GW Step 3 with an interconnection between Republic of Korea and Japan Step 4 with the interconnection between Japan and Russia, the whole roing being completed. Step 5: The rest of infrastructures is remaining as target.

The corresponding variation of the Action Plan is described in the following table

Table 5 : Investments costs according to the variation scenarios

This can be summarized in this table: Table 6 : Summerized investments costs according to the variation scenarios Exportation Solar & Wind Grid from Mongolia investments investments to NEA countries in Mongolia in NEA 5GW 5.5b$ 3.3b$ Total 10GW 10b$ 5b$ Total 100GW 85b$ 63b$ Total

With corresponding schemes of each steps:

Figure 11 : Step 1 Mongolia RE exportation 5GW by 2026 Interconnection of Mongolia-China-Korea including Russia

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Figure 12 : Step 2 Mongolia RE exportation 10GW by 2036 Interconnection of Mongolia-China-Korea including Russia

Figure 13 : Step 3 Mongolia RE exportation 10GW by 2036+ Interconnection of Mongolia-China-Korea-Japan including Russia

Figure 14 : Step 4 Mongolia RE exportation 10GW by 2036+ Whole ring

Figure 15 : Step 5 Mongolia RE exportation 100GW by 2036+ Target

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Suggested topics of complementary studies are described in the annex 7: . Precise the identity of the NAPSI Project with a document for large communication . Detail the strategy and the composition of the NAPSI Authority including funding . Coordinate with GEIDCO for a win-win partnership among the countries . Describe the mian articles of bilateral agreement contracts with off-takers. For instance, between Mongolia and Republic of Korea . Propose a list of strategic decisions and arrangements that could apply in NAPSI based on the benchmark of existing regional interconnections in the world . Realize of a specific international financial assessment related to “TA-9001 MON: Strat- egy for Northeast Asia Power System Interconnection”

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1. INTRODUCTION

Strategy for Northeast Asia Power System Interconnection (NAPSI) is a 2-years Technical Assistance (TA) Project by EDF for the Mongolian Ministry of Energy and financed by ADB. In this report Northeast Asia (NEA) region consists of People’s Republic of China (PRC), Re- public of Korea (ROK), Japan, Russia and Mongolia.

The TA is co-financed by the Climate Change Fund, the PRC Regional Cooperation and Pov- erty Reduction Fund, and the Republic of Korea e-Asia and Knowledge Partnership Fund).

The Executing Agency (EA) is the Ministry of Energy (MoE) of the Government of Mongolia.

5 Workshops are scheduled during the duration of the Project in the countries shareholders of ADB: Mongolia, ROK, Japan and PRC

2. OBJECTIVE OF STRATEGY FOR NAPSI

“Strategy for NAPSI” is a coherent set of studies over the next 20 years regarding the Renewable Energy potential of Mongolia and the NEA region, Market assessment and Grid developments for supporting Mongolia State in the Northeast Asia Interconnection and Power Trade discussions.

The Technical Assistance (TA) proposed by ADB intends to provide a feasibility study of the power system interconnection in Northeast Asia. The main outputs are as follows: . Analysis of Mongolia’s Renewable Energy Capacity Expansion Plan to Export Clean Elec- tricity. . Mongolia’s Strategy and Action Plan Specifying Priority Projects and Detailing Approaches to Attract Investment. . A Comprehensive Study on the Power Systems and Markets in the Northeast Asian Coun- tries

3. ORGANIZATION OF THE PROJECT

3.1 THE STEERING COMMITTEE

The Steering Committee (SC) is chaired by the Executive Agency, the Mongolian Ministry of Energy who makes all decisions.

The Steering Committee Members have been proposed by the Project Team Leader at each step of the Projectand approved by the EA. Some observers have attended to the SCs after the approval of the EA.

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The role of the SC is to discuss the findings of a comprehensive analysis of Northeast Asia power systems and markets and brainstorm on Mongolia’s strategy for NAPSI and identify short-, medium-, and long-term priority actions

ADB has designated one Country Coordinator (CC) for Mongolia, PRC, ROK and Japan. The CCs have organized the meetings of the Steering Committee in coherence with the Workshops : timeslots suitable to participants, venues, agenda, sending of documents in advance . All the deliverables of the ToRs and Modules (see §Work Plan) have been presented to the members of the steering Committee.

The Project Team has written all the draft Minutes of Meeting of each SC including remarks of the members.

The Project Team has sent the draft Minutes of Meeting of the SC members for remarks and then to the EA for approval.

All the Steering Committee Minutes of Meeting are in annex 1.

3.2 PROJECT ORGANIZATION IN 6 MODULES

The project has been divided in 6 modules to comply with the activities and the Outputs required by the ToRs of TA which are presented in annex 2. The set of 6 modules is described as follows: Module 1: Inception . Data required for the study, . Kick off meeting with EA/ADB in the form of Workshop 1, . Visit of the Project Team on May 22th, 2017 to Ministry of Energy (MoE), National Power transmission Grid (TRANSCO) and Energy Regulatory Commission (ERC) and on May 23th, 2017 to National Dispatching Centre (NDC) and National Renewable Energy Centre (NREC) . Visit of Salkit Wind Farm, . Check fundamental aspects of the project, objectives and risks, . Work plan and methodology

Deliverables: . Project Sharepoint for Project Team, CEPRI, HDU and ROSSETI . Inception report . Report presentation to the Steering Committee N°1

Schedule for the Inception report: requested 1 month after commencement of the Project was delivered on time. The Inception report was validated without reserve by the Steering Committee N°1 organised on June 20, 2017 in Ulaanbaatar.

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Module 2: Market & Power Trade Assessment (Output 1 of the ToRs) . Review of the electricity sectors of Mongolia, Japan, ROK, PRC and Russia: Energy sector background information Energy resource potential and balance Generation: installed capacity, location, rehabilitation plan, costs … Transmission Grid: voltage, equipment … . Demand: review and update of previous forecasts (energy & peak demand, daily & seasonal variations …). Consideration of : Various customer categories. Demand-side management options. Global indicators (GDP, demographic evolution, etc.). . Potential trade opportunities between Mongolia, Japan, ROK, PRC and Russia

Deliverables: Market Assessment report Presentation to the Steering Committee N°2 (Interim) and N°3 (Final) The Market Assessment report is part for the interim report for outputs 1&3 of the ToRs: In- terim version requested 5 months and Final version requested 9 months after commencement of the Project was delivered on time. The Market Assessment report was validated without reserve by the Steering Committee N°2 organised in Gwangju Republic of Korea on November 1st, 2017 (Interim) and Steering Com- mittee N°3 organised in Tokyo on March 8th, 2018 in Tokyo Japan (Final). Module 3: Planning & Evaluation Criteria - Assumptions for the studies (Output 1 of the ToRs)

. Multi-criteria analysis : Technical criteria Economical-financial criteria Political criteria Socio-environmental criteria Deliverables: . Planning and Evaluation Criteria - Assumptions for the studies report . Presentation to the Steering Committee N°2 The Planning and Evaluation Criteria report is part for the interim report for outputs 1&3 of the ToRs requested 5 months after commencement of the Project was delivered on time. The Market Assessment report was validated without reserve by the Steering Committee N°2 organised in Gwangju Republic of Korea on November 1st, 2017. Module 4: Energy Sector Profile & Projections Draft (Output 3 of the ToRs)

. Identification of expansion potential for Renewable power generation in Mongolia :  Technology / capacity  Technical characteristics  Economical characteristics (investment and O&M costs, life duration, …)  Possible locations

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Deliverables: . Energy Sector Profile and Projections report . Presentation to the Steering Committee N°2 (Interim) and N°3 (Final)

The Energy Sector Profile and Projections report is part of the interim report for outputs 1&3 of the ToRs, Interim version requested 5 months and Final version requested 9 months after commencement of the Project was delivered on time. The Energy Sector Profile and Projections report was validated without reserve by the Steering Committee N°2 organised in Gwangju Republic of Korea on November 1st, 2017 (interim) and Steering Committee N°3 organised in Tokyo on March 8th, 2018 in Tokyo Japan (Final).

Module 5: Mongolia and Northeast Asia Power Grid Development (Output 2 of the ToRs)

. Determination of the least cost generation and transmission expansion plan for the interconnected system according various level of integration with system studies. . Quantification of the benefits provided by the interconnection compared to independent development of each power systems (capacity savings, fuels costs savings …). . Review of current criteria for level of reliability and proposal of common criteria to be adopted for the study  Generation : LOLP, reserve margin, expected energy not served over the year  Transmission: n-1 criteria, thermal rating …  Planning periods  Economical/financial rate: Discount rate, etc. . Once the preferable scheme for the future generation capacity is known, the least cost interconnection option is investigated:  Selection of technology (AC or DC)  Preliminary network studies, at the time of the study and for the projected scenarios 5GW 2026, 10GW 2036 and 100GW 2036+  Cost estimate of each option (new substations, overhead lines, refurbishment works, estimated losses) for determining the best Interconnection Scheme Deliverables: . Mongolia and Northeast Asia Power Grid Development Report . Presentation to the Steering Committee N°4

The Mongolia and Northeast Asia Power Grid Development report is part of the output 2 of the ToRs requested 17 months after commencement of The Project was delivered on time. The Mongolia and Northeast Asia Power Grid Development report was validated by the Steer- ing Committee N°4 without reserve organised in Beijing China on October 26th, 2018. Module 6: Power trade and Regulation (Output 3 of the ToRs) . Two objectives:  Creating an enabling environment to effect power trade,  Promoting a regional Coordination

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. Issues / proposed solutions:  Interconnection operating modes  Existing and future management structures  Regional problems and institutional reforms  Other needed coordination structures management (Power Pool)  Functional features & characteristics required

Deliverables: . Power trade and Regulation report . Presentation to the Steering Committee N°5 The Interim Power trade and Regulation report was validated without reserve by the Steering Committee N°5 report organised on February 28th, 2019 in Ulaanbaatar.

The Final Power trade and Regulation report (exactly compliant to the interim report) is part of the Final report for outputs 1, 2 & 3 of the ToRs requested 25 months after commencement of Services was delivered on time.

3.3 THE PROJECT TEAM

EDF is the Project Team Leader.

EDF has large experiences in: . Low carbon technologies: Nuclear and all Renewable Energies through its subsidiary EDF Renew- ables1 . Interconnections: EDF is the main user of the European interconnections for exporting electricity . Electricity Market: EDF as 85% state owned Utility had to adapt to the European Electricity Market . Asia with entities working in PRC, ROK , Japan and Russia EDF R&D had a large contribution in the Project with the implementation of innovative models: Geo- graphical Information System (GIS) for studying the abundant Solar and Wind potential of Mongolia and for the assessment and development the NEA market. See annex 3.

CEPRI and Hangzhou Dianzi University is in charge of the Grid and system Studies using the GESP model. See respectively annexes 4 and 5.

The local expertise is led by Nova Terra who has large experiences in Mongolia on all fields required by the ToRs. See annex 6.

ROSSETI cooperated to the Project by providing data and by checking all aspects where Siberia and Russia were involved.

1 EDF provides electricity in France with only 17g of CO2 per kWh in 2018 and only 50g for the whole EDF Group in the world over.

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Table 7 : Participants to the Project Team Mr. Mr. Mr. Mr. Mr. Mr. Engineer Dorjsuren Dorjsuren Dorjsuren NovaTerra NovaTerra Purevbayar Purevbayar Purevbayar Byambasaikhan National Power Power National Nova Terra Nova Terra Nova Terra Nova CEPRI CEPRI CEPRI CEPRI CEPRI CEPRI CEPRI Dr. Daï Dr. Dr. Dai Dr. Mr. (Peter) (Peter) Mr. International International PingliangZeng Power Engineer Power Mr. Qinyong Zhou Mr. Nayanbuu Nayanbuu Nayanbuu NovaTerra NovaTerra Nova Terra Terra Nova Terra Nova Terra Nova Mr. Purevdagva Purevdagva Mr. Mr. Purevdagva Purevdagva Mr. Purevdagva Mr. Mr. Byambasaikhan Mr. r. r. M EDF R&D R&D EDF EDF R&D R&D EDF R&D EDF EDF R&D R&D EDF R&D EDF

Ms.Vera SilvaMs.Vera Ms. Beata Silz Beata Ms. Vincent De Laleu Vincent LaleuDe Ms. Lea Dieckhoff Dieckhoff Lea Ms. Mr. Laurent Dubus Dubus Laurent Mr. Ms. Marie Sevenet Sevenet Marie Ms. Mr. Yann Le MoullecLe Yann Mr. Ms. Fatine AbdoussiMs. Mr. Vincent DelaleuMr. Mr. Vincent Delaleu Vincent DelaleuMr. Ms. Benedicte Jourdier Benedicte Ms. Jourdier International RE specialist RE International specialist RE National EDF R&D R&D EDF Engineer NovaTerra NovaTerra Nova Terra Terra Nova Terra Nova Terra Nova Mr. Byambasaikhan Mr. National Transmission Transmission National Mr. Batlkhagva Batsuren Batlkhagva Mr. Mr. Batlkhagva Batsuren Batlkhagva Mr. Mr. Batlkhagva Batsuren Batlkhagva Mr. CEPRI CEPRI CEPRI CEPRI CEPRI CEPRI CEPRI ROSSETI ROSSETI Engineer Mr. (Peter) (Peter) Mr. Mr. (Peter) (Peter) Mr. Mr. (Peter) (Peter) Mr. Mr. (Peter) (Peter) Mr. PingliangZeng PingliangZeng PingliangZeng PingliangZeng Ms. Anna Bessarabova BessarabovaAnna Ms. Mr. Gennadiy Terrentev Gennadiy Terrentev Mr. International Transmission Transmission International NovaTerra NovaTerra Economist (3 months) months) (3 (3 months) months) (3 Nova Terra Terra Nova Terra Nova Nova Terra Terra Nova (22 months) (22 (22 months) (22 Mr. Itgel Bold Itgel Bold Mr. Mr. Itgel Bold Itgel Bold Mr. National Energy Energy National Mr. Byambasaikhan Mr. Mr. Tuvshin Battsereg Tuvshin Battsereg Mr. Tuvshin Battsereg Mr. Mr. Tuvshin Battsereg Mr. Economist EURACIFIC EURACIFIC EURACIFIC EURACIFIC EURACIFIC EURACIFIC EURACIFIC EURACIFIC EURACIFIC Mr. Raphaël Goué Raphaël Goué Mr. Mr. Raphaël Goué Raphaël Goué Mr. Mr. Raphaël Goué Raphaël Goué Mr. Mr. Raphaël Goué Raphaël Goué Mr. Raphaël Goué Mr. Mr. Raphaël Goué Raphaël Goué Mr. International Energy Energy International Specialist NovaTerra NovaTerra Nova Terra Terra Nova Terra Nova Nova Terra Terra Nova Mr. Legden Mr. Mendbayar National Market Market National Dr. Enebish Namjil Enebish Dr. Namjil Dr. Enebish Namjil Enebish Dr. Namjil Mr. Byambasaikhan Mr. EDF EDF EDF EDF EDF

EDF R&D R&D EDF EDF R&D R&D EDF Specialist (12 months) months) (12 (12 months) months) (12 EDF R&D China China R&D EDF Marc Trotignon Trotignon Marc Ms. Justine Yuan Justine Ms. Yuan Mr. Marc Trotignon Trotignon Marc Mr. International Market Market International Mr. Philippe Mr. Lienhart Mr. Philippe Mr. Lienhart Mr. Philippe Mr. Lienhart Mr. Nicolas Chamollet NicolasChamollet Mr. EDF EDF EDF EDF EDF EDF CIST CIST EDF EDF CIST CIST EDF Nova Terra Terra Nova (4 months) (4 (4 months) months) (4 (6 months) months) (6 (14 months) months) (14 Ms.Salma Jahgal Jahgal Ms.Salma Mr. Luc Charreyre Charreyre Luc Mr. Ms. Larissa Silkina Larissa Ms. Mr. Antony Robert Antony Robert Mr. Ms. Misheel Zorigt Misheel Ms. Zorigt as ProjectManager as Ms. Meryem Taoufik Taoufik Meryem Ms. Mr. Laurent Paganon Paganon Laurent Mr. Ms. Ariunjargal Surya Ariunjargal Surya Ms. Mr. ThierryKnockaert Mr. Mr. BaldorjChimeddorj Mr. Ms. Cecile Ms. Park-Nantier EDF EDF EDF EDF EDF EDF EDF Mr. Philippe Mr. Lienhart Mr. Philippe Mr. Lienhart Mr. Philippe Mr. Lienhart Mr. Philippe Mr. Lienhart Project Proposal (Mongolia) Seoul(ROK) Ulaanbaatar Ulaanbaatar Beijing(PRC) Tokyo (Japan) Tokyo Paris (France) Paris Key ActivitiesKey Leader Team Assistance Advisory Board Advisory Moscow (Russia) Moscow Karlsruhe (Germany) Karlsruhe

The Advisory Board chaired each report before sending the Client.

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3.4 SCHEDULING

Table 8 : Scheduling of the Project

All deliverables have been validated on time according to the schedule of the ToRs.

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4. STUDY RESULTS

4.1 DESCRIPTION OF MODULE 1: INCEPTION

4.1.1 The goals of Module 1

The Inception Report for the TA–9001: Strategy for Northeast Asia Power System Intercon- nection presents: . The data collection methodology required for the various tasks . The work plan: the project is divided up into 6 modules. The Inception Report provides a short review of key issues that has been analyzed more in detail over the subsequent phases of the assignment.

4.1.2 Main findings

The data collection is described as follows:

Figure 16 : Data collection of the Inception

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Review of the previous studies in NEA region collected in the Project Team Sharepoint.

4.2 DESCRIPTION OF MODULE 2: MARKET AND POWER TRADE AS- SESSMENT

4.2.1 The goals of Module 2

Module 2 deals with market and power trade assessment. The methodology implemented is decomposed in four steps. The first step consisted in reviewing and updating the previous load demand projections for Mongolia and the neighbouring countries, taking into account the present and forthcoming macroeconomic context of the Northeast Asian area. As the principle of our technical and economical approach is based on a comparison between two kinds of situations, one without the implementation of the NAPSI project, and others with various potential features characterising several degree of renewable and interconnection development, the step two consists in developing the baseline reference scenario for the study. This baseline reference scenario intends to answer to the following question: what would be the situation in the area in the coming years without the implementation of the NAPSI project? The step three allowed to build and study various scenarios combining renewable generation development and increase of cross border trades with neighbouring countries. Then, in the step four, the economic valorisation of the most credible scenarios was performed, taking into account the cost of the renewable resources deployed (preliminary output provided by the Module 4), the cost of other generation means that could be substituted, and a first estimation of the interconnection network costs (preliminary output provided by Module 5). The comparison was made with the baseline reference scenario results. The first objective of this module was to assess: . the economic feasibility of a massive Renewable Energy Resources (RES) development in the Mongolian Power System to be largely exported on regional energy markets . the economic benefit of the NEA market The second objective is to determine the impact of these potential evolutions on the level of CO2 emissions of the electric sector in the NAPSI region.

4.2.2 Main findings

The Module 2 studies was carried out on four main scenarios combining various time horizon (2020, 2026, 2036), various levels of renewable capacity in Mongolia (0.3GW, 5GW, 10GW, 100GW), and various configurations of interconnection between NAPSI countries/areas. These scenarios are the same as those used in Module 4 (generation resources) as described as follows:.

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Figure 17 : The main scenarios used in the study

A coherent data set on demand levels and structure of the generation fleet has been consti- tuted. For the purpose of the study, the generation fleet was divided in two parts; one part is fixed and considered as input of the model (nuclear, hydro, wind and solar), the rest (conventional generation) is optimized by the model, and constitutes outputs of the simulations. The data sets corresponding to the inputs/assumptions of the market study is the following:

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Table 9 : Demand and generation data set (outside coal, gas and fuel oil, which are optimized by the model)

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The generation mix that results from the optimization model is compared to current and other projected pie charts.

Total Total Total 10800 TWh 7800 TWh 10900 TWh

Figure 18 : Generation mix (in energy) compared to current and other projected pie charts

The comparison of the simulated pie chart for 2036 with the one (right hand side) reconstituted from IEA projected data for 2040 (World Energy Outlook 2017, New Policies scenario), in which nuclear would stand for 11%, coal 38%, gas 11%, fuel oil nearly 0%, hydro 16%, wind 12%, PV 10%, and other renewables 3%. The main differences between these two pie charts (the 2036 simulated one and the 2040 IEA one) are likely to have two causes. The first is related to the hypotheses on renewable energies (supposedly more developed in our dataset). The second is the carbon pricing policy (not applied in our simulations), applied for the IEA in China with a price of 35$/tCO2 and in Korea with a price of 48$/t. This last fact must certainly explain the discrepancies observed on the development of gas and coal.

Impact of interconnection and RES in Mongolia on the NAPSI region generation mix

Figure 19 : Generation mix and deviations (in energy) in NEA for the 2036 scenarios

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On the right hand side of the diagram, the positive (respectively negative) deviations observed correspond to an increase (respectively a decrease) of energy generated by the concerned technology, compared to the situation where the countries are isolated. The main changes concern wind, solar, coal and gas technologies.

The first bar (Interco + 10GW RES) shows that moderate interconnection associated with the implementation of 10GW renewables in Mongolia (generating around 30 TWh), allows to decrease coal generation by 8 TWh, and gas generation by 22 TWh, compared to the reference case (all countries isolated).

The second bar (Large Interco +100GW RES) shows that high capacity interconnection associated with the implementation of 100GW renewables in Mongolia (generating around 300 TWh), allows to decrease to a high extent the use of coal (by around 170 TWh) and gas (by around 130 TWh).

Hence we see that in these two cases, the combined effect of interconnection and Solar and Wind Power in Mongolia is a substitution of coal and gas by this renewable energy.

Results on profitability

Figure 20 : Results of the Cost-Benefits Analyses: annual gains in the 2036 scenarios

The figure above must be read as follows:

- For each situation simulated, the model calculates the global system costs (sum of all fixed and variable costs of the optimized part of the generation mix), and compares them to the global system costs obtained in “country isolated” situation. The cost difference between this factual and counterfactual scenarios gives the gross gain brought by the modifications made in-between. Therefore, the gross gain corresponds to the

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collective benefits calculated by the optimization model, including the savings in terms of investment expenses and operation expenses, but excluding the investments linked to interconnection infrastructures and renewables in Mongolia . - Then we subtract the investments linked to interconnection infrastructures and renewables in Mongolia, this gives the net gain. Therefore, the net gain corresponds to the final profits including all expenses and revenues. The net gain is given with a range, to take into account uncertainties, particularly on interconnection infrastructure costs. - As we reason with annualized costs and variable costs on a yearly basis, all gross and net gains are annual values - As the gain values are not the same order of magnitude between the two cases presented on the figure, we have adopted two different scales, the left hand side one being five times enlarged than the right hand side one.

The results presented on Figure above can be interpreted as follows - Starting from the left hand side, the first set of dots and bar (Interco) shows the sole effect of the implementation of interconnection (moderate interconnection). The annual gross gain is around 4Bn$, and the annual net gain (integrating the cost of interconnection) is around 3Bn$. In other words, the implementation of the sole interconnection is financially profitable (annual net collective benefits of around 3Bn$). - The second set of dots and bar (Interco + 10GW RES) shows that interconnection associated with the implementation of 10GW renewables in Mongolia, generates a higher annual gross gain (around 5.1Bn$), and a higher annual net gain (3.2Bn$) than the interconnection alone. In other words, renewables in Mongolia bring additional benefits to the implementation of the interconnection, increasing the annual collective net benefits to a level of approx. 3.08Bn$. - The third set of dots and bar (Large Interco +10GW RES) shows the outcome of increasing largely the interconnection capacity between NAPSI countries, conserving 10GW RES in Mongolia. This results in a large increase of both annual gross gain (18.2Bn$) and annual net gain (9.3Bn$). In other words, the perspective of increasing largely the interconnection capacities brings extended net collective benefits. - The fourth set of dots and bar (Large Interco +100GW RES) shows that high capacity interconnection associated with the implementation of 100GW renewables in Mongolia, allows to reach high level of annual gross gain (27.6Bn$) and annual net gain (10.7Bn$). In other words combining high capacity interconnection implementation and development of large amounts of renewables in Mongolia is collectively highly profitable.

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Impact of interconnection and RES in Mongolia on the NAPSI region CO2 emissions

Figure 21: Impact of interconnection and RES in Mongolia on the CO2 emissions of the power sector in NEA

The CO2 emissions of the power sector is an output of the model, and results from the effective operation of the fossil fuel fired plants in the various scenarios simulated.

The results presented on the figure can be interpreted as follows

- The implementation of the interconnection (moderate interconnection) cumulated to the development of 10GW RES in Mongolia (generating around 30TWh) leads to a global CO2 emission saving of 17Mt (comparison of the light green bar in the middle with the black one at the left hand side). In other words, the substitution emission factor of this capacity of 10GW of Mongolian renewables is 0.57tCO2/MWh, sign that renewables replace approximately coal for a quarter, and gas for the remaining three quarters. Note that this distribution between coal and gas substituted is coherent with the generation variation between these two cases observed on Figure 8 - The dark green bar on the right shows that high capacity interconnection associated with the implementation of 100GW renewables in Mongolia, allows to reach a high level of CO2 emission savings. The 300TWh of renewables reduce CO2 emissions by 210Mt, which gives a substitution emission factor (for this 100GW capacity of Mongolian renewables) of 0.70tCO2/MWh. This is the sign that renewables replace approximately coal for one half, and gas for the other half (this is also coherent with what is shown on Figure 8) - We observe that the substitution emission factor depends on the amount of renewable energy injected in the system. This is mainly due to the fact that, as presented in §1.5, changes introduced in the power system have several superimposed impacts, such as pooling effects and switching effects between technologies, which may result when cumulated in an apparent non-linear behavior.

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The main findings and key messages are the followings:

- Interconnection between North East Asia countries is beneficial, already in the present situation and with the existing generation fleets - Interconnection lines are all used in both directions, allowing countries to export or import according to hours and situations - Development of renewable generation in Mongolia will bring additional benefits in the mid-term (2036), due to drastic cost reduction of renewables in Mongolia in the forthcoming decades - Generating RES in Mongolia brings higher profit than producing the same amount of renewable energy in Korea or Japan - Beyond financial profits, these future evolutions will bring other valuable benefits (reduction of CO2 emissions, contribution to the achievement of the clean energy objectives for the different countries, job creations, opportunities for adaptation of national networks).

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4.3 DESCRIPTION OF MODULE 3: PLANNING AND EVALUATION CRI- TERIA (ASSUMPTIONS FOR THE STUDIES)

4.3.1 The goals of Module 3

The module 3 collects the assumptions for the studies. After validation of the Steering Com- mittee, Module 3 became the set of assumptions for the Studies. The first purpose of Module 3 report is to review 4 key drivers for Mongolia, Russia, Japan, ROK and PRC. The second purpose of Module 3 is to establish the multi-criteria ranking methodology, which will be used for Renewable power candidates identified in Module 4.

Figure 22 : Overview of Module 3

4.3.2 Main findings

4.3.2.1. Analysis of the 4 key drivers

. Technical field: Generation

The report presents an estimation of the costs of Renewable Energies Wind and Solar in Mon- golia and also of conventional generation in the 5 countries according to the IEA outlook 2016. Then, the main parameters for generation fleet sizing are presented: the Loss Of Load Proba- bility (LOLP), the Value of Lost Load (VOLL) and the Discount Rate with a comparison table of the 5 countries. Example of criteria identified (the sub criteria are indicated in brackets):  General,  Environmental (Greenhouse gas reductions, Upstream impact, Downstream impact, Ratio Reservoir area / Energy output),  Social (Resettlement, Multipurpose benefit),

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 Political (Trans-boundary benefits, Poverty reduction, balancing benefits between rural and urban populations, level of services, mechanisms for benefits sharing),  Economic / Financial (Capacity cost, Generation cost),  Technical (risk, Accesses/Lines, Grid integration),  Economic parameters such as: o Discount rate, o Lost of Load Probability (LOLP), o Value of Lost Load (VOLL) o Margin ratio…

. Technical field: Transmission

The report presents the main outlines and comparisons of HVAC and HVDC technologies that can be used of exportations and interconnections with a first estimation of the costs of interconnections between Mongolia and PRC, Mongolia and Russia, PRC, ROK and Japan assuming for this exercise using conventional LCC-HVDC technologies.

The currently used criteria in the different countries are:  General criterion : N, N-1 or N-2  Normal conditions: Voltage limits, Generation within their reactive capabilities, Respect of thermal rating  Emergency conditions: Voltage limits, Respect of thermal rating  Transient situations: Power and voltage oscillations quickly damped.  Frequency limits: Load shedding (first stage): < 49.2 Hz( example), Tripping of interconnection, Over frequency: > 51 Hz (example) The interconnections between the 5 power systems must respect some rules to comply with technical and economic constraints.

A review of the existing System Safety Rules of each country was undertaken and compared to the set of System Safety Rules of the European Power System Interconnection. As NAPSI will consist in interconnecting the countries with HVDC line, the report assumes that the frequency management of each country will remain independent. Nevertheless, the report recommends that the submarine HVDC interconnections will be divided in several pole links and that each pole link should not exceed the size of the most important power unit of each interconnected country.

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Figure 23 : System Safety rule analysis

For each country, the existing transmission grid and the expansion plan are illustrated.

Mongolia electrical System is divided in four independent energy systems (sub-systems) weakly interconnected : Central Energy system, Western region energy system, Eastern region energy system, and Altai Uliastai energy system.

Figure 24 : The 5 Mongolia Sub-systems

Assumptions taken for electricity demand forecast is that of ADB 2013

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Figure 25 : demand forecast in Energy ( GH)

Figure 26 : Demand forecas in Power (MW)

. Economic and financial fields

The report presents a comparison of the different economies of the region in order to get the required macro-economic components and the assessment of the electricity consumption in the 5 countries. . Political and regulatory fields

The report presents a comparison of the different countries in terms of demographics, political systems and foreign investment and the assessment of the power sector of each country.

. Socio-environmental field

The report presents a comparison the different countries in terms of CO2 emission and energy mix with a focus on coal-based energy. The report includes an analysis based on the interviews of 7 Mongol representatives on how the different stakeholders involved in the energy sector in Mongolia may consider the development of an export driven renewable energy capacity and what would be the most consensual energy mix and capacity to be developed.

Wrap-up of the 4 key drivers analysis: With its central location in a region representing 25% of the global GDP and 22% of the world population, Mongolia has a real opportunity to become a net energy producer for the future interconnected NAPSI region. Those countries shows many diversities whatever we assess:

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. In terms of Economic power: two of the NAPSI countries are in the global top 10 according to IMF with China and Japan are respectively the second and the third economies, and level of development is widespread from Mongolia considered as a frontier market and Japan one of the most advanced global economy per capita; . In terms of demographics: while China is still the most populous country in the world, Ja- pan is the first country in the region to face a demographic bomb with a shrinkage of its population and such phenomenon may apply soon to ROK; . In terms of political influence: China and Russia are permanent members of the UN security council and Japan and the Republic of Korea are members of the OECD; . In terms of regulatory framework and openness to foreign investment: between the regulated China and the opened Mongolia; . In terms of energy requirement, bringing Mongolia as a huge renewable hub with a very low domestic demand compared to the other NAPSI countries.

Those differences affect the investment targets with variation of cost of capital among the countries but position Mongolia as the best place for an investor looking for good investment yield and a real willingness from Mongolian stakeholders to take the benefit of their renewables potentials. Nevertheless, according to interviews we made: . The development of an export power capacity is seen positively without any major con- straint whatever most parties consider coal based and hydro power should be integrated to make a best use of the Mongolian resources; . China is viewed as the main market, but we think this will have to be demonstrated and the development of a capacity for Japan and Korea will be studied in the course of the project; . The feed in tariff economics for an export based power system is not well understood and support will have to be provided on this area.

4.3.2.2. Ranking methodology

The assessment of potential renewable energy development (onshore wind and ground mounted solar PV) in Mongolia will be carried out in 2 main phases: . Phase 1: assessing the technical potential and determination of a map of the suitable sites. Selection of available areas for wind and solar development, taking into account resource data, excluded areas and main environmental and regulation constraints. This first ranking will give a map of suitable sites based on capacity and energy yield assessment (power density and load factor calculation according to wind turbines and solar panels characteristics). . Phase 2: assessing the economic potential: Amongst the selected suitable areas, a technico-economic analysis will be carried out, taking into account 4 families of criteria: - The Levelized Cost of Electricity (LCoE) - The Technology risk based on the location, the difficulties in terms of O&M (distance from cities, local workforce available, access…) - The Grid integration, mainly the distance from existing power line and the need to build a new overhead line and additional substation..

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- The Logistics: access to the site for equipment supply from Chinese factories and transportation cost for supply (e.g. new road requiring additional CAPEX, distance between site and factory). This second ranking will give a short-list of cost effective projects.

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4.4 DESCRIPTION OF MODULE 4: MONGOLIA ENERGY SECTOR PROFILE AND PROJECTIONS

4.4.1 The goals of Module 4

The Module 4 report is focused on Mongolia. The report presents the Strategy on Power development with the analysis of the electricity sector and the assessment of Renewable potential. This Module presents a detailed assessment of renewable energy development in Mongolia (mainly wind and utility-scale solar PV) and will address energy demand projections (2017- 2036). The main tasks are as follows: . Wind and solar resource analysis using accurate and geospatial datasets from consultants . Gross and technical renewable potential assessment (GW, TWh), using geospatial data for the selection of suitable areas for the implementation of wind turbines and solar panels (excluded areas, key regulation land-use constraints and buffers taken into account). Various wind turbine models and solar panels will be envisaged. . Eventually, economic potential assessment (LCoE) using key hypothesis (WACC, Load factor, CAPEX and OPEX…) . Estimate of short term and long term electricity demand in Mongolia and neighbouring countries.

EDF R&D developed over the past years, a methodology for renewable energy potential assessment based on a Geographic Information System (GIS). This dedicated tool is currently used at EDF for the estimate of renewables potential in France and French overseas territories and some European countries, even at a regional scale. Moreover, EDF R&D had the expertise required to identify the most relevant wind and solar datasets and to provide the necessary inputs for the analysis. Thanks to its great involvement in worldwide development and operation of wind and ground-mounted solar PV farms, EDF has a very good understanding and knowledge of theses renewable technologies (performance, manufacturers, characteristics…) including costs (Investment, operation and maintenance…). Regarding energy demand forecast, EDF is used to setting up and analyzing scenarios at a country or even a continent level (e.g. Europe…). The report starts with the descriptions of the current conventional and renewable Power generation fleet, the pipeline of current Power development and the Mongolian existing Energy Policy for 2030. Three planning years are considered for the study presented in the report: 2020 (Target 1), 2026 (Target 2) and 2036 (Target 3). 2030 is added because it corresponds to the target of the “State Policy on Energy 2015-2030.

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4.4.2 Main findings

4.4.2.1. Impact on conventional fleet with Energy Policy (2030)

Development of renewable generation has two major impacts on Mongolia power system. First, development of renewable generation will greatly relieve the current tight generation margin and improve power supply reliability. On the other hand, renewable generation, due to its inherent variability and intermittency, will exacerbate the difficulties and increase the complexity in operating the power system in Mongolia, extra flexible generation is required to enable the operability of Mongolian power system. Second, the development of renewable generation will require significant development and upgrade in Transmission network in Mongolia. This report considers the impact of renewable generation development on conventional generation and also transmission system in Mongo- lia. In order to assess the impact of renewable generation development on conventional plant under various scenarios, we used the model Generation Expansion Simulation Programme (GESP). GESP is a generation expansion planning tool that minimizes total generation system costs over the planning horizon taking into consideration of capital investment, emissions, renewable energy curtailment, reliability and production costs, as well as technical constraints of different types of generation and also heat demand requirements. Based on the assumption over the next 20 years shown in Module 3 report, Power demand in Mongolia is likely to treble and reach over 4330MW and heat demand to double to 5694Gcal/hour by 2036. The report presents the Power fleet sizing study run assuming no export/import of electricity considering Mongolian Power fleet self-sufficient for the internal demand. In the frame of the State Policy on Energy 2015-2030, for meeting government renewable energy target, Renewable generation for Mongolian market consumption will reach 1800MW by 2030, corresponding to 30% of total generation capacity. CO2 intensity falls from 0.40tCO2e/MWh in 2020 to 0.33 tCO2e/MWh in 2036. Significant amount of flexible generation is required to manage renewable generation intermittency and variability as well as inflexibility of conventional generation as shown in the following table:

Table 10 : Conventional needs in the frame of the State Policy on Energy 2015-2030

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4.4.2.2. Development of renewable energy in Mongolia for exportation

Four scenarios are envisaged for the future development of Renewables in Mongolia focused on both onshore wind power and ground mounted solar photovoltaic (PV):  Scenario 0: “minGW” capacity in 2020, connected to Mongolian 220kV power grid, only for Mongolia electricity consumption. The “minGW” capacity refers to the available connection capacity to current 220kV substations.  Scenario 1: + 5GW in 2026, mainly for exportation to neighbouring countries.  Scenario 2: + 10GW in 2036 (therefore + 5GW between 2026 and 2036) for exportation to neighbouring countries as well.  Scenario 3: +100GW in the long term.

4.4.2.3. Wind and Solar power - potential assessment

A comprehensive Wind and Solar power potential assessment has been carried out, using accurate wind and solar resource data and robust Geographic Information System (GIS) tool, so as to select suitable sites. In particular, key environmental and regulation constraints have been taken into account in order to remove excluded areas incompatible with future Wind or Solar PV development. Due to the vast wind and solar resource, a dedicated ranking methodology has been implemented in the GIS tool in order to help select preferred potential areas. The ranking methodology is based on a multi-criteria analysis (Ranking applied only to minimum 10 MW Wind farm (10 km2) and 5 MW Solar PV farm (0.25 km2) : . Resource (wind speed and Global Horizontal Irradiation): minimum wind speed 6.5 m/s and GHI 1500 kWh/m2. . Logistics of potential development areas (cost driver for installation & O&M): o Proximity to existing roads (paved or unpaved): access to future sites o Proximity to cities/villages…: key factor for future Operation & Maintenance (Accommodation of O&M staff) o Proximity to railways/train station for Solar PV equipment supply (Wind equipment supply only by trucks) o Proximity to existing 220 kV substations for Scenario 0 only (maximum 200 km): reduction of grid connection costs (transmission line length) o Slope of suitable terrains for PV panel installations < 20°

The GIS-based Multi Criteria Analysis using Weighted Linear Combination has provided 5 Scores for Wind and Solar PV potential areas. Preferred areas for future development have the highest score (best resource and best location).

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Score 5 is only related for 3GW of wind in Western Mongolia and consequently is not appropriate for exportation toward South East of Mongolia. The main results are for Score 4 Wind and Solar preferred areas:

Table 11 : Score 4, main results for Solar and Wind

Wind Capacity Solar Capacity

Score 4 Score 4

Scenario 0 Scenario 1 to 3 Scenario 0 Scenario 1 to 3 Capacity GW 21.7 191.6 483.7 1,165.7 2 Area km 4,340 38,324 12,092 29,142 Number of areas 38 223 599 2,574

Score 4 areas in Scenario 0 are located within 20-50km to existing 220kV substations but their available connection capacity is limited to 350-550MW only. In Scenario 1 to 3, the distance to existing 220kV substations is not a criteria because new grid will be required for the massive Transmission of exportation. The study has confirmed the huge potential for both Wind and Solar Power not only for Mon- golia own Renewables development but also for future exportation. For exportation, Umnugovi, Dundgovi and Dornogovi are the best Aimags.

Figure 27 : Best Solar and Wind locations Using efficient and reliable technologies (Wind turbines and solar PV modules) able to cope with harsh site conditions, a cost assessment has been carried out (CAPEX & OPEX) only for preferred sites (Score 4) in order to assess 2020, 2026 and 2036 Levelized Cost of Electricity (LCoE).

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Table 12 : Cost assessment for Wind Power

Table 13 : Cost assessment for Solar Power:

In the short term (before 2025), wind farm projects remains cheaper than ground mounted solar farm, in particular due to the outstanding wind resource in Mongolia (> 8 m/s). In the longer term, we could expect similar LCoE for wind and solar projects, due to significant increase in PV modules efficiency, PV cost reductions. That is the reason why we decide to take the assumption that the development of Wind and Solar will be 50/50. Even though this assessment for solar could be conservative as new technology breakthroughs, dramatic cost decreases could occur in 20 years time.

4.4.2.3- Financial assessment

As a result, the 3 scenarii led to investment projections as follow:

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Scenario 1 (2026): USD 5.55 billion investment is expected to go into the renewable energy sector in Mongolia which is equivalent to roughly quarter of the country’s projected GDP at the time. Scenario 2 (2036): Total new investment of USD 4.2 billion is expected by 2036 which will equal 10% of the country’s GDP in 2036. Scenario 3 (2051): Total investment of USD 57.33 billion investment is expected by 2051, equivalent to 68% of the projected GDP at that time.

Assessing scenario 2, it shows that it will represent an opportunity for Mongolia to reach the investment level as much as the largest mining projects which have been developed in the country, whereas the scenario 3 shows a level representing

Figure 28 : Mongolia GDP and Renewable Energy Investment

Figure 29 : Solar and Wind CAPEX for Mongolia

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Renewable energy expansion in Mongolia should be fully supported by Private and Public sectors.

In that sense, from 0 to 10 GW development, the government should trigger the investors’ appetite for the new market: - On a regulatory point of view through the denomination of feed-in tariff in USD and in maintaining stable tariff levels. This tariff stability should be helped through adequate government policies as making appropriations in the annual government budget for soft loans, grants, income tax rebates and other tax credits available to renewable energy developers to keep the development and operations costs down; - Through the development of a real capacity building in the country such as the implementation of the goal of the State Policy on Energy to train the energy sector personnel on the same level as international standards.

The development of additional capacity, from 10 to 100 GW will support the ecuntry development of a newly related RE industry: - Abovementioned capacity could make it economical to carry out certain activities of the value chain in Mongolia, such as manufacturing of certain components and assembly of related equipment; - It should create opportunities for Mongolia in the form of contracts to build power plants, related infrastructure and power lines, and O&M service providers; - And a key success factor should be to enable a stable regulatory environment through the implementation of new industrial policies and the ease acquisition of land and RE approval process.

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4.5 DESCRIPTION OF MODULE 5 POWER SYSTEM INTERCONNEC- TION STUDIES

4.5.1 The goals of Module 5

The Module 5 report is focused on transmission network development in Mongolia and interconnections between Northeast Asia countries. The report presents strategies on developing transmission networks to facilitate the exportation of large scale renewable generation in Gobi Desert and identifying and prioritizing interconnection projects that are necessary to evacuate renewable generation to load centres in NAPSI countries. The objective is to identify and evaluate different investment schemes under different grid integration scenarios and identify a robust investment plan for Mongolian interconnection with neighboring countries in the northeast Asia region considering key uncertainties that are present in this region whilst maximizing the transmission investment returns and Mongolian’s capability for exporting clean energy. Analysis are carried out using Transmission/System model GESP with details that satisfy the purpose of this study including Mongolian transmission systems, equivalent/simplified transmission system models for Russia, PRC , ROK and Japan. This allows detailed assessment to ensure that investment plans meet security, stability, load flow, and operational requirements.

This includes the following steps: 1. Review of planning standards in Northeast Asia countries, such as adequacy, quality of supply and security standards, e.g. N-1, N-2, etc. 2. Review and identification of key technologies for NAPSI interconnection plan, e.g. HVAC, LCC-HVDC, VSC-HVDC, etc. 3. Review of existing national network expansion plans for up to 2036 4. For the identified generation (renewable) expansion plan scenarios, using least cost method to identify NAPSI interconnection expansion schemes 5. For the preferred interconnection expansion scheme, estimate of NAPSI interconnection benefits compared with development by individual countries 6. Identify a robust investment plan that is best positioned to cope with uncertainties in North- east Asia grid integration.

The result of the studies are: 1. A benchmark of technologies suitable for NAPSI interconnection scheme 2. The optimized expansion plan for NAPSI scheme.

The report starts with the description of the current Mongolian energy development strategy, pipeline of network development plans, and Mongolian existing Energy Policy for 2030.

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Three planning years are considered for the study presented in the report: 2020 (Target 1), 2026 (Target 2) and 2036 (Target 3). Three scenarios that would deliver objectives of these Targets were constructed in previous Module 2 (Market) and Module 4 (Generation) reports and are used as the basis for developing transmission networks inside Mongolia and also interconnection between NAPSI countries.

4.5.2 Main findings

4.5.2.1. Planned generation development in Mongolia

According to previous ADB studies, National peak demand in Mongolia is expected to increase from 1388MW in 2020 to over 4338MW 2036. In order to meet the Mongolian State Policy on Energy 2015-2030 with significant renewable generation development 30% in 2030, major development and investment in generation will be required, especially flexible generation, for ensuring security of supply and managing variability and intermittency which are inherent in renewable generation.

Analysis carried out on the Mongolian generation development taking into consideration of winter heating requirements and renewable generation development showed that:

Over the next 20 years, demand in Mongolia is likely to treble to over 4338MW. This requires significant investment in both conventional and renewable generation in order to maintain an adequate level of security of supply. The annualized investment in conventional generation is estimated at $651m per annum by 2036. Due to inherent uncertainty and intermittency of renewable generation, flexible generation are required to ensure operability of the system. However, as the generation system increases in size, the requirement for dedicated flexible plant falls as a proportion of total new generation, as the flexible resources required can be provided in large proportion by new conventional generation. Government renewable generation target of 20% and 30% in 2023 and 2030, respectively, as a share of total installed capacity can be met provided that sufficient new and flexible generation is built. As the new and more efficient generating plant is added to the system and also increased share of renewable generation, the CO2 intensity will reduce from 0.4 to 0.33tCO2e per MWh.

Development plan of Mongolia power grid for renewable generation development

Based on the detailed study results of Mongolian renewable energy resources and their prioritized development areas carried out by the Module 4 report, Gobi Desert has been identified as the most suitable site for developing large scale renewable generation in Mongolia with phased development: Phase 1: 5GW renewable generation by 2026, Phase II 10GW by 2036, and beyond Phase II, 100GW. The scenario of 100GW (Scenario 3 in the report) has been developed to provide perspective and test the feasibility and impact of such a development would have on NAPSI interconnections.

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 Scenario 0: “minGW” capacity in 2020, connected to Mongolian 220kV power grid, only for Mongolia electricity consumption. The “minGW” capacity refers to the available connection capacity to current 220kV substations.  Scenario 1: + 5GW in 2026, mainly for exportation to neighbouring countries.  Scenario 2: + 10GW in 2036 (therefore + 5GW between 2026 and 2036) for exportation to neighbouring countries as well.  Scenario 3: +100GW in the long term.

To facilitate large scale concentrated development of renewable generation in Mongolia, significant network and interconnection projects would be required to strengthen Mongolian power network and investment in cross countries interconnectors to transport renewable generation to load centres in northeast Asia countries.

Electricity transmission technologies, especially high voltage direct current (HVDC) technologies are advancing rapidly in both capacity and operating voltage levels. Current LCC-HVDC can operate at 800kV and above with design capacity of over 8GW. VSC-HVDC, due to tis inherent advantage and operational flexibility, are developing rapidly, and are expected to match the capacity and operating voltage of LCC HVDC in the future. In addition, submarine cables that are capable of being laid and operating 3000m under the sea offer the opportunity to significantly shorten the length of the interconnectors, such as Russia Far East and Japan.

4.5.2.2. Impact of renewables development on Mongolia power system

The impact of renewable generation will also depend on Transmission network configuration and design for large scale renewable generation bases. This report proposed two different design frameworks: quarantined and integrated configurations:

. Under quarantined scheme, renewable generation will be developed in both concentrated and distributed manner. The distributed renewable generation will be connected to the main Mongolian Transmission network, and the large scale renewable energy base would be collected and transmitted by dedicated network to the neighboring countries, which are physically segregated from the Mongolian main transmission system.

Figure 30 : Illustrative Power Connection for Large Renewable Generation Base Quarantined Configuration

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. The integrated scheme is where the renewable generation base is physically connected with the main Mongolian Transmission system.

Figure 31 : Illustrative Power Connection for Large Renewable Generation Base Integrated Configuration

The renewable generation base will have minimal impact on the Mongolian main system under the quarantined scheme but significant impact under the integrated configuration. This report presented different network configurations for 2020, 2026, 2030 and 2036, including quarantined HVDC, and integrated HVDC and HVAC schemes. Quarantined configuration is where the Gobi RE base network is physically segregated from the existing Mongolian 220kV transmission systems. Whereas integrated configuration has an interconnection with the Mongolian 220kV transmission system. Integrated configuration is further divided into Integrated DC and Integrated AC options. Integrated DC employs HVDC to connect the Gobi RE base with the existing 220kV system to minimize the impact of Gobi RE base.

We have developed detailed models for Mongolian power network using the data provided. Gobi RE Base network consists of multi voltage levels collecting renewable from individual wind turbines and solar panels, which is stepped up progressively to the 500kV substation for connection to neighboring countries. Detailed analysis under different network configurations for each of the 4 Scenarios showed that the proposed network configurations and design are operationally and technically sound.

We consider that China plays a pivotal role in NAPSI interconnection and for integrating Gobi renewable generation due to its market size and also proximity to the Gobi RE base. There- fore, we have used detailed model of East China power network to investigate the impact of Gobi RE base and also identify sites for interconnector with Gobi RE base and its neighboring countries.

For each of NAPSI countries, we have identified most suitable sites and locations for interconnectors based on the strength of local transmission system. Connection at these sites might not in our view cause significant reinforcement to the local networks.

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4.5.2.3. Development plan of NAPSI for exporting of renewables

The goal of the Scenario 0 is to determine the capacity of the Mongolian grid by 2020 (“minGW”). Assuming the existing grid in the southeast of Mongolian will be completely up- graded to 220kV, a total power of 300MW can be connected. Therefore, in this scenario, no new interconnection between NAPSI countries will be scheduled. NAPSI interconnection schemes have been developed taking into consideration economic and energy exchange between different countries, technology development, and geographical / geological conditions. Regarding technology, HVDC technologies will be the most suitable technologies for interconnections between Northeast Asian countries on the consideration of power and distances of interconnectors. Most of new HVDC overhead lines will be point to point over long distances, therefore, LCC technology will be recommended due to its performance in DC faults isolation. For undersea cables, LCC technology is also recommended as a primary option for point to point links. VSC option is recommended for the links between ROK and Japan to include Multi- terminal links and for enhanced flexibility Cable and cabling technologies are critical for northeast Asia interconnection projects. Voltage levels of 525kV and 600kV for XLPE cables have been qualified or in qualification by different manufacturers. Technology in development for deep submarine cable of up to 3000 m gives the opportunity of new undersea line routing between Japan and Russia.

4.5.2.4. Identification of Sites for Interconnections to China

State Grid Corporation of China (SGCC) is actively promoting interconnection with neighboring countries under the Global Energy Interconnection GEI) initiatives. In particular Global Energy Interconnection Development Corporation as a primary objective of developing global interconnection using UHVAC and UHVDC technologies to transport renewable generations to load centres. At present, SGCC has signed MOU with KEPCO, ROSSETI and Softbank to promote corporation and interconnection between NEA countries. In December 2015, SGCC has signed an agreement with Mongolia government to build a 800kV UHVDC transmission line with a total capacity of 8GW from Shivee Ovoo to Tianj. At present, there is active discussion between KEPCO and State Grid Corporation of China (SGCC) to construct a HVDC interconnection between the two countries. We understood that the feasibility studies are being carried out. The interconnection is most likely to be an HVDC interconnection with LCC-HVDC technology and have a capacity of 2GW operating at 500kV.

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Figure 33 shows converter station sites under different scenarios.

Figure 32 : Converter stations in SGCC grid Scenario 1

Figure 33 : Converter stations in SGCC grid Scenario 2

Figure 34 : Converter stations in SGCC grid Scenario 3

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4.5.2.5. Identification of Sites for Interconnections to ROK

As Seoul is the primary load centre in the country, the import from China would be connected to the west and south west of Seoul supplying demand to Seoul.

The sites for interconnection with Japan would be located southeast of the country which are close to the coast of Japan so as to minimize the cost of the interconnection. The convertor stations are likely to located at southwest of Seoul in ROK and at Wei-hai substation in China. Figure 36 shows the geographical location of sites identified suitable for interconnection with neighboring countries.

Figure 35 : Converter stations in KEPCO grid Scenario 1 & 2

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Figure 36 : Converter stations in KEPCO grid Scenario 3 Under Scenario 1 and 2, it is reasonable to assume that interconnection of 2-4GW HVDC line at Sin Siheung between China and ROK would not require significant reinforcement in the Northeast area of ROK transmission system, as Sin Siheung is a strong connection point and close to Seoul, the key demand centre. Similarly, 2GW interconnection at Hadong between ROK and Japan would not cause any reinforcement in the southeast part of the system. Under Scenario 3, due to the size of interconnection with China and also with Japan, it is likely that some reinforcement would be required inside the ROK transmission system. How- ever, it is not clear how much this would be and it is assumed that it would be reasonably small compared with the savings resulting of the choice of these converter stations.

4.5.2.6. Interconnection Russia-ROK through DPRK

Due historical and political reasons, ROK is not electrically interconnected with DPRK. It has been considered unlikely that DPRK would be agreeable for a transit route to connect ROK to China’s Northeast or Russia that would pass through DPRK. However, since June 2018, the political situation is improving rapidly with face-to-face meeting taking place between DPRK, ROK and American leaders. At moment, there is considerable interest to improve the ties between North and ROK, including electrical interconnection between these countries. However, as of today, no concrete plans have been issued. We have noted and welcome this development, and decided to include the HVDC OHL Russia- ROK interconnectors as an option in the plan that will traverse through DPRK territory.

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4.5.2.7. Identification of Sites for Interconnections to Japan

Taking into account a range of factors including geographic location, supply area demand and transmission system characteristics, a number of sites have been identified as suitable for HVDC interconnection with neighboring countries. The follwing figure shows converter station sites.

Figure 37 : Converter stations in Japan grid Scenario 1 & 2

Figure 38 : Converter stations in Japan grid Scenario 3

Under Scenario 3, in order to minimize the cost of investment and taking into consideration of each supply area characteristics, multi-terminal HVDC system is proposed. Specifically, a 3 terminal HVDC at Hino, Takahama and Ooi would be used with a total capacity of 8GW to connect to ROK, a 2-terminal HVDC would be used at Hokubu and Nishi-Gunma with a total

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capacity of 12GW to connect to ROK. Interconnection to Russia with a capacity of 8GW would be connected to Minamiiwaki via Hokkaido.

4.5.2.8. Russia-Japan Interconnection with Deep Marine Cables

We have investigated alternative, shorter connection route between Russia Far East and Ja- pan using the new generation of XLPE cables that could operate and laid in marine depth of up to 3000m. The figure below shows water depth around Japan and between Japan and Russia Far East.

Figure 39 : Water Depth across the Sea between Japan and Russia Far East

The figure below shows potential HVDC cable routes between Japan and Russia Far East using cables operating for up to 3000m deep.

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Figure 40 : Illustrative HVDC Cable Route between Japan and Russia Far East

In this case, the undersea cable will land at Hokaido and then connect to overhead lines with converter station at Minamiiwake.

4.5.2.9. Identification of Sites for Interconnections to Russia

In the context of Northeast Asia interconnection, there have been discussions to upgrade the existing links between Russia Far East and China. Currently Russia is interconnected with Mongolia at different voltage levels. Figure 46 shows the coordinated operation and interconnection between Russia and Mongolia

Figure 41 : Operation and Interconnection between Mongolia and Russia

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One of the possible future interconnection between Russia and Mongolia is proposed by Ros- setti, which shown in Figure below.

Figure 42 : Possible 500kV AC Interconnection between Russia and Mongolia

The figure below shows the geographical location of converter station sites for interconnection with Mongolia, China, Japan and ROK.

Figure 43 : Converter stations in Russia Siberia grid Scenario 1 & 2

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Figure 44 : Converter stations in Russia Far East grid Scenario 1 & 2

Figure 45 : Converter stations in Russia Siberia grid Scenario 3

Figure 46: Converter stations in Russia Siberia grid Scenario 3

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On the territory of Russia, for the interconnection of the UPS Siberia and the UPS of East, a DC-link is installed on voltage converters at the 220 kV substation Mogocha. The UPS of the East connected to the UES of Siberia by three 220 kV transmission lines. As there is only weak connection between Russia Siberia and Far East areas, it is reasonable to propose that a 800kV HVDC line should be constructed to facilitate significant flows from Siberia to Far East. Assuming the undersea cable operating under the water of up to 3000m is available, it is possible to find a undersea cable route from Vladivostok of Russia Far East to Hokkaido, significantly reducing the transmission length between these two countries.

4.5.2.10. Investment costs

The costs of the interconnectors are divided between the involved countries. The cost includes the new 500kV transmission system in Mongolia, the link between Gobi RE base and Mongo- lian transmission, and also the line between Russia Far East and Siberia, which are identified in this study under different scenarios and configurations, but it does not include costs that might be required for reinforcement to national transmission systems which are not explicitly identified in this study. 1) Both Quarantined, Integrated DC and Integrated AC configurations are feasible network configurations for exportation of large scale renewable generation from Mongolia. 2) Impact of large scale renewable generation on Mongolia’s existing and planned 220kV transmission system depends on Gobi RE base network configurations. Quarantined has the least impact whereas Integrated AC would see full integration of Mongolian power system with Gobi RE base, providing support to and also benefiting from Gobi renewable generation development. 3) Integrated AC configuration requires lower amount of total investment when compared with Integrated DC configuration 4) Integrated AC configuration has the flexibility to expand in the most economic manner as Gobi RE base develops. 5) Integrated AC configuration gives the opportunity for unifying the 5 Mongolian sub-systems in one National System

Therefore, it is recommended that the Integrated AC configuration be adopted as the preferred option for NAPSI Interconnection development.

The tables below presents the interconnection costs of the 3 recommended scenarios according to the level of exportation 5GW in 2026, 10GW in 2036 and 100GW as target. Table 14 : Detailed interconnection costs per country according to the 3 scenarios of the Project

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Investment Cost – Scenario 1 Integrated AC Configuration MON Export 5GW 2026 Mongolia China Russia ROK Japan Total Cost Range Order Projects ($m) ($m) ($m) ($m) ($m) ($m) min ($m) max ($m)

1 New 500kV Substation overlaying on 220kV substation in Mongolia 163 163 163 163

2 New 500kV Netw ork Lines in Mongolia 750 750 750 750 3 Darkhan - Buryatia 500kV HVAC 65 127 192 186 197 4 Kyzylskaya (Russia) - Emnegov (Mongolia) 500kV HVAC 68 141 209 201 216 5 Oyutolgoi - Hohhot (China) uprating 500kV HVAC 113 176 288 278 298 6 Weihai (China) - Sinsiheung (SK) 500kV HVDC 840 831 1 671 1 410 1 932 7 Hadong (SK) - Hino (Japan) 500kV HVDC 615 664 1 279 1 051 1 506 8 Primorsky (Russia FE) - Kashiw azaki-Kariw a 500kV HVDC 776 1 080 1 856 1 437 2 274 Option Vladivostok DPRK - Donghe 500kV HVDC 380 587 967 838 1 096 Total 1 159 1 016 1 424 2 033 1 744 7 375 6 314 8 432

Investment Cost – Scenario 2 Integrated AC Configuration MON Export 10GW 2036 Mongolia China Russia ROK Japan Total Cost Range Order Projects ($m) ($m) ($m) ($m) ($m) ($m) min ($m) max ($m) 1 New 500kV Substation overlaying on 220kV substation in Mongolia 163 163 163 163 2 New 500kV Netw ork Lines in Mongolia 750 750 750 750 3 Darkhan - Buryatia 500kV HVAC 65 127 192 186 197 4 Kyzylskaya (Russia) - Emnegov (Mongolia) 500kV HVAC 68 141 209 201 216 5 Oyutolgoi - Hohhot (China) uprating 500kV HVAC 113 176 288 278 298 6 Weihai (China) - Sinsiheung (SK) 500kV HVDC 840 831 1 671 1 410 1 932 7 Hadong (SK) - Hino (Japan) 500kV HVDC 615 664 1 279 1 051 1 506 8 Primorsky (Russia FE) - Kashiw azaki-Kariw a 500kV HVDC 776 1 080 1 856 1 437 2 274 9 Reinforcement 500kV Substation in Mongolia 83 83 83 83 10 Gobi RE Base (Mongolia - Baotou (China) 675 715 1 390 1 313 1 466 11 Weihai (China) - Sinsiheung (SK) from 3 to 4GW 145 145 290 244 335 Option Vladivostok - DPRK-Donghe 380 587 967 838 1 096

Investment Cost – Scenario 3 Integrated AC Configuration MON Export 100GW 2036+ Mongolia China Russia ROK Japan Total Cost Range Order Projects ($m) ($m) ($m) ($m) ($m) ($m) min ($m) max ($m) 1 New 500kV Substation overlaying on 220kV substation in Mongolia 163 163 163 163 2 New 500kV Netw ork Lines in Mongolia 750 750 750 750 3 Darkhan - Buryatia 500kV HVAC 65 127 192 186 197 4 Kyzylskaya (Russia) - Emnegov (Mongolia) 500kV HVAC 68 141 209 201 216 5 Oyutolgoi - Hohhot (China) uprating 500kV HVAC 113 176 288 278 298 6 Weihai (China) - Sinsiheung (SK) 500kV HVDC 840 831 1 671 1 410 1 932 7 Hadong (SK) - Hino (Japan) 500kV HVDC 615 664 1 279 1 051 1 506 8 Primorsky (Russia FE) - Kashiw azaki-Kariw a 500kV HVDC 776 1 080 1 856 1 437 2 274 9 Reinforcement 500kV Substation in Mongolia 83 83 83 83 10 Gobi RE Base (Mongolia - Baotou (China) 675 715 1 390 1 313 1 466 11 Weihai (China) - Sinsiheung (SK) from 3 to 4GW 145 145 290 244 335 12 Reinforcement 500kV Substation in Mongolia 1 845 1 845 1 845 1 845 13 Gobi RE Base - Baotou (China) 800kV HVDC 166 198 364 331 397 14 Gobi RE Base - Buryatia Upgrade to 800kV HVDC 1 363 928 2 291 2 001 2 580 15 Gobi RE Base - WuLanChaBu (China) 800kV HVDC 1 137 1 250 2 387 2 148 2 624 16 Gobi RE Base - HeLinHe (China) 800kV HVDC 1 137 1 169 2 306 2 100 2 511 17 Vladivostok - Harbin 800kV HVDC 945 1 009 1 954 1 799 2 108 18 Gobi RE Base - Tianjin Nan (China) 800kV HVDC 1 137 1 588 2 725 2 351 3 096 19 Gobi RE Base - Tangshan Nan (China) 800kV HVDC 1 361 1 860 3 221 2 828 3 612 20 Gobi RE Base - Bazhou (China) 800kV HVDC 1 097 1 580 2 677 2 322 3 030 21 WeiHai (China) - Sinsiheung (SK) 800kV HVDC 776 768 1 544 1 302 1 784 22 WeiFang (China) - Hw asung (SK) 800kV HVDC 1 882 1 729 3 611 3 165 4 056 23 Linyi (China) - Hw asung (SK) 800kV HVDC 1 979 1 769 3 748 3 247 4 248 24 Gobi RE Base - Jinan (China) 800kV HVDC 1 137 1 805 2 942 2 481 3 401 25 Gobi RE Base - Nanyang (China) 1100KV HVDC 1 361 2 085 3 446 2 963 3 928 26 Hadong (SK) - Hino/Takahama/Ooi (Japan) 800kV HVDC 1 058 3 661 4 719 3 811 5 556 27 Sin Yasan (SK) - Hokubu/Nishi-gumma (Japan) 800kV HVDC 2 260 4 463 6 723 6 297 7 149 28 Primorsky (Russia FE) - Minamiiw aki 800kV HVDC 769 1 088 1 857 1 437 2 274 29 Chitinskaya (Russia Siberia) - Zeyskaya (Russia FE) 800kV HVDC 3 205 3 205 2 884 3 525 Option Vladivostok - DPRK - Donghe 500kV HVDC 380 587 967 838 1 096 Option Vladivostok - DPRK - Donghe 800kV HVDC 901 1 064 1 964 1 693 2 226 Total 13 658 18 993 8 236 10 825 10 956 62 667 54 959 70 266 The costs study can be sumurized as follows:

Table 15 : Summerized interconnection costs per country according to the 3 scenarios of the Project

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Investment Cost – Scenario 1 Integrated AC Configuration MON Export 5GW 2026 (m$) Interconnection Russia-MON-PRC-ROK with MON Export 5GW 3 273 Additional interconnection with Japan 3 135 Additional interconnection Russia-DPRK-ROK 967 Total 7 375

Investment Cost – Scenario 2 Integrated AC Configuration MON Export 10GW 2036 (m$) Interconnection Russia-MON-PRC-ROK with MON Export 5GW 3 273 Additional interconnection with Japan 3 135 Additional interconnection Russia-DPRK-ROK 967 Additional Interconnection MON-PRC-ROK with additional MON Export 5GW 1 763 Total 9 138

Investment Cost – Scenario 3 Integrated AC Configuration MON Export 100GW 2036+ (m$) Interconnection Russia-MON-PRC-ROK with MON Export 5GW 3 273 Additional interconnection with Japan 3 135 Additional interconnection Russia-DPRK-ROK 967 2nd additional interconnection Russia-DPRK-ROK 1 964 Additional Interconnection MON-PRC-ROK with additional MON Export 5GW 1 763 Additional Interconnection Russia MON-PRC-ROK-Japan with additional MON Export 90GW 51 565 Total 62 667

4.5.2.11. Recommendations and sequencing of Northeast Asia interconnection projects

The following recommendations are proposed for power network development for exportation of large scale renewable power in Mongolia

1) Mongolia is endowed with rich renewable generation resources, especially solar power. Wind and solar power should be developed in large scale and concentrated manner in the Gobi Desert (Gobi RE Base for short). The Gobi RE could be developed in phases with the 1st phase development of 5GW, 2nd phase 10GW, and so on. 2) Transmission system for Gobi RE base should be developed in the Integrated AC configuration manner which involves the construction of a new 500kV transmission system overlaying on the existing 220kV one in Mongolia. Gobi RE base would be fully integrated with the Mongolian 500kV transmission system. 3) Appropriate security and protection schemes should be put in place, such as renewable generation inter-trip schemes, voltage and stability monitoring and control systems, etc. This will ensure that the Gobi RE base and 500kV transmission system could operate safely against any contingencies.

Sequencing of NAPSI Interconnection Projects

NAPSI interconnection for exportation of large scale renewable generation in Mongolia (Gobi Desert) are recommended to proceed in 3 stages as envisaged by the 3 scenarios. This will allow sufficient interconnection capacity to meet expansion of Gobi RE base. This is shown below in order of priority:

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Phase I (2026): Gobi RE base to reach 5GW 1. Development of Gobi RES base 500kV substation 2. Construct new 500kV AC transmission system overlaying on the existing 220kV one in Mongolia 3. Darkhan (Mongolia) - Buryatia (Russia) 500kV AC 4. Kyzylskaya (Russia) - Emnegov (Mongolia) 500kV AC 5. Uprating Oyutolgoi - Hohhot (China) 500kV AC 6. Weihai (China) - Sinsiheung (ROK) 500kV , LCC HVDC, 3GW 7. Hadong (SK) - Hino (Japan) 500kV LCC-HVDC, 2GW 8. Primorsky (Russia FE) - Kashiwazaki-Kariwa, 500kV, LCC-HVDC, 2GW 9. Option: Vladivostok – DPRK - Donghe (ROK) 500kV, LCC-HVDC, 2GW

Phase II (2036): Gobi RE base to reach 10GW 1. Reinforce the development of Gobi RES Base substation 2. Expand China (Weihai) – ROK (Sinsiheung), 500kV, LCC-HVDC to 4GW from 3GW 3. Mongolia (Gobi RE Base ) – China (Baotou), 500kV, LCC HVDC, 4GW

Phase III (2036 +): Gobi RE base to reach 100GW 1. Reinforce the development of Gobi RES Base substation 2. Mongolia (Gobi RE Base) - Russia Siberia (Buryatia), 800kV, LCC-HVDC, 8GW 3. Upgrade Mongolia (Gobi RE Base) - China (Baotou) to 800kV, LCC-HVDC, 8GW 4. Mongolia (Gobi RE Base) - China (WuLanChaBu), 800kV, LCC-HVDC, 8GW 5. Mongolia (Gobi RE Base) - China (HeLinHe), 800kV, LCC-HVDC, 8GW 6. Russia Far East (Vladivostok) - China (Harbin), 800kV, LCC-HVDC, 7GW 7. Mongolia (Gobi RE Base) - China (Tangshan Nan), 800kV, LCC-HVDC, 8GW 8. Mongolia (Gobi RE Base) - China (Tianjin Nan), 800kV, LCC-HVDC, 10GW 9. Mongolia (Gobi RE Base) - China (Bazhou), 800kV, LCC-HVDC, 8GW 10. Uprate China (WeiHai) - ROK (Sinsiheung) to 800kV, LCC-HVDC, 10GW 11. China (WeiFang) - ROK (Hwasung), 800kV, LCC-HVDC, 10GW 12. China (Linyi) - ROK (Hwasung), 800kV, LCC-HVDC, 10GW 13. Mongolia (Gobi RE Base) - China (Jinan)), 800kV, LCC-HVDC, 8GW 14. Mongolia (Gobi RE Base) - China (Nanyang), 1100kV, LCC-HVDC, 10GW 15. ROK (Hadong) – Japan (Hino/Takahama/Ooi), 4 terminal VSC HVDC, 8GW 16. ROK (Yasan) – Japan (Hokubu/Nishi-gumma ), 3 terminal VSC HVDC, 12GW 17. Russia FE (Primorsky) – Japan (Minamiiwaki), 800kV, LCC-HVDC, 8GW 18. Inside Russia: Chitinskaya (Siberia) – Keyskaya (Far East) 19. Option: Russia FE (Vladivostok)- DPRK - ROK (Donghe), 800kV, LCC-HVDC, 10GW

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This is illustrated in figures below:

Phase III 2036+ Gobi RE Base to Reach 100 GW

Figure 47 : Sequence of NAPSI Interconnection Development according to the Project results

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Table 16 : Solar & Wind Investments in Mongolia with NEA Interconnection Grid

Table 17 : Summarized Solar & Wind Investments in Mongolia with NEA Interconnection Grid

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4.6 DESCRIPTION OF MODULE 6: POWER TRADE AND REGULATION

4.6.1 The goals of Module 6

The Module 6 report focuses on Power and Regulation between Northeast Asia countries. The Module 6 has two objectives: . Creating an enabling environment to effect power trade, . Promoting coordinated regional planning and development (generation and transmission).

The report presents experiences in the world of Regional Interconnection and lessons learned from some of them and Regulation and Cost Recovery recommendations for implementing a regional electricity market and facilitating the exportation of large scale renewable generation in Mongolia.

Figure 48 : The African Power Pools

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Figure 49 : Interconnection capacity of SIEPAC

Figure 50 : The 5 synchronous zones of Europe power interconnection

Module 4 report has shown that Mongolian Solar and Wind power are the most cost-effective of the NEA region. To remain cost-effective after transmission in the country of importation, it is necessary to implement a mechanism where the cost recovery of the interconnectors does not interfere with the cost of generation that are exchanged among the countries. This mechanism is in operation in Europe and is recommended for NEA Power Trade.

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4.6.2 Main findings

4.6.2.1. Regulation framework at regional level

The report recommends at first step to implement a strong coordination among the Regulators of Mongolia, PRC, ROK, Japan and Russia: . For establishing a common set of rules . For organizing and monitoring the National Regulation modifications If no Regulators are designated so far, the Ministry of Energy can represent the country.

The report recommends the creation of a NAPSI Authority for managing the interconnection infrastructures and for ruling the harmonization of the national Regulations at regional level: . Development of a Regional Regulation regarding: . Mission to National Regulatory Authorities (NRAs) . Free regional market for all players . Power trade contracts standardization . Institutionalization of competitive mechanisms . Regional Grid Code: Clear common rules . Transmission rights: Development of comprehensive methodology . Same priority for domestic demand and export commitments

Figure 51 : The NAPSI Authority organization

The report recommends also the elaboration of a NEA Grid Code.

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4.6.2.2. Interconnector financing

The report recommends that the Regulated regime for a new interconnector between 2 TSOs, letting open the option of a financing wholly or partly by the private sector. The advantages of a strong coordination between the regulators/ministry of Energy of the 5 countries is that it is possible to organize additional grants to complete the profitability and compensate the benefit for the other TSO of the ring that are not involved directly by the new interconnection.

4.6.2.3. Interconnector cost recovery by transmission right auctions

The report recommends for cost recovery of the interconnectors, the mechanism in operation in Europe that is based on a separation between 2 businesses: . The business of Interconnection service . The business of Generation The value of this mechanism is that the cost of Transmission through the interconnector can’t affect the cost of generation, avoiding the risk that the low price energy produced in the exporting country could become non-cost effective in the importing country.

Figure 52 : Illustration of the recommended interconnector cost recovery methodology To sum up how it works: . The interconnection business make sense each time there is a price difference between the 2 countries: the exporting country (low price) and the importing country (high price). The difference between high and low price is called the Economic Congestion Rent. . The 2 involved TSOs sell through auctions the Transmission Rights to Traders through Auctions. The price paid for the TRs represent a cost for the Trader. . The Trader buys energy in the exporting country and sell it in the importing country. The profit between the sale and the purchase of energy due to the congestion represents a revenue for the Trader. . The profit of the Trader is the difference between his revenue based on the congestion rent and his cost of transmission rights.

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The result is that the generation company sells more energy through the interconnection at cost effective low price of the exporting country while the traders make profit on the interconnection service only in buying the low price energy of the exporting country and selling it into the high price importing country.

This principle guaranties free access in all the national markets to the most cost effective electricity provided: o The Independence of TSOs (encouraged by policies) o The creation of a Balancing market o The Market operator: TSO or separate entity

4.6.2.4. Mongolia grid update through 500kV HVAC

The Module 5 report on Power System Interconnection studies recommends that taking into consideration the high volume of Renewable Energy produced in Mongolia (5GW, 10GW and 100GW) compared to the existing consumption (1GW), the upgrade of the existing Mongolian grid is mandatory. The recommended solution in the Module 5 report is a 500kV HVAC grid that gives the opportunity both to unify the 5 existing sub-systems and to interconnect Mongolia with Russia and China.

Figure 53 : Recommended Mongolia’s grid upgrade

The Module 6 report suggests 2 solutions for the financing and cost recovery of the recommended 500kV HVAC grid upgrade: . Option N°1: consider the Mongolia Grid Upgrade an interconnection part of the NEA Ring and organize it by the NEA coordination (preferred solution through the NAPSI Authority) through a Built Own Operate Transfer (BOOT)

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. Option N°2: consider the Mongolia Grid Upgrade an interconnection between China and Russia and organize it through a Built Own Operate Transfer (BOOT) by a Russian & Chinese consortium. The report suggest for both options the same cost recovery methodology that is the same as recommended above: through Transmission right auctions based of congestion rent valoriza- tion.

4.6.2.5. Mongolia conventional generation cost recovery

. The Paris agreement represents new deal for coal-fired generation: only some lenders still may provide financing for coal-fired Power Plants according to information we have collected verbally . Hybrid (electricity and grid) may still be possible by Western financing as long as it contributes only to stabilize the output of renewable generation

4.6.2.6. New regulation for improving attractiveness of private foreign & local investors

The Module 6 report recommends that the Mongolian regulation: . gives enough visibility on the renewable energy policy targets and market volume: The foreign investors would come to a new country if they see a sufficient volume of projects they can invest in for the long term. The visibility horizon should be at least 10 years on Energy Policy with good level of monitoring by the Government,

. ensures foreseeable and stable Revenues: Renewable energy projects need some clarity on the long term electricity price and on the ۔ electricity market mechanisms. Investors require foreseeable and guaranteed revenues. The same for the taxes. -In case of Feed in Tariff: the calculation should allow extra revenue in case better perfor ۔ mance than expected.

. guaranties the Grid Operation: Priority dispatch / no curtailment: The Wind and Solar energies are intermittent but need to be able to inject when wind is blowing or sun is shining. Moreover, procedure of compensation have to be clear and guaranteed in case of Grid failure.

. guaranties the Grid connection with enough capacity on short and long runs

. improves the Contractual and Legal maturity: The legal context in which renewable projects will be built need clarity and stability (clear and stable frame for permitting, sale of electricity, tax, etc…).

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. develops adequate Financing facilities: -The renewable energy projects are very CAPEX intensive. It is crucial that financing insti ۔ tution feel comfortable in financing renewable projects. With Fixed Interest Rates, no exchange rate risk long term debt compliant with Tariff period ۔ of guaranty allowing gearing at least of 80%.

. gets reliable pre-permitted sites

4.6.2.7. Preliminary assessment of the financing capability

A preliminary assessment was done in Mongolia through interviews of locally based investors. The main objectives was to assess the appetite of the international and local financial institutions regarding the financing of the energy sector of Mongolia.

• Define a typology of potential investors that may be the ones having interest for investment in renewable infrastructure, those in Mongolia but also out of Mongolia. • Highlight the categories of investors that have been investing in large scale projects in Mongolia through relevant case studies. • Evaluate the appetite of a selected pool of existing investors having a presence in Mongolia in order to assess their potential interest in investing in one of the NAPSI projects through a bottom up approach We showed in the module 6 that Mongolia has been able to attract investors in large scale projects as the Oyu Tolgoi mining project or on the CHP5 where a consortium was established smaller scale renewable projects as Salkhit windfarm. We also saw that renewables energy projects have attracted elsewhere in Asia and Europe the categories of investors that have been investing in the past in Mongolia.

As an outcome of the interviews we had with locally based Mongolian and international investors, it came out that:

NAPSI awareness remains limited among the players we have interviewed > Among the stakeholders we have interviewed, some became aware of the NAPSI project in receiving our invitation email for interview, some had heard about the project and only had a high level perception. They understand the project is at an early stage, whenever there are some available public information enabling to learn more about NAPSI;

> Nevertheless they is a general awareness about Renewable Energies in Mongolia and as mentioned by one of our interviewee, the concept of NAPSI makes sense

> In terms of potential there is no doubt about it, nevertheless:

> The project complexity is understood with the coordination of 5 countries;

> The size of the project costs makes it crucial to validate its bankability;

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> While the Mongolian energy sector is moving into renewable energies, there is a huge

One of the key challenge for the next steps of the NAPSI project will be the promotion of the project to create awareness and credibility among the investment community regarding the development of such project in Mongolia

The perception of the investment environment in Mongolia can create a potential barrier • A main concern highlighted was the political stability iand its impact in the Mongolian economic ecosystem and the concern regarding the long term stability of the decision, the risk of changing already taken measures and delays to implement which may put at risk the benefit of the investment for the country;

• There are lot of rooms for improvement and giving the investors more security in terms of tariffs, offtake,… and ways to provide continuity in the agreements that have been signed;

• The economic situation of the country can be seen as another issue bringing the Mongolian expected returns higher than any other countries of the region but well framed the NAPSI project would be potentially an option to lower the depencies to commodities and as an export driven industry, there could be some factors to decorelate the risk from the country risk

• The perceived lack of transparency on some decision led some of our interviewees question their participation in a tender

• Finally a last point was raised on connectivities

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Figure 54 : Mongolia risk assessment methodology Most off the risks are political and economic driven ones, but there are ways to mitigate them… Perceived risk factors > Stability of the Government and policies requiring the improvement of the leg- islative system;

> Economic volatility ultra-dependent from a few commodities leading to a high cost of funds, as well as a limited financial sector;

> Weakly and incomprehensively formulated laws and regulations and its im- proper implementation;

> A framework to be implemented independently: tariffs and offtake;

> Perception of risk if the tender if handle at GoM level;

> Logistic costs which are high in Mongolia and should be reduced to increase competitiveness;

> Maturity of the NAPSI project: it must have acquired all the permits, licenses and PPEs before tendering;

> Getting the support of the opinion

Risk mitigation factors > Attractiveness of Mongolia is obvious due to its wide area with a quasi-ab- sence of population in some areas, low population and an over abundant resource of wind and sun, as well as coal to stabilize the wind farms output;

> Location of Mongolia as landlocked in a region of super-powers: China, Ja- pan, Korea and Russia;

> The presence of Multilateral Financial Organization in projects such as the ones that will be derived from the NAPSI project is a real opportunity to bring FDI as those are perceived to know Mongolia for long and increase the credibility on the projects they invest in;

> More political stability is involved to make the projects successful, or other words we should say to bring the NAPSI projects independent from the Mon- golian political landscape including the tendering process which is recommended to be handled by an independent third party.;

> The prospect of the energy diversification to stabilize the economy and the relationship with the LSE;

> Early stage of the NAPSI project enabling in further stages create an adequate legal and a clear financial framework involving or not the GoM, with tariffs and offtakes agreements..

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Investing in renewable energies offers a significant interest from the investors we met • Some investors keep somehow skeptical regarding the development of a disruptive massive renewable capacity dedicated to export due to the current economy structure with the strong presence of coal as main contributor to power generation, and the political dimension of the project requiring to ensure offtakes and transmission from the other NAPSI countries;

• Nevertheless renewables power generation is viewed as a real opportunity for Mongo- lia in terms of diversification and a possibility to become one pillar of the economy, thanks to the abundant wind and solar resources, without considering to rebalance the economy;

• A key driver for investors to move forward and to make the projects bankable would be the visibility in the regulatory framework especially on tariffs, the long term sustainability regarding the main components of the business cases to ensure that the environment will be predictable during the whole duration of the project;

• A challenge appeared in the development of the grid which should involve a government commitment to be further defined;

• One key success factor for the financial institutions would be to involve the Multilateral Financial Institution as a kind of guarantee for private investors. If local bank should be involved to some extend, offshore project financing will be mandatory with the local banks bringing their market knowledge and supporting the local companies involved in such projects

Coal may support the development of a stable output of energy but some investors may be reluctant

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Figure 55 : Pros and cons analysis for coal in Mongolia As a conclusion of the assessment we saw that:

 Large scales renewable projects are one of the core projects financing globally

 In emerging economies, Multilateral Financial Institutions (MFIs) have proven to be playing decisive roles to convince other investors to move on in giving them confi- dence

 As equity investors, expectations are not the same between  MFIs which have a willingness to support the economy vs. high yield  Strategic investors which will look at an IRR but have also other ways to be com- pensated as management service agreements, synergies with existing/future businesses  Infrastructure funds which target higher yield and may have an exit strategy in their pitches  Lenders may be MFIs or international lenders, but the role of the local banks should not be underestimated in a pool of lenders to which they can be the local interface

 But in any case, attracting investors means guarantees  Government guarantees

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 Stability of the ecosystem which in NAPSI may go through a NAPSI authority  Agreement on foreign offtake and PPA to ensure the business plan stability  Access to international financial market will also require the scalability with a question to be answered: shall the NAPSI project concessions be sizable (1GW each or more) and 1 grid concession, and will there be some ownership from the State of Mongolia which could be some models to be presented in June

From the interviews, we have learnt that attracting investors on the NAPSI project will require to give some assurance due to the scale of the investment

 One of the main success factor should be to provide the investors some guarantees regarding the stability of their investment in the long run, and the independence to the Mongolian political environment;

 The development of an independent NAPSI authority, located in Ulaanbaatar could be an option in order to provide the required independence from the Government of Mongolia and to contribute to the coordination of the potential issues between the countries;

 The concession process should be handled by a third part consultant show as much transparency as possible to the investors;

 There should be prior agreement on the tariffs and offtakes in order to provide the stability required in the long term for a business case;

 Hybrid model are financeable as some investors are still considering coal in such case to stabilize the output;

 The grid may require some involvement of the Mongolian Government or related parties;

 Mongolian banks should have a role to play, while not competitive in terms of interest rates, they will act as local expert;

 With appropriate off takers, there could be ways de-correlating the expected returns to the expected ones in a project in Mongolia.

Then, our recommendation was to extend the assessment to international lenders and investors based in London, Tokyo, Seoul and Beijing in the context of the project extension in an additional budget to be approved.

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5. WORKSHOPS

5.1 Workshop 1 in Ulaanbaatar Mongolia on June 20th, 2017

The first Workshop was organized at Shangri-la Hotel in Ulaanbaatar by the Ministry of Energy of Mongolia with the supports of ADB and Nova Terra of with representatives of . Japan : Renewable Energy Institute REI . Republic of Korea: Korea National Committee of CIGRE . Russia: PJSC ROSSETI No representatives of China due to short time for getting visas.

International Organization: Energy Charter was also represented.

Important entities of Mongolia were represented: . Energy Regulation Commission (ERC) . National Dispatch Center (NDC) . TRANSCO . Energy Economy Institute (EEI) . Renewable Energy Center . NEWCOM Group . Wind Association . Renewable Energy Producer’s Association . Electricity Development Center . Mongolia University of Science and Technology . Asian Supergrid Society . Electricity Association . Electricity Engineer’s Association

The Minister of Energy Mr. Gankhu PUREVJAJ made the introductive speech.

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5.2 Workshop 2 in Gwanju Republic of Korea on November 2st, 2017

The second Workshop was organized at the Holiday Inn Hotel in Gwangju in the margins of BIXPO Republic of Korea by KEPCO with the support of ADB with representatives of: . Mongolia: Ministry of Energy, TRANSCO, NDC, EEI . Republic of Korea: KEPCO, KNC . Japan: REI . China: GEIDCO/SGCC . Russia: PJSC ROSSETI

Important International Organizations was also represented: . Energy Charter . IRENA

Mr. Moon Bon-Sok Executive Vice President of KEPCO made the introductive speech.

5.3 Workshop 3 in Tokyo Japan on March 8th, 2018

For the third Workshop, an open Symposium “Getting Power from Wind and Sun” was- organized at the Room A, Iino Hall & Conference Centerin Tokyo by Mongolia MoE, REI and ADB with representatives of: . Mongolia: Ministry of Energy, TRANSCO, NDC, EEI . Japan: METI, TEPCO, Soft Bank,REI, Sumimoto, IEEJ, University of Tokyo and Waseda Unversity . Republic of Korea: KEPCO, KEEI, KPX and KNC . China: GEIDC/SGCC and National Center for Climate Changer Strategy and international Cooperation (NCSC) . Russia: PJSC ROSSETI

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Important International Organizations was also represented: . Energy Charter . IRENA . Elia Consulting Group

5.4 Workshop 4 in Beijing China on October 26th, 2018

The fourth Workshop was organized at the Shangri-la Hotel in Beijing by MoE with the support of ADB with representatives of: . Mongolia: Ministry of Energy, TRANSCO, NDC, EEI, National Energy Center (NEC) and Embassy of Mongolia in Japan . Republic of Korea: KEPCO and KNC . Japan: SoftBank and REI . China: National Energy Administration (NEA), GEIDCO/SGCC, SGERI, NCSC, Tsingua University Energy Intern and Research Center . Russia: PJSC ROSSETI

Important International Organizations was also represented: . Energy Charter . IRENA . World Bank

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5.5 Workshop 5 in Ulaanbaatar Mongolia on February 28th, 2019

The fourth Workshop was organized at the Shangri-la Hotel in Ulaanbaatar by MoE with the support of ADB with representatives of: . Mongolia: Ministry of Energy, TRANSCO, NDC, EEI, . Republic of Korea: KEPCO, KEEI and KNC . Japan: REI . China: GEIDCO/SGCC and SGERI . Russia: PJSC ROSSETI

Important International Organizations were also represented: . Energy Charter . IRENA . UNESCAP

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ANNEX 1: THE STEERING COMMITTEE MINUTES OF MEETING

for with MoM of the Steering Committee N°1 Strategy for NAPSI TA 9001-MON on June 20th, 2017 in Shangri-la Hotel Ulaanbaatar Participants List № Name Organization Position 1 Mr. P. Gankhuu MoE Minister for Energy 2 Mr. D. Chimeddorj MoE Department Head 3 Mr. M. Bayarmagnai MoE Department Head 4 Mr. B. Nasantogtokh MoE Department Head 5 Mr. B. Sanduijav MoE Department Head 6 Mr. N. Boldhuu MoE Department Head 7 M. Angarag MoE Department Head 8 Mr. S. Tserenjamts MoE Division Head 9 Mr. B. Sugar MoE Division Head 10 Mr. G. Enkhtaivan MoE Senior Specialist 11 Mr. B. Yeren-Ulzii MoE Senior Officer 12 Mr. Yo. Enkhtuya MoE Senior Specialist 13 Mr. N. Uuganchimeg MoE Senior Specialist 14 Mr. G. Uyemaa MoE Specialist 15 Mr. A. Tleikhan ERC Chairman 16 Mr. C.Bassaikhan ERC Commissioner 17 Mr. E.Tuvshinchuluun ERC Commissioner 18 Mr. U. Myagmarsuren ERC Commissioner

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19 Mr. L.Jambaa ERC Division Head 20 Mr. D. Baldorj NDC CEO 21 Mr. L. Bukhbold NDC Chief Dispatcher 22 Ts. Unurmaa NDC Division Head 23 Mr. M. Tumenjargal Energy Economy Institute Director 24 Mr. Ch. Ulam-Orgil Energy Economy Institute Department Head 25 Ts.Tseren Renewable Energy Center Director 26 Mr. Purevdorj Renewable Energy Center Chief Engineer 27 Mr. D. Sodnomdorj Mongolian University of Sci- Academic ence and Technology, School of Electricity and Engineering 28 Mr. B. Bat-Erdene Mongolian University of Sci- Vice Principle ence and Technology, School of Electricity and Engineering 29 Mr. O. Bavuudorj 30 Mr. B. Nyamsambuu Transco CEO

31 Mr. D. Chinbat Transco Chief Engineer 32 Transco Regulation and Technical Division Head 33 Transco Project Management Divi- sion Head 34 Mr. B. Jigjid Asia Super Grid Society President 35 Mr. D. Bayasgalan Asia Super Grid Society CEO 36 Ts. Sukhbaatar Electricity Association President 37 Mr. G. Purevdorj Electricity Association CEO 38 Mr. P. Ganjuur Electricity Engineer's Associ- Chairman ation 39 Mr. J. Hand-Ish Electricity Engineer's Associ- ation 40 Mr. Enkhbold Newcom Group 41 Mr. Ganhuyag Newcom Group 42 Mr. T. Hishigt Newcom Group Project manager 43 Mr. Myagmardorj Wind Association CEO 44 Mr. B. Zayabaatar Wind Association Manager

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45 Mr. J. Osgonbaatar Renewable Energy Produc- President er's association 46 Mr. C. Saranjav Electricity Development Cen- Director ter 47 Mr. Ashok Bhargava ADB Director Energy Division, East Asia Department 48 Mr. Teruhisa Oi ADB Project Director 49 Ms. Geng Dan ADB International Country Co- ordinator for the People's Republic of China 50 Mr. Ryo Omatsu ADB International Country Co- ordinator for Japan, REI 51 Mr. Jung Hwan Kim ADB International Country Co- ordinator for the Republic of Korea 52 Ms. Mika Ohbayashi Renewable Energy Institute Director 53 Dr. Masami Nakata Energy Charter Assistant Secretary Gen- eral 54 Mr. Vladimir Sofyin Rosseti Director, Department of Technology and Innovation 55 Ms.Anna Bessarabova Rosseti Chief Expert 56 Dr. Dongil Lee CIGRE Korea Secretary General 57 Mr. Philippe Lienhart EDF Project Team Leader 58 Mr. Antony Robert EDF Expert 59 Mr. Raphaël Goué EDF Expert 60 Mr. Vincent De Laleu EDF Expert 61 Mr. Nicolas Chamollet EDF Expert 62 Ms. Ariunjargal Suriya EDF Expert 63 Mr. B. Byambasaikhan Nova Terra Director 64 Mr. Bold Itgel Nova Terra CEO 65 Dr. N.Enebish Nova Terra Energy Market Researcher 66 Mr. N.Purevdagva Nova Terra Renewable Energy Spe- cialist 67 Ms. Z.Misheel Nova Terra Assistant Manager

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Mr. Gankhuu Purevjav: Minister for Energy

First of all, I want to felicitate the team of NAPSI. Mongolian energy sector is growing rapidly. According to Master plan of 2016, the part of Renewable energy in energy mix would be 20% in 2020 and 30% in 2030, which is today 7%. For us, it is important to provide stability of legislation and policy of energy and their flexibility for sustainable development of energy sector. We are ready to cooperate in infrastructure projects and are working with many others. For example the Asian Super Grid was successfully implemented. In frame of this goal MoE participate very attentive in international conferences and got the member of “One belt, One Road” and we also participated Asian Super Ring, held in Russia. MoE keeps on doing provide with every facility. Mr. Ashok Bhargava: ADB, Director of Energy Division, East Asia Department Today, the importance of Interconnection is more and more increasing. Mongolia is not only rich of mineral resources, but also has vast potential of renewable energy sources. So this green energy should be used and that will be very efficacious for Mongolia and other countries. To realize generating and exporting this energy, we must work together. Mr. Teruhisa Oi: ADB, Project Director This is our first technical council meeting. We hope that this project will be successfully implemented. One of the main goal of this meeting is your opinion, advice and experience on this project. Mr. Jung Hwan Kim: ADB, International Country Coordinator for the Republic of Korea South Korea is talking about developing renewable energy instead of nuclear power plants. KEPCO has big news with Softbank and CEPRI (about 2GW). 1. How do you deal with other interconnection projects between countries outside of Mongolia? Are they included in your interconnection hypotheses? 2. EDF is very successful in Europe. But what’s about Asia? Philippe Lienhart: Of course, we want to be part of other country projects like between Japan and China or South Korea etc. It would be discussed on the next meeting. EDF is not only settled in Europe. We are present in USA, South America and many other Asian countries. Ms. Mika Ohbayashi: Director of Renewable Energy Institute Renewable Energy Institute was founded by the initiative of Mr. Son after Fukushima accident. The cost of interconnection between China, South Korea and Japan is already studied and I think that will be very helpful to the project. 1. What do you think about GEIDCO? Are they invited to the Steering Committee? 2. There are many projects published by EDF. It is important to compare all information. Also, do not forget the national policy planning of participating five countries. Philippe Lienhart: We have good contacts of GEIDCO and State Grid, especially with GEIDCO. We reached a consensus on working together and on their help. The EDF also has excellent data base and experts. Mr. Ganjuur: Chairman of the Electricity Engineers Association

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I have been working in energy sector for 18 years. Mr. Byambasaikhan is very qualified person in foreign investment and the team of NAPSI seems very strong. The cooperation between involved countries is essential. The new president of Republic of Korea has announced that they will increase the part of RE to 30% in the coming 10 years and other countries are developing their RE rapidly too. Looking at this trend in the world, this project must be successful. How will be this project implemented in reality after 25 months? Ashok Bhargava: If we can successfully complete the first step, then it opens other door. We expect that future energy consumption will be increasing. So this is the best reaction to it. We have same objectives with MoE and any other Energy Organizations, but we cannot give a final answer now. Dr. Dongil Lee: Secretary General of CIGRE Korea Political issues cannot be ignored. What is your position for North Korea? Ashok Bhargava: We do not have any contact with them yet. Hopefully we will find the way. Teruhisa Oi: Mongolia is an Asian Swiss. As North Korea is not subordinated to ADB, we can’t invite them. But Mongolian can do this. These two countries have a very good relationship and ADB has any refuse on their participation. Mr. Bat-Erdene: Mongolian National University of Science and Technology, School of Electricity and Engineering We are working on mathematic simulation with Russian. There are many projects with same objectives across the country. If we consolidate all, can have better results. 1. How many Mongolian are engaged in the project? Is the Mongolian contributor well qualified? How many of them are researchers? Are you interested to working with universities? Because when you look at the prepared slides, you can see some very basic faults like energy unit. Philippe Lienhart: On May, we visited the National Dispatching Center and Transmission Cen- ter. If necessary, technical meeting can be organized. The team is a strong team of experts. Byambasaikhan: As you can see, our team on this project is very international. So at first we collect the information, translate it into English and then translate into Mongolian. We are very concerning about the content and added value of the project. Actually our workshop was scheduled for the middle of July, as it is being held this month in accordance with Mongolian National Festival and President Election. Translation of inception report is made only in 3 days. Therefore it’s possible to give some orthographic mistakes. Mr. Jigjid: President of Asian Super Grid Society, Head of the Mongolian RE Association First of all, I would like to thank for Mr. Teruhisa Oi. The consumption and supply of Energy is crucial in any country. Today, Mongolian economy depends on only mining sector. The potential of RE in Mongolia is our new possibility and we will work for it. We are ready to work together with you. To this day there are several master plans are published, but still any result. So Government agreements are very important, especially with Japan. There have been negotiations between China and Mongolia. Last year, the consortium of the ASG was founded but still quiet.

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Bhargava: Today we have representatives from 5 involving countries and the stakeholders look very active. Byambasaikhan: ADB covers 67 countries in Asia and has extensive experience in cross- country infrastructure projects. How it works is they prepare an agreement between Govern- ments and once it’s signed, ADB controls every step until the end of project. Mr. Khishigt: Newcom, Project manager Five years ago, preliminary assessments were made and such projects were considered not feasible. But if the five countries are all together everything is possible. 1. Land tenure information. Our company is building a second wind turbine in South Gobi. Although Mongolia has large territories, there is limited access to land tenure cause of mining industry and grazing land. It is indispensable and should be pursued a consolidated policy. 2. Social Impact: Such a project cannot be done without the consent of the local community. It is important to estimate how migratory birds flow to be influenced by high powered wind turbines. 3. It looks like it will be connected to China with South of Dornogobi. How many stations and substations will be connected? 4. Grid code: 5 involving countries must have united rules about grid code. How communicate 5 dispatchers with each other? Should there be central dispatching center? 5. It will be grid connected or will have storage? It is very important to set frequency and adjust the power. 6. What is the total area and installed capacity of this project? 7. The Ministry of Energy is responsible to grant operation licenses. Projects are validated by their Feasibility Study. Who will make a feasibility study for stations, which are not connected to the Mongolian Grid (electricity system)? 8. Will you have a feeding tariff or free competition tariff? 9. About construction of HVDC, Korea and China have often overlap of transit cause of tight distance. Make sure to choose the right place for the transit. 10. Please note that, on the map of wind resources of Mongolia the country territory is wrong estimated. Byambasaikhan: The decisions of the government are provided. We are talking about changing the structure of the Mongolian economy. Of course land tenure is a necessary issue that we will negotiate with the government. For example the land tax between Ulaanbaatar and rural areas is different as chalk and cheese. But local communities and rural herders have always more authority over land ownership. The legal requirement to change this issue should be submitted to the government and must be changed. The difference in data issues affecting all countries. We compare all data and follow-up. Mr. Amarbayar: Professor of Mongolian National University, Renewable Energy Depart- ment We work on renewable energy study and research. It is difficult to find proved information on solar reserves in Mongolia. So we are collaborating with the Japanese Renewable Energy

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Institute and … to produce high-intensity solar surveys with satellite imagery. It will be finish approximately 1 year later. I think this study could be very helpful for your project. Mr. Khandash: Electricity Engineers Association I think developing Mongolian wind and solar sources with Russian hydropower potential are key points to supply Asian countries with green energy. China is paying much attention to it and has organized a meeting on last March, but we were not invited. The Mongolian interconnection system is really small and fable, so the current will be probably invariable. The Chinese have a really big role on that, but today they are not present. We have been meeting with North Korea. The only way to transfer electricity from Russian Hydroelectric Power Plant is North Korea, which is the best and shortest route. But I am not sure about some security issues of the Republic of Korea and Japan on it. Mr. Badamdamdin: Directer of Wind Power Plant Depending on the election etc. Mongolia's policy instability and unpredictable business envi- ronments are commonplace. However, Renewable Energy, especially the Law on Energy has not changed in past years. These laws have good quality and we will try to keep it. 1. NGOs and professional organizations play an important role on it. There are currently 20 Renewable Energy NGOs, and today most active are present here. We need to improve our relationship. During last 8 years we have been holding a continuous forum of RE and achieved some positive changes. In the 1990s, the law of the Mining Industry was very good. But because of self-profit after big interest of foreign investment, the law is deviated. So we have to learn from that fact. It is important that the associations stand up to keep the good Renewable Energy Law. 2. Energy Sector of Mongolia depends on directly coal industry. So the majority of Experts are also from coal sector. That is why the industry is very protective. But don’t need to pay much attention on it. It is important to make reasonable estimation of installed capacity of Renewable Energy and inform the people with right information about renewable energy. 3. I have been working for the parliament of Mongolia and North Korea for 4 years. In North Korea power-cut is frequent. We know very well such a situation because we have already survived such a system. Mongolians have a very good relationship with North Korea and should keep it. Please don’t adhere the discriminatory policy to them. As I know there gives North East Asia Society. Three years ago, three North Korean came to talk about RE project with us during the NEAS forum. But we were not so far at that time. This shows that they are very interested in RE industry. Byambasaikhan: Field-proven decision-making is crucial to the business environment. We can export electricity after supply our own consumption. So let’s master in one's own house. Dr. Masami Nakata: Energy Charter, Assistant Secretary General In Energy Charter, there gives effectual documents covering all areas of communication, including trade and commerce of membership countries. Mongolia is the second Asian membership country of Energy Charter. So that’s our commitment to provide good legal environment and we will try to help with multilateral international agreement. Currently we are working on energy risk assessment. 1. So how are you evaluating the risk management and risk estimation of foreign investment?

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2. Due to our experience in Africa, to implementing such a project we have always fresh water issue. What is about Mongolia? Philippe Lienhart: As I said yesterday, in frame of our project we try to carry out every domain like the legal reforms, trade and risk etc. on simplified level. At the end of project, we will propose our 3 scenarios (energy market, RE, grid interconnection). Byambasaikhan: Of course the stability of policy is essential. There are 10 years that new Renewable Energy Law materializes in Mongolia. Till this day many foreign investors like Soft- bank, Energy Charter have been always investing and building their construction in energy sector. This means that there is still opportunity. If this RE law have to be changed, it should be investigated and all consequences should be predicted. The past three years were very challenging due to depression of GDP which had the growth of binary digit (17% in 2011). However, two mega projects are started in 2016 and Wind park project of Tsogttsetsii near UB with Softbank is on implementation. For keep sustainable development of all those activities, the role of NGOs, Lobby Groups and Professional Agencies are very big. Masami: We prefer to create a transparent energy market. As one of the two Asian countries in our organization, please profit your membership status. And I would like to take Nigeria as an example of make positive image of foreign investment. Electricity Association The work is just beginning. Mongolians say “Fix your state, then fix the world”. I think first step is to supply our demand with own production. Energy security of Mongolia is no longer available. We have lack of power and many difficulties grow out of it. In order to solve it the government has sealed three policies: improving the economic progress of energy sector, increasing the part of RE, providing energy security. I wish to EDF, as a company who has many years’ experiences and has more than 2,000 researchers and experts, give for us some professional advices for main tasks in the near future. Mr. Purevjargal: At the Ministry of Energy I was working on some kind of studies. I suggest that EDF issue a recommendation on policy of energy import and export for strategists. Hopefully the role of large-scale coal plants will be cooperated with new renewable energy resources. Dr. Enebish: Project Energy Market Researcher, Professor of Mongolian National Uni- versity As the project covers not only Mongolia, it’s considered big regional project. Therefore, we are studying five involving countries from all sides. The project has been started only for 2 months. We invited many companies, associations and universities for this workshop because we need your support. We are glad to share our study results with you and working together is the only way to have best results. The significance of this project will be visible in 10, 20 and 30 years. Mr. Teruhisa Oi: ADB, Project Director Thank you for your participation. I had very positive feelings and encourages. I would like to more potential stakeholders like Energy Charter participate our coming workshops. Because they are the main force to push forward this project. Of course, there are some challenges. But

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we will find a way together. I think we are beginning our project at the right time. Yesterday, all ambassadors in Mongolia except Japan expressed their support on the project. Mr. Ashok Bhargava: ADB, Director of Energy Division, East Asia Department Please keep this intensity. As we know every big project has challenges and difficulties. But I’m sure our cooperation can solve it and ADB is open with any issues. We do our bests to support all kinds of possibilities.

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for with MoM of the Steering Committee N°2 Strategy for NAPSI TA 900-MON on November 2nd, 2017 in Gwangju Republic of Korea Members of the Steering Committee:

Ministry of Energy Mongolia Mr. Demchigjav CHIMEDDORJ President of the Steering Committee Director General of Energy Policy and Planning Department Mr. Baatar SANDUIJAV Director General, Monitoring and Evaluation Department Mr. Batmunh YEREN-ULZII Senior Officer, Policy Planning Department

TRANSCO Mongolia Mr. Bojin NYAMSAMBUU Executive Director

National Dispatching Center Mongolia Mrs. Tsevegjav UNURMAA NDC Head of Regime Planning Division

Mongolian Energy Economics Institute Mr. Makhbal TUMENJARGAL Director

ADB Mr. Teruhisa OI Project Manager Mr. Jung-Hwan KIM Country coordinator for Korea Mrs. Dan GENG (Danna) Country coordinator for PRC Mr. Omatsu RYO Country coordinator for Japan

KEPCO Mr. Ho-Seung SONG General Director of Asian SuperGrid Team Mr. Jung-Hwan YOON Senior Manager

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CIGRE KNC Dr. Dongil LEE General Secretary of KNC

Energy Charter Mr. Can ÖGÜTCÜ Observer countries Accession Reviews GEIDCO/SGCC Mr. Shoue ZHAO Chief Representative Japan Office Mr. Shuai HAN Representative Japan Office

IRENA Mr. Gurbuz GONUL Acting Director – Country Support and Partnerships

PJSC ROSSETI Mrs. Anna BESSARABOVA Chief expert

REI Mrs. Mika OHBAYASHI Director of REI

Consultant Team: EDF Mr. Philippe LIENHART Project Director Mr. Marc TROTIGNON R&D Market Senior Expert Mr. Justine YUAN R&D Transmission Expert

Nova Terra Mr. Itgel BOLD Director General of Nova Terra - Economy Expert Mr. Purevdagva NAYANBUU RES Expert

CEPRI Dr. Pingliang ZENG (Peter) Electrical System Senior Expert

EURACIFIC Raphael GOUE International Economist

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Agenda of the Steering Committee: 1- Introduction by the President of the Steering Committee Mr. CHIMEDDORJ 2- Feedback from the attendees 3- Formal positions of the countries 4- ADB’s position 5- Ways of cooperation and sharing 6- Next Workshop and Steering Committee 7- Conclusion of the President of the Steering Committee Mr. CHIMEDDORJ

Abbreviations CIGRE: Conseil International des Grands réseaux Electriques EV: Electric Vehicle FIT: Feed-In Tariff KNC: Korean National Committee (CIGRE) MoE: Ministry of Energy NAPSI: Northeast Asia Power System Interconnection NDC: National Dispatching Center (Mongolia) OCTO: Organization of Cross-Regional of Transmission Operators (Japan) PRC: People’s Republic of China RES: Renewable Energy Sources SC: Steering Committee SGCC: State Grid Corporation of China WS: Workshop

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1. Introduction by the President of the Steering Committee Mr. CHIMEDDORJ

Welcome to the members of the “Strategy for NAPSI” Project’s second SC. I am happy that we had a successful completion of Inception report workshop in Ulaanbaatar last June. Now we have the second Workshop here in Gwangju. In addition, 2 days ago, we had the Asian SuperGrid conference in Seoul organized by Renewable Energy Institute of Japan that also described the current state of work on NAPSI concept with distinguished En- gineers, Researchers and Experts who expressed their feedback. During this Symposium, it has been remarked that many regions of the world have decided to organize Power System Interconnections and the Northeast of Asia remains non-interconnected. This regional concept was also discussed during the Far East Economic Forum in Vladivostok on September 6-7th, 2017 between the chiefs of States. I am happy that the involved countries are giving great importance to this issue and are working together to make NAPSI a reality. Various conferences in Mongolia have always expressed their support to promote this regional Initiative too. Now, after the second workshop, we are discussing how this regional interconnection may play out and about the role of each party. To create the road map to this Project, we now need feedbacks and comments of the members of the SC.

2. Feedback from the attendees

Mr. CHIMEDDORJ MoE Mongolia Improvement of the rules, grid code and regulation will be necessary for the implementation of the Regional Power System Interconnection. Regarding Mongolia, the important coal resources will continue to be part the generation mix and will have to be taken into account in the future Power Trade mechanism. The corridor for exportation is also a crucial issue: line routing, technical characteristics, cost and benefit, planning of the different scenarios. 4 additional remarks: 1) On Power trade, we need more information on the structure of the Dispatching and how it will carried out in the future, as the RES part will increase. 2) For obvious reasons, RES will play a major role in that dispatching framework and will have to be included in a subsequent module. 3) Regarding the significant amount of investments, how it will be arranged and which parties will play which role. 4) Models and applications will be used in the future to make adjustment and organize flexibility and will be part of the corresponding future Dispatching

Mrs. Mika OHBAYASHI REI For REI, Renewable Energy is the concept of Asian SuperGrid. RES have to be developed inside the 5 countries and shared. This is the core of the project. Mr. Jung-Hwan KIM ADB Country coordinator

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Every country has his own power mix today and it will take time to increase the share of RES. Interconnections are the solutions if the customers want to buy RES more than the country can produce, through a sequential process.

Mr. Raphael GOUE Project Team EURACIFIC Mongolia has the most ambitious commitment of the region: at 30% in 2030. However, the interviews we made show that there is not today a clear vision of the future electricity mix. There is coal, and the Government wants to use it and, at the same time, Mongolia wants to be the leader of the development of RES. There are bunch of investors who are interested in Mongolia today in Coal-fired power plants and in Wind and Solar. Mr. Itgel BOLD Project Team Nova Terra The target of 30% of RE is for internal use, not for power export. There is currently no figure for the exportation goal. Mr. Omatsu RYO REI & ADB Country coordinator This Project is long time strategy. The current situation has, of course, to be taken into consideration but rapid changes have also to be taken in account. Regarding Japan, if the prices have raised after the shutdown of nuclear power, we can expect a rapid decreasing of the retail price due to the 2016 liberalization. In this context, the import of cheap power from foreign countries is not so attractive. Other arguments have to be found for the importation of RES, with environmental value added and targets in line with the Paris agreement. Mrs. Mika OHBAYASHI REI Science tells us about the effects and all the Governments agreed to go for the protection of their environment. This will lead to the objective of 100% of non-fossil energy by the end of this century. I understand that the countries wants to use their best own energy but it does not mean that they should use it because Solar and Wind sources are not used: they are all wasted. We should use the renewable energies. Regarding the prices in Japan, retail prices are decreasing but also the wholesale prices too due to the reduction of prices of fossil fuels but also because the share of RES is increasing. We have to catch up the rapid change. We are in a transition period: we need to develop within the 10 next years the transmission grid too. Mr. Jung Hwan KIM ADB Country coordinator The ultimate goal is renewable energy but in the meantime, public opinion and market will make the trend. The country coordinators are at disposal to provide information, news and updates on the current situation. Dr. Dongil LEE KNC The development of RES and/or the use of the other energy will need electrical analysis. Dr. Peter ZENG CEPRI

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The target of 100% RES is questionable in reason of the intermittency. The solution is a mix with conventional power that will bring the right level of flexibility. Not forgetting the development of storage. Mrs. Geng DAN ADB Country coordinator China’s situation, with high volumes of RES, is that there is not the right level of storage, which is still very expensive. China is reinforcing the transmission grid from West to East to reduce the RES curtailment. At the same time, China is moving from FIT to a market/trading approach and RES will become more competitive. RES have the priority to be connected to the grid based on market price. These measures will lead to increasing use of RES. Mr. Gurbuz GONUL IRENA RES are developing in every country. The interconnection will be used in both directions. It could be helpful to clarify who will be the sellers and who will be the buyers. The decisions made today have an impact on the future 10-20 years. With the Paris agreement, we enter in a new era with emission reduction targets and commitments of the countries. The world is going toward the de-carbonization of the economy in general and of the energy sector in particular. Suggestion that the RES deployment is considered not only for the costs reduction but also through the added value of their complementary role, such as job creation, impact on industrial growth, effect on power trade, etc. There are plenty of good examples in the world: examples of Costa Rica (100% RES), of Denmark (40% of RES without storage), etc. Mr. Jung-Hwan KIM ADB Country coordinator The whole electricity sector is changing not only with RES or conventional power but also regarding demand, EV, storage that have to be taken in account for the next 10/20 years scenarios. The report propose the implementation of NAPSI Authority assets, operation and trading. The experience of Europe would be helpful because NAPSI is not an Economic Union. Mr. Can OGUTCU Energy Charter (written comments) I am member of Energy Charter Treaty Secretary in Brussels. The treaty promotes energy cooperation among 54 countries, Japan and Mongolia are contracting parties. We have produced that report with the Korean Energy Economic Institute on the role of the Treaty to foster Energy integration in North East Asia. NAPSI needs a common regulatory framework and we are ready to cooperate on this issue: foreign investment transit rights and legal facilitation of large scale projects. Mr. Shuai HAN GEIDCO (written comments) Besides the technical content, some soft research like the bilateral as well the multi-lateral relationship should be studied. Northeast Asia is quite different from Europe there are some historical and political issues that have to be taken into account too. Mrs. Tsevegjav UNURMAA NDC Mongolia (written comments) Comments about the grid development, the Project has to take care of the scenarios about the corridor that will be collect the RES in Mongolia and connect to the Chinese and Russian grid.

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NDC and EEI are ready to cooperate. Mr. Batmunh YEREN-ULZI MoE Mongolia (written comments) The Project needs to have a step-by-step approach of additional 5 GW. Mr. Makhbal TUMENJARGAL Mongolian Energy Economics Institute (written comments) Proposition to cooperate with Mongolian center of research on software analysis program such as GIS and PSASP on technical issues. Studies will be necessary on the Mongolian System to integrate RES and to determine the best corridor, to build high voltage lines and connect to the Chinese grid. Mrs. Mika OHBAYASHI REI The Project needs to cooperate and share not only with utilities but also with TSOs and of course with new comers in Renewable Energies. Mr. Omatsu RYO REI & ADB Country coordinator Suggestion to contact large Japanese consumers and big companies (Apple, Toyota). Their position are very important in the debate. Dr. Dongil LEE KNC Agreement on the necessity to discuss with Utilities and also TSOs, SGCC, KEPCO and the generation companies in Japan about data, detailed studies and views. Mrs. Mika OHBAYASHI REI For data, the Utilities are important and the Project has to discuss with them. It is also important to work with International Agencies in Energy and Renewables who have the right vision of the data in all countries. Mobilization for implementing the infrastructure is another issue. Mr. Jung Hwan YOON KEPCO The interest for this Asian SuperGrid is the Mongolian RES potential. It is important that the strategy of Mongolia in developing RES cope with the energy policies of the 4 other countries. The utilities in Korea, China and Russia are fully integrated but Japan is different and more complicated with 10-generation companies and OCTO. The approach of Japan will be different and the Project has to build a specific and relevant relationship with the Japanese stakeholders. Mr. Batmunh YEREN-ULZI MoE Mongolia Suggestion to work in Japan with the Regulation agency and/or the associations of generation companies. Mr. Philippe LIENHART Project Team The goal of the interim report is to raise some questions to see if we are in the right direction for the final report. The reports (M2, M3 and M4) present clear propositions that we will have to consolidate in the final reports. We keep also in mind the final report of the project (Module 6). This is the reason why we have raised some questions about regulation in Module 3 at early stage of the Project and about the organization of investments, the feedback in operation and the rules of Power Trading.

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Our Client is Mongolia and our goal is to propose a Project for entering the NAPSI discussion with consensus among China, Korea, Japan and Russia. We are ready to cooperate with the Utilities and institutes, international agencies and new comers in RES who are represented in the Steering Committee. The Project Team is aware of the complexity of the Japan context and we have to built a dedicated and relevant relationship with the stakeholders before the next workshop in Tokyo. We will study the issue with our EDF team in Tokyo and of course with REI and ADB. Probably, we will start with bilateral discussions. The participation to the Steering Committee is a sensitive issue for the Japanese stakeholders. Maybe the solution will be to propose a special status of observer or adviser. The position of the large customers have also to be taken into consideration.

3. Formal positions of the countries

Republic of Korea: KEPCO Mr. Jung-Hwan YOON Results of the studies of the Project shall be compatible with plans of other countries (GEI, Asian SuperGrid). The difficulty is that we do not know yet all details of the energy policies of the countries. Suggestion that Mongolia can invite investments from other countries (from external stakeholders) and for this open the regulatory framework. ADB Mr. Jung-Hwan KIM We expect a clear picture of energy roadmap by the end of the year (8th long-term plan). To be included in the documents of the Project. Korea want to promote Energy Efficiency in industry and also, a consumer-oriented policies through the development of prosumers, Electric Vehicles, data centers with a goal of RES share of 20% in 2030.

China GEIDCO Mr. Shui HAN GEIDCO is 100% positive about NEA interconnection and have already involved many experts on this subject. GEIDCO is ready to cooperate on this topic.

Japan: REI Mika OHBAYASHI It is interesting to discuss with Russia because the distance Japan-Russia is very short and the political engagement is strong between the 2 countries. New laws will be necessary and this issue will probably takes 3 years. The discussions have already started. Softbank is one

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private company very interested in this project and not the only one: large electricity consumers, investors, business stakeholders are interested too. The generation companies and OCTO are also interested but very cautious regarding their communication. Probably the best way to enter into discussion with them would be to contact first TEPCO. Some governors are very interested in promoting RES. They would like to use the transmission capacity available after the shutdown of Nuclear Power Plants.

4. ABD’s position ADB Teruhisha OI The next meeting will be in Japan. The SC discussion is very helpful especially on the way to involve Japanese stakeholders in the debate. Japan is not yet ready to participate to our study but every members of the Steering Committee are encouraged to use their own channel to start the discussion with the Japanese stakeholders. Suggestion that the Ministry of Energy of Mongolia could meet the Energy Ministry of Japan during his next visit with Mr. Chimeddorj. Energy Charter could help too because Japan is part of it. The idea to use Industrial forces to influence the position of the Japanese government by a bottom-up approach is also useful. Apart from China, Japan and Republic of Korea are number 2 and 3 for energy consumption, the two countries have similar energy structures and they imports all the fuels. Therefore, it makes sense to have ROK engaged with Japan. It is important to show how this interconnection contributes to the CO2 reduction of each country’s commitment to the international community. Japan cannot de-carbonize enough alone, carbon trade with other countries is one solution. Import of renewable energies through interconnections is another. CO2 pricing has influence too even if this solution has been debated during the workshop yesterday. However, it is encouraging to see that without CO2 pricing, the interconnection is realistic including RES trade.

5. Ways of cooperation and sharing with the different countries, utilities, institutes implied in the SuperGrid projects

KEPCO Mr. Jung-Hwan YOON The pre-feasibility study on the interconnections with PRC and Japan are confidential but the basic main results have been presented to the governments including Mongolia. The discussions with SGCC and Softbank are ongoing. We will let you know the results as soon as possible.

GEIDCO Mr. Shui HAN: Inside GEIDCO, there is a study group “NEA interconnection” with the same topics and the same goals. We can cooperate directly. The study will last 18 months more and during this period, we can meet in Beijing and Tokyo.

REI Mrs. Mika OHBAYASHI

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The REI annual event is scheduled on March 6 & 7, 2018 in Tokyo. The venue is close to METI offices. The first day is for experts with intensive discussion on Japan situation.

Energy Charter Mr. Can OGUTCU The next Energy Charter Event will be in Turkmenistan at Ashgabat on November 28-29th. Energy Charter will promote this Project. ADB will be there with many stakeholders from China, Japan and Mongolia too.

IRENA Mr. Gurbuz GONUL Besides the Board members meeting next November, the most important event will be the Assembly meeting IRENA mid-January 12-14th, 2018 with 1000 attendees in Abu-Dhabi. All countries are represented at government level. REI and MoE Mongolia Mr. Chimeddorj will participate. It is possible to organize a side-event if necessary.

6. Next WS & SC in Japan

Members of the SC agree on the proposition to have the next WS3 on Thursday March 8th, 2017 in the afternoon and the SC3 on Friday March 9th in the morning in Tokyo.

7. Conclusion by the President of the Steering Committee Mr. CHIMEDDORJ

The Report of Module 3 is of very good quality and is accepted. The Module 2 and Module 4 interim reports are accepted too. Mr. CHIMEDDORJ thanks all attendees for their active participation and the fruitful discussion with a lot of ideas and feedbacks. The Project team will make certainly their best use of all this. Special thanks to KEPCO and SUPLA for the organization of the WS2 & SC2.

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for with

MoM of the Steering Committee N°3 Strategy for Northeast Asia Power System Interconnection TA 9001-MON on March 8th, 2018 in Tokyo, Japan

Members of Steering Committee:

N am e of organization A ttendees

O fficer,Foreign Cooperation M inistry of Energy, M ongolia Mr Tem uujin Ayush D ivision

M inistry of Energy, M ongolia Mr Yeren-U lzii Batm unkh H ead of Investm ent Division

H ead of Renew able Energy M inistry of Energy, M ongolia Mr Bavuudorj Ovgor D ivision G overnm ent M ongolia Project Inititation and M ongolian Energy Econom ics InstituteMs B attsetseg Rentsen A dm insitration Division

H ead of Regim e Planning N ational Dispatch Center, M ongolia Ms U nurm aa Tsevegjav D ivision

N ational Renew able Energy Center, Mr Purevsuren Dorj C hief Engineer M ongolia

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The Project Team and ADB

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The table of content of the presentation by the Project Team

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Summary Context Philippe Lienhart, EDF 40 min Module 2: MARKET AS- Hypotheses Marc Trotignon, EDF SESSMENT -POWER R&D Result of study TRADE STUDY Module 4: RES POTEN- Conventional: hypothe- Itgel Bold , Nova Terra 30 min TIAL IN MONGOLIA -THE ses ENERGY SECTOR PRO- Conventional: results Peter Zeng, CEPRI FILEAND PROJEC- TION RES: hypotheses Purevdagva Na- yanbuu, Nova Terra RES: results Vincent De Laleu, EDF R&D Criteria/impacts Raphaël Goué, Eura- cific Conclusion/ main out- Philippe Lienhart, EDF 20 min lines Module 5: GRID STUDIES Information on grid stud- Peter Zeng, CEPRI ies

Agenda of the Steering Committee: 1- Introduction by the President of the Steering Committee Mr. Yeren-Ulzii 2- Feedback from the attendees 3- Next step 4- Conclusion of the President of the Steering Committee Mr. Yeren-Ulzii

1. Opening remarks by the President of the Steering Committee, Mr. Yeren-Ulzii Bat- munkh

Good morning everyone. Welcome to the 3rd WS of NEA Interconnection (NAPSI) project. On behalf of the government of Mongolia I would like to thank Renewable Energy Institute, Project team and ADB for all kid of support. Since the Interim report was introduced last year in Gwangju, we gathered findings again and continued discussions on regional cooperation issues. As part of ADB’s country operation business plan for 2050, the Government of Mongolia decided to develop a strategy for North East Asia Power system interconnection, using the country’s abundant renewable energy sources. The Mongolian Government is committed to developing mutually beneficial energy cooperation with countries in the region.

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There is a tremendous potential for energy cooperation in the region when we look at the energy resources and existing market structures in these countries. Power demand is expected to double in the near future, and power supply should be steady and reliable. In this context, the significance of cross-border power trade will increase due to its ability to link supply and demand centers and effectively integrate variable renewable energies. This NEA INTERCONNECTION (NAPSI) project is important for our regional cooperation and will result in further development of such cooperation. I hope this meeting will produce some fruitful discussions.

2. Feedback from attendees

The following questions, comments and discussion points were raised during the meeting.

Mr. Yeren-Ulzii (Ministry of Energy of Mongolia) In table slide 70, it is shown that in 2036, the load factor for solar PV in Mongolia and Japan will be 20% and 19%, respectively. Those figures are almost the same; how can that be? Solar irradiation conditions are completely different in the two countries. Mr. Marc Trotignon (EDF): This information comes from experts (a team of consultants) and the Japanese ADB coordinator. The result is based on this expertise. Although the solar irradiation potential is different in Mongolia and Japan, in Japan, site conditions can be good at best. We have consensus among Mongolian consultants of an approximately 20% load factor. Mr. Yeren-Ulzii (Ministry of Energy of Mongolia): You say that you use different figures from different experts, but your work is to judge the relevance of the figures. Please check these figures. Philippe Lienhart (EDF): We have considered a lot of documents in order to propose the relevant figures. However, we are willing to check them again. Mr. Dolf Gielen (IRENA): In slide 67, you show that Interconnectors are very profitable, and a payback time of only 4 years is attractive. However, the benefits of renewables, though positive, are small. How did you calculate the benefits? As you have a least cost optimization model, are the benefits of RE already included in the reference case? I guess that you compare RE with coal as a reference. If you have energy system constraints, whereby in Korea and Japan, CO2 will not increase, it would be appropriate to have the comparison in terms of RE investment in Mongolia or Japan. Mr. Trotignon (EDF): The blue dot on the slide is the result of optimization. We impose Interconnection in one scenario and impose interconnection with RE investment in Mongolia in another scenario, and find a new generation mix and dispatch globally each year, saving costs in investment and operation.

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Mr. Lienhart (EDF):The difference between the blue dot and red dot is the investment in interconnection and RE in Mongolia per year. Although it was not shown in the slides, Intercon- nection investment is huge, ranging from 12 to 14 billion dollars, and it is profitable if we get 3- 4 bn dollars per year. Due to a marginal market price gap existing, Interconnection is profitable even now.

Mr. Sujata Gupta (ADB): You have two scenarios – interconnection only and interconnection with 10 GW RES. Do you assume the same level of power demand in these two scenarios? Do you mean that new RE will replace existing non-RE capacity in the second scenario? Mr. Trotignon (EDF): Electricity consumption is the same. RE replaces other technologies. Mr. Tomas Kåberger (REI): How is uncertainty taken into account in this modelling exercise? In some points of your study, quality of input data should have a significant impact on results. It is important to see how uncertainty propagates throughout the model and how robust and credible the results are. Mr. Lienhart (EDF): Entry data/inputs have been chosen with great care. We checked the entry data for each country with country coordinators. There is a consensus around these figures. Mr. Trotignon (EDF): The NEA Interconnection (NAPSI) process is not at the stage of launching an investment decision now. The analysis we have done is not a probabilistic but a deter- ministic study. Results are positive, but there is indeed a range of uncertainty. It could be part of NAPSI decision-making process’ next step to make some complementary probabilistic study. Mr. Kåberger (REI): Data precision is quite a challenging issue, given that even the solar cost in 2020 is difficult to predict. It is gambling to predict precise figures for 2030, so it is more important for you to check how uncertainty propagates throughout the study. Mr. Lienhart (EDF): We are aware of uncertainty. In terms of RE capacity expansion, 10GW in Mongolia is the consensus, but it is equivalent to just 30 TWh, while total demand in NEA is more than 10,000 TWh. To check the impact of much greater RE expansion on the whole system, we studied a 100 GW scenario too, even if such substantial RE investment is not probable. Mr. Jung Hwan Kim (Country coordinator RoK): Recently, the Republic of Korea has had a drastic energy change, increasing the RE target to 20% by 2030, and such policy is renewed every two years. Accordingly, we try to use the latest data possible. The study shows collective benefits, but how about national benefits and for individual market participants? If you can show the benefits for each country and each stakeholder, it will be a positive signal for future participants in power system interconnection in the region. Mr. Trotignon (EDF): Our model provides societal benefits, but not how these benefits are shared; neither among countries, nor among different individual market participants. As a first step in the NEA Interconnection (NAPSI) process, it was important for our study to show total benefits for the whole system. It could be possible as a next step in the NEA Interconnection process to assess benefits for each country or each player, but before that it will be needed to

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make decisions about regulation rules in terms of profit sharing between TSO, suppliers, consumers, and so on Mr. Ryo Omatsu (Country Coordinator Japan): The load factor for solar in Japan is currently 15%, and the load factor in Mongolia may be more ambitious by 2036 (especially considering score 4 area). Regarding benefits, in addition to fuel economy and investment optimization, power exchange prices are also smoothed thanks to integration of power markets. I suggest that this also be taken into account, because in some countries of NEA there are wholesale power markets (JEPX, KPX, and wholesale power market in Russia). REs can decrease market price and smooth exchange price level because of their close to 0 marginal cost. Mr. Junghwan Yoon (KEPCO):About slide 63, has module 3 been completed? Mr. Trotignon (EDF): Yes, Module 3 on assumptions for the studies has been validated during the last workshop in Gwangju. Module 5 with regard to network analysis will be presented during the next workshop. Mr. Yoon (KEPCO): Korea is to be interconnected with China-east with a 3GW interconnector? Is that a suggestion by EDF, or a recommendation from the Korean side? Mr. Kim (Country Coordinator RoK) We know that KEPCO and China already agreed on a 2 GW interconnection. In our study for a 2026 scenario, we assume that the Republic of Korea will import at least 5% of its demand from neighboring countries - China and Russia - given that the total capacity will be 100 GW. The 3 GW interconnection scenario as of 2026 is based on such assumptions. Mr. Lienhart (EDF): It is not a recommendation, but a market study scenario. Yoon (KEPCO); Interconnection capacity between China and Mongolia is being studied by two governments – do you reflect the discussions in your study? Are you going to make suggestions for interconnection capacity between Mongolia and China in module 5? Dr. Pingliang Zeng (Consultant team): We are aware of these studies. There are different studies with different assumptions. Assumptions in our study have been selected in consultation with country coordinators. As a next step, we should reflect conclusions by other studies in terms of landing points and Interconnection size. For example, we can’t decide which point in Korea should be the landing point without considering the network plan in the Republic of Korea. Your recommendations are welcome too. Mr. Yoon (KEPCO): Have results of the feasibility study for Mongolia/China interconnection been finalized? Mr. Bavuudorj Ovgor (Head of Renewable Energy Division MoE): Not yet finalized. It is under discussion. Mr. Lienhart (EDF): There is close cooperation between the consultant team and country coordinators. The main utilities (e.g. KEPCO, TEPCO, SGCC) are very welcome to join discussion and exchange information with us. Mr. Hyunb Shim (KPX): Please show slide 65. The distance between Mongolia and China east seems to be too short.

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Dr. Zeng (Consultant team): We will use the existing national grid. The distance is from the RE power base to the nearest existing grid infrastructure in China, but not the total distance between the Gobi Desert to China east. Mr. Shim (KPX): In slide 66: 2036 scenario, South Korea will have 30GW interconnection capacity with China east, while in Korea 110GW peak demand is expected by that time. I have concerns about the integration of large wind power fluctuations in Gobi Mongolia from a system operations perspective. And how about market price formation? Dr. Zeng (Consultant team): This is one of the challenging issues. While in this study we try to minimize the requirements for grid infrastructure expansion in each national grid, to effectively utilize interconnection capacity, they need to reinforce the domestic grid infrastructure in each country. For example, South Korea can use a 20 GW interconnection with Japan if they can bypass flow from China to Japan through the domestic grid. In this sense, we need more cooperation with TSOs in each country. Mr. Trotignon (EDF): Look at the example of Denmark. Denmark is a small country; interconnection capacity represents 50% of its demand. It does not mean that they always have such large power inflow from other countries. This is not an issue. And Denmark has a lot of wind power (~40%). The high level of interconnection does not mean weakness in terms of security, it would rather be the opposite. Ms. Mika Ohbayashi (REI): Japanese participants should join the discussion. As it is the first time for them to join such discussions, I would like to raise some basic questions discussed so far in this project. How do you evaluate the benefits of RE? Apart from a reduction in CO2 emissions, jobs creation and clean air in Mongolia should also be considered major benefits. I would like to confirm whether you are considering utilization of existing conventional power sources such as coal in this study. During the presentation you said that existing banks are reluctant to finance the project, and so you need other off-takers or investors. Who, do you think these off-takers could be? From an off-taker’s view point, this project could be interesting mainly because of the abundant RE resources in Mongolia. Mr. Lienhart (EDF): we did a market study focusing on the price of energy and compared it with the IEA projections, and we have consensus that coal is still cheap and will retain price competitiveness in the near future. It is true that coal plays an important part in the electricity mix and will continue to do so. So far in this study, we have not considered a regulation mechanism to cut carbon emissions. It may be the topic for our module 6 study. However, there are clear benefits from CO2 emission reduction thanks to RE. RE will be cost- competitive ($30/MWh by 2036) and will then replace coal and Gas. Mr. Raphaël Goué (Euracific): Economic activity should lead to job creation. It is a general principle. When you have economic activity, you need local resources and talent to do it. A good Example is Morocco: people from this country who trained in France later developed their own telecommunication industry in Morocco, and some experts attained an MBA abroad and then developed their own business school locally.

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Mr. Ryuichi Yokoyama (Waseda University): Please show slide 8. You introduce a multiple objective function; how did you use it for benefits calculation? There are many different objectives, evaluated in different units. Investment and operation costs are evaluated on a currency base, while CO2 should be calculated as an emission amount and curtailment in terms of percentage. Dr. Zeng (Consultant team): Yes. All variable units are converted into dollars. CO2 is calculated as CO2 price cost and curtailment is also evaluated as cost. Grid inflexibility leading to off grid hours for some generating facilities is MWhs unsupplied, which we calculate as cost. Ms. Ohbayashi (REI): How do you evaluate the flexibility of a transmission system? You say that variable REs increase inflexibility, but interconnection itself can provide flexibility to an energy system. Dr. Zeng (Consultant team); Yes, interconnectors provide flexibility. Our study Model focuses on generation. We did not calculate how Interconnection provides flexibility to a transmission system.

Mr. Yuan Yuxiang (GEIDCO): We would like to remind everyone that in March of 2016, MoU SGCC, KEPCO, SB and Rosseti signed MOU to promote the NEA interconnection. It took one year to complete the pre-feasibility study, and the conclusion is positive technically and eco- nomically. The next step is the feasibility study and to conduct a marine survey, business model analysis, regulatory system study and so on. We are waiting for the right timing to move forward. We would like to mention recent key developments in Japan: - First , Kansai EPCO announced last month that they will buy 18% in Newconnect, a subsea power cable project connecting Germany and Britain. It is the first time that a Japanese company will buy stakes in an international grid project. We hope that other Japanese utilities will follow its example. - In addition, TEPCO, Kansai, Chubu and Hokuriku signed an agreement to cooperate in grid operations to share backup supply capacity. The target for system implementation is 2020. As a result of power market liberalization, regional monopolies will col- lapse in power transmission & distribution in Japan. A unified and independent transmission sector in Japan will be a positive sign for interconnections in NEA.

Also, in China in May 2017, President Xi Jinping said of the One Belt, One Road initiative, “We should establish global grid interconnection to achieve low carbon development.” The Japa- nese government and power companies should have a major role to play. Finally, this year marks the 40-year anniversary of the peace treaty between Japan and China, and there will be important diplomatic exchanges between the two countries. It is important to make the best use of this opportunity to further advance towards the realization of power system interconnection in the region. We need not only discussions, but also concrete steps for realization. Mr. Hideki Kibata (TEPCO): It was surprising to know that there is such large RE potential in Mongolia. It is hard to understand some points regarding power trading. And there are two prospects: the first is exporting REs from Mongolia, and the second prospect is that there are already benefits in interconnecting, regardless of exports from Mongolia. That mixes up the discussion. If you

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need just to export power from Mongolia, it is not necessary to construct such region-wide interconnection. When considering interconnections, a number of issues have to be ad- dressed: political issues, regulatory issues and so on. Also, it is important to understand what we have to build, and for what reasons? Finally, there has been a lot of discussion about exporting solar PV; why not more wind, when capacity factors of Wind are higher and the cost for wind is not so high? In Japan, we have already installed a substantial amount of solar capacity, so now it would be better for you to concentrate on wind power development in Mon- golia. Lienhart (EDF); Many of you commented on regulatory issues. You are right that this is a major point for further study. We have to submit a final report by May 2019. Today, our purpose was to show a free market study without regulatory measures and a scientific RE potential study with new technology. For further study, we need to consider regulation, including tariff for transmission. That will be our study in the second year of the project. Mr. Vincent de Laleu (EDF): There is a lot of potential for both wind and solar. Of course, wind will be cost effective in Mongolia. Onshore wind in Mongolia has an average speed above 8 m/s and is similar to offshore wind conditions in Europe. But we expect further improvement of solar PV technology and in the short term, solar PV in Mongolia will be a more cost-effective option. CAPEX assessment in our study can be a bit conservative, and in the case of massive installation, we can expect lower CAPEX, although it is difficult to predict cost level. Mr. Kåberger (REI): In the study, you assume utilizing of CHPs regardless of cost comparison with RE. It is similar to the situation of Europe in the 1990s if you allow curtailment of RE based on the argument that CHP is not flexible. CHP can be made flexible technically if market competition requires an increase in RE power and reduction in power from CHP due to price sig- nals. Mr. Lienhart (EDF): We have done in Module 4 a first study only for Mongolia without interconnection by 2036. With the cost estimation of Mongolia, we have found a certain amount CHP, Thermal Power and flexible generation (Peak). We think that with interconnection, the demand for thermal power will decrease. If you look at the report, you will see RE curtailment is very low. Dr. Zeng (Consultant team); Existing CHPs will stay open for the duration of the study period. Existing CHPs are inflexible. New CHPs are more flexible, especially with installation of water storage. As Heating in Mongolia is provided by CHPs, so it is fair to assume some level of utilization for CHP. Mr. Kåberger (REI): Once I visited the old CHP in Ulaanbaatar, which operators somehow managed to keep operating . You may look into flexibility of CHPs in Denmark with the large- scale adoption of wind power. This is a good example of interaction between market mechanism and technology. Mr. Yu Nagatomi (IEEJ): I have three comments. First, in this study RE benefits are quite limited and may disappear because of additional grid costs. Second, slide 68: interconnector only, may result in increased emissions because of higher load factors from coal power plants.

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Third, a 2GW interconnector is small for Japan-Korea, but the landing point in Japan is likely to be in Kyushu, and that would be significant for the Kyushu power grid, as well as for Hok- kaido in the Russia-Japan interconnection. Dr. Dongil Lee (KNC): We focus too much on RE. Increased stability of the grid should be discussed more as a benefit from Interconnection. Mr. Gue Jae Jeong (Korea Energy Economics Institute): It is important to figure out how individual countries benefit from interconnection. Policy makers in each country are interested what benefits they can expect for their own country and based on that, they decide if they want to participate in the project. Mr. Bert Maes (Elia Group): Representing a TSO in Europe, I am aware of the complexity of building interconnection. EDF shows that interconnection in NEA is beneficial. As a next step, you have to show the individual benefits between two countries which are to be interconnected as soon as possible. This is very important, especially when you consider regulatory issues which can take place between two countries.

Mr. Byambasaikhan Bayanjargal (Mongolia country coordinator) Mongolia is a small economy, with 3.3 million people and around 13 billion USD GDP. The main source of income for the economy is Commodity exports, while mining remains the only globally competitive sector. However, RE and energy exports are a second engine to diversify the national economy. When in 2011-2012 we began to discuss projects of interconnection with RE, we only had a general concept, but now we have specific ideas such as GW and interconnection routes. I am happy with the progress. We appreciate contributions by all players. What is necessary to do from the Mongolian side ? First, the Government should execute a short-term policy fix in term of regulatory regime. Second, they need a long-term economic policy recognizing energy policy as a priority direction. Third, it is important to provide opportunities to developers. We have a solid advantage now, because we know resource-rich areas and potential connection points. Political understanding and support from government are also important. When we attended the GEIDCO conference last year, we held discussions with representatives of GEIDCO. Our proposal is that in September or October this year, the government of Mongolia, business association and ADB host a conference. The government is supportive of this idea.

3. NEXT Step Lienhart (EDF); The next step: the next steering committee will probably take place in Beijing. It will focus on a power system interconnection study.

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4. Conclusion Mr. Yeren-Ulzii (Ministry of Energy of Mongolia): Thank you everyone. Your comments will help to further advance the study. On behalf of the government of Mongolia, I would like to thank ADB, especially Mr. Oi for the project development. I would like to extend my wishes for success to all participants in the NEA Interconnection (NAPSI) project, and to the consultant team in further study.

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for with

MoM of the Steering Committee N°4 Strategy for Northeast Asia Power System Interconnection TA 9001-MON on October 26th, 2018 in Beijing, China Members of Steering Committee:

Name of organization Name of attendee Position Member/observer MoE Mr. B. YEREN-ULZII Head of Investment Division President MoE Mr. A. TEMUUJIN Officer Observer MoE Mr. O. BAVUUDORJJ Head of Renewable Energy Division Observer Project Inititation and Adminsitration Mongolia Mongolian Energy Economics Institute Mr.R. BATTSETSEG Observer Division National Dispatch Center Ts. UNURMAA Head of Regime Planning Division Observer National Renewable Energy Center Mr. D. PUREVSUREN Chief Engineer Observer Government MFA Mr. Bandii GARID Second Secretary Observer REI Mrs Mika OBAYASHI Director Member Representative Director & CEO SB Energy Corp. SB Energy Mr. Shigeki MIWA Observer General Manager, CEO Project Office, SoftBank Group Corp. Electricity Business Planning Group, CEO Japan SB Energy Mr.Kashogie YOSHIMARU Project Office, SoftBank Group Corp. Observer Strategic Business Division, SB Energy Corp.

Electricity Business Planning Group, CEO SB Energy Ms.Undrakh OTGONBAYAR Observer Project Office, Strategic Business Division

KEPCO Mr. YANG Ji Yeong Senior Manager Member KEPCO Mr. KIM HoSeok Assistant Manager Observer ROK KNC Pr. KOO Specially Commissioned Chairman Observer KNC Dr. Dongil LEE General secretary Member Dept. of International Cooperation, National Ministry of Energy Mrs. LI Yuan 李媛 Observer Energy Administration Vice Director, GEI Research Center, State SGERI Mr. ZHANG Dong 张栋 Observer Grid Energy Research Institute Mr. LENG Xiangbiao 冷祥彪 Mr. Senior Manager, Science&Technology China GEIDCO Observer Bill LENG Division, GEIDCO 发展局科技与标准处 National Center for Climate Change Strategy Assistant of Mr. LI Junfeng, Renmin Mrs. JIANG Siyu 姜思羽 Observer and International Cooperation (NCSC) University Tsinghua University Energy Internet Research Mr. ZHANG Donghui 张东辉 Professor Observer Institute Russia ROSSETI Mrs. Anna BESSARABOVA Deputy Director of Strategy Member Energy Charter Mr. Can Ogütcü Energy Charter Secretariat Member International Director of IRENA Innovation and Technology IRENA Dr Dolf GIELEN, Member Organizations Centre World Bank Mr. Ximing PENG Senior Energy Specialist Observer EDF Mr. Philippe LIENHART Strategy for NAPSI Team Leader Consultant CEPRI & HDU Mr. (Peter) Pingliang ZENG System expert Team EDF Mrs. Justine YUAN R&D Expert NovaTerra LLC Mr. Batlkhagva BATSUREN System expert Mongolia Mr. BYAMBAsaikhan Bayanjargal Country South Korea Mr.Jung Hwan KIM Coordinators China Mrs.GENG Dan Japan Mr. RYO Omatsu Mr. Teruhisa OI Principal Energy Specialist Mrs. Precious LE BONNE Energy Division East Asia Department ADB Principal Energy specialist / Sustanaible Mr. Shigeru YAMAMURA Infrastructure / East Asia Department

The table of content of the presentation by the Project Team

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www.edf.fr Strategy for NAPSI Draft Final report - May 2019

AGENDA I. Steering Committee N°4: Power System Interconnection Study Chair: Bayanjargal Byambasaikhan, Country Coordinator of Mongolia Introduction by the Head of the Steering Committee Batmunkh Yeren-Ulzii, Director, Investment Division, Policy Planning Department, Ministry of Energy, Mongolia Introduction Republic of Korea Yang Ji Yeong KEPCO Japan Mika Obayashi REI Russian Federation Anna Bessarabova ROSSETI People’s Republic of China Leng Xiangbiao GEIDCO Presentation of the project with previous WS 1, 2 & 3 Philippe Lienhart, Project Team Leader, EDF Mongolia Existing Energy Policy (2030) Peter Zheng, Project Consultant Batlkhagva Batsuren, Project Consultant, NovaTerra Agenda of the SC4 Philippe Lienhart, Project Team Leader, EDF II. Module 5: Power System Interconnection Report Session Chair: Philippe Lienhart, Project Team Leader, EDF Mongolia Grid Development Strategy for Exportation of Renewable Generation Peter Zheng, Project Consultant, CEPRI Northeast Asia Interconnection Grid Plan Peter Zheng, Project Consultant, CEPRI Interconnection Grid Studies among the five (5) countries: Methodology, Assumptions, OHL and Undersea Cables, Converters Station sites Justine Yuan Expert Engineer EDF Cost Assessment of NAPSI Interconnection Projects Peter Zheng, Project Consultant, CEPRI Justine Yuan, Project Consultant, EDF NAPSI Development Plan Peter Zheng, Project Consultant, CEPRI III. Regulatory Issues and Discussions Session Chair: Teruhisa Oi, Team Leader, ADB Information on Regulation Issue (preparing the next WS) Philippe Lienhart, Project Team Leader, EDF Conclusions of the Consultant Presentation Philippe Lienhart, Project Team Leader, EDF Discussion Facilitated by Philippe Lienhart, Project Team Leader, EDF Feedback and comments from attendees Formal position of stakeholders Next steps Philippe Lienhart, Project Team Leader, EDF Conclusion of the Head of the Steering Committee Batmunkh Yeren-Ulzii, Director, Investment Division, Policy Planning Department, Ministry of Energy, Mongolia

Summary of the Minutes of Meeting of the Steering Committee:  Introduction by the President of the Steering Committee Mr. Yeren-Ulzii MoE Mongolia  Presentations from KEPCO, REI, ROSSETI and GEIDCO  Presentations of the previous NAPSI studies by Project Team  Presentation of Grid Studies by Project Team  Comments and Feedback from the attendees  Conclusion of the President of the Steering Committee Mr. Yeren-Ulzii MoE Mongolia

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The Steering Committee was chaired by Byambasaikhan Bayanjargal who gave an introduction to the general background of the project and key members of Steering Committee.

1. Opening remarks by the President of the Steering Committee, Mr. Yeren-Ulzii Batmunkh

I would like to welcome you all to the 4th steering committee meeting of the Strategy for North- east Asia Power System Interconnection. Since the 3rd workshop in Tokyo, today we are gath- ering to share the outcomes of the study and discuss the recent developments regarding the project. As development of bi-lateral and multi-lateral cooperation, development of regional energy cooperation has been formulated as one of the six strategic goals in the energy policy of Mon- golia, the Government has committed to develop mutually beneficial energy cooperation with regional countries. Thus, the government has approved the mid-term policy plan, which em- phasizes the importance the of regional energy cooperation. The NAPSI project is one of the significantly important projects due to its research and its multi- stakeholder workshops. We anticipate this project will result in the significant advancement of regional cooperation and energy policy dialogue among administrations. On behalf of the Ministry, we would like to thank the Asian Development Bank, our consultants EDF and Nova Terra for the organization of this event. We wish you big success to all participants.

2. Presentation by Mr. Ji-Yeong YANG, Representative from KEPCO

Mr. Ji-Yeong Yang briefly presented KEPCO’s work and analysis on North East Asia Supergrid project, including its background, development of NEA power network, especially about the interconnector project between China and Korea. He described HVDC technology used for interconnection between Korea peninsula and Jeju Island. HVDC technology could be used for interconnection between Northeast Asia countries.

3. Presentation by Mr. Mika OBAYASHI, Renewable Energy Institute, Japan

Mrs. Mika Obayashi presented the latest development of renewable generation in Japan. Wind and solar are developing fast in Japan. By the end of last year, the renewable generation including hydro and biomass accounts for 17-18% of all generation. Feed-in tariff for renewable generation is decreasing, especially solar PV. Compared with other countries, the cost of renewable generation in Japan is still quite expensive. Variation of PV and wind necessitates the

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efficient interconnection between regional transmission system to access flexible resources, such as hydro plant in Hokkaido where the renewable energy resource is rich, interconnection between regions and also between Hokkaido and Russia would reduce the risk of blackout in Hokkaido. Opening up of interconnection capacity would help the development of renewable generation. In 1st quarter, renewable generation meets 22% of the supply, therefore, Japan is on track to meet 22-23% renewable generation target for 2030. Japan’s new energy plan includes the transmission system and interconnectors which is an encouraging development.

4. Presentation by Mrs. Anna BESSARABOVA, ROSSETI

Mrs. Anna Bessarabova presented a brief view of HV transmission network development in North East Asia countries and cross country interconnectors from Rossetti perspective. The NAPSI framework supported by Mongolian government and ADB is unprecedented and would have full support of ROSSETI.

5. Presentation by Mr. Xiangbiaoi LENG, GEIDCO, China

Mr. Xiangbiaoi Leng presented the GEIDCO’s analysis and studies on global energy interconnection schemes, especially the Northeast Asia interconnection for development renewable generation. Cooperation is the key to the development of global interconnection. Global energy is essentially smart grid and UHV transmission. Based on the renewable generation development, GEIDCO proposed a 3-ring-one-line interconnection structure for North East Asia, including some key interconnection projects, such as Mongolia to Tianjin, Weihai – Incheon, Russia FE- Sakhalin-Hokkaido, etc. The policy and regulatory framework would be required to attract investment in Northeast Asia. Regional transmission cooperation brings a number of benefits, including increased political trust, unified market and security, environmental benefit, etc, reducing generation cost and increased accessibility to electricity.

6. Presentation of the previous studies by Mr. Philippe LIENHART, NAPSI project team

Mr. Philippe Lienhart presented the background and previous study results of the NAPSI project, including a brief introduction of the EDF, summary of previous study results and assumptions, generation analysis results, etc. He also outlined the next step of the project studies and timescales.

7. Presentation of Grid Studies by Mr. Peter ZENG, NAPSI project team

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Mr. Peter Zeng presented detailed results of NAPSI grid studies and interconnection plan, including RE development sites in Mongolia, Mongolia grid development strategy for exportation of renewable generation, identification of converter station sites, development of NAPSI interconnection plan, cost estimation of NAPSI interconnection projects, and recommendations and sequencing of NAPSI development.

8. Presentation of newt steps by Mr. Philippe LIENHART, NAPSI Project Team

Mr. Philippe Lienhart gave a brief presentation of next stage of the project. A number of regulatory framework models, such ENTSO-E in Europe, was introduced. The Project Team plans to present the interim report in February 2019, in Ulaanbaatar and the final report in May 2019.

9. Comments and feedbacks

The following questions, comments and discussion points were raised during the meeting:

Mika (REI): why didn’t you include the renewable generation cost in the report?

Peter Zeng (CEPRI): the renewable generation cost, including capital, marginal generation cost, is the same as the one reported in the previous Module 3 report, and therefore is not repeated in this report.

Pr. Koo (KNC): is 100GW of electricity exported from the Mongolia? How the building of this interconnection be financed?

Philippe (EdF): we studied 3 scenarios, 5GW, 10GW and 100GW, we think 5GW (2026) or 10GW (2036) is more realistic. Exporting 100GW would require a lot of grid investment, however 5GW or 10GW would requires moderate grid reinforcement, especially in China where the transmission system is quite strong.

Zhang (SGERI): for Phase I and II, you proposed AC interconnection from Mongolia to North China. As North China has already a lot development of renewable generation and is struggling to cope to RE integration, would it be realistic to export additional RE to this part of China?

Peter Zeng (CEPRI): although North China and Northeast China is currently experiencing significant RE curtailment, we also notice that SGCC and Chinese government is working hard

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for finding solutions to this issue. On the other hand, our time horizon is 2025 and beyond, we believe the SGCC and Chinese government would have found the solution of this RE integration, and also the additional 10GW from Mongolia accounts for a small percentage of the total RE capacity in North China and Northeast China (in the range of over 200GW). Therefore, technically, we do not foresee this a major problem under Scenario 1 and 2.

Pr. Koo : if the interconnection plan as proposed were realized in North East Asia, how much electricity price would be reduced in the time scale?

Philippe : the benefit of the interconnection is realized through the difference in marginal generation costs in different countries described in Module 2 report. Regarding the Renewable energy produced in Mongolia, as they are is the cheapest of the region, there will find a market in the region. We have taken a conservative view of the costs in 2036 and we think 5GW, 10GW and even 100GW makes sense in this context.

Jung-Hwan Kim (ADB)： an important driver of renewable generation development is the climate change, the benefit of reduction in CO2 emissions as a benefit should be considered. As the Northeast Asia interconnection development, there is a need to separate the business issues from political issues. Benefit of carbon market should be modelled.

Philippe: in the interim report of Module 2, we modelled the cost of CO2 of $40/tCOe and presented in the workshop, however it was not agreed by the Steering Committee. So, we did not include the cost of CO2 in the final report. However, the report presents the regional reduction of the CO2 emissions as the renewable energy produced in Mongolia will replace fossil fuels in the other countries.

Ormatsu Ryo (ADB): with regard to renewable generation cost, GEIDCO published a report last week that by 2025 the renewable could would be lower, it would make sense for this project as sensitivity to consider the RE cost be lower. In the previous country coordinator meeting, you promised to publish the cost benefit analysis, and I didn’t see this in the report.

Philippe: there will be a completion between cheap coal price and RE energy cost. With CO2 prices, you can make difference favoring RE. Regarding the scenarios, it seemed to me that it made sense to consider 5GW, 10GW and 100GW although more could be considered. In the module 5 report, we present a master plan with a Sequencing of NAPSI Interconnection Pro- jects.

Ormatsu: how do you evaluate the benefits of interconnectors? For example, the interconnector between Japan and South Korea is calculated on the basis of price differential between these two countries, the benefit of transporting renewable generation to Japan would not be realized. Why do you use this?

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Peter Zeng: there are two types of methodology for calculating the benefit of interconnectors: one is based on the marginal generation cost differential between the two countries that the interconnector are connected to. This method is more established approach. The other method is to use wheeling charging method which considers the cost of transporting electricity from one country to another through the third country. This would include wheeling charges levied by transit countries, for example, for renewable generation transported from Mongolia to Ja- pan, the wheeling cost or transmission charges in China and South Korea would apply. Eco- nomically, the two methods should arrive at the similar, if not the same, results.

Teruhisa Oi (ADB): the cost and benefit analysis also refer to net present value. Although the two methods may end up the same results, it is important to show the benefit of transmitting renewable generation from Mongolia to Japan, which is different from transmitting electricity from South Korea to Japan. It is important to show this although this method may be a bit complicated.

Philippe: this topic is different from grid studies. The market study (Module 2) has already showed the total benefits of NAPSI.

Mika: the benefits also depended upon the business models used. Grid studies were quite detailed. I have a question whether it was feasible to assume 3000m depth undersea cables?

Philippe: recently, there has been important developments in cable technologies. I think it possible in the short future to have 3000m deep undersea cable made available and we wanted to show the benefit of using this technology in NAPSI interconnection plans.

Justine Yuan (EdF): in the last CIGRE meeting, 3 months ago held in Paris, I saw the proto- type of 3000m depth undersea cables, demonstrating the feasibility and development of new cable technology, that’s why we had included it for Primorsky to Hokkaido interconnection in this report.

Anna Bessarabova (ROSSETI): what is difficult is to harmonize market rules between different countries and regions as we had 4 different price zones which have different rules and we found it difficult to harmonize them to create a united power market.

Teru: for China, there are two strong transmission network companies, SGCC and China Southern Grid. Similarly, for South Korea, there is KEPCO. And now, Japanese companies were catching up the interconnection business. These companies are financially strong enough with good credit ratings for building interconnection infrastructure. They could have incentives or financial capabilities to enter into interconnection business. For Mongolia, it is

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more difficult. This is something that the project needed to think about. What mechanism or framework could be used for helping the Mongolian Government to enter into such a business?

Dong Zhang (SGERI): from your studies, all Mongolian generation was exported to North and Northeast China as I believe the cost of generation in North and Northeast China is cheaper than Mongolia. What was your assumption of generation between North China and Mongolia? Have you considered the cost of Chinese System managing volatility of renewable generation from Mongolia? Chinese system is used as a power pool, what’s the incentive for China?

Philippe: although the tariff may be cheaper in North and North east China, our study was based on marginal cost, which is different. Our studies showed that the generation cost in Mongolia is cheaper. This was included in Module 2 and 4 reports.

Bill Leng (GEIDCO): in GEIDCO studies, Mongolian renewable generation was exported to South Korea via China. The Korea has a lack of electricity. The motivation for Korea and China is the reduction in CO2 and development of renewable generation. There is also seasonal complementarity in renewable generation production across Northeast Asian region.

Dr. Dolf GIELEN (IRENA): what level of details is your model, including time differences?

Philippe: our market model is hourly, taking into consideration of time zone difference.

10. Conclusion by the President of the Steering Committee, Mr. Yeren-Ulzii Batmunkh

Thank you for sharing the outcomes of the latest study. Thank for all of your comments and remarks as well. Next Module will address the important issue of tariffs and regulation of the Strategy for Northeast Asia Power System Interconnection, which will be highly interesting. Thank you all for taking an active participation.

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for with

MoM of the Steering Committee N°5 Strategy for Northeast Asia Power System Interconnection TA 9001-MON on February 28th, 2019 in Ulaanbaatar, Mon- golia Members of Steering Committee:

Name of organization Name of attendees Division President of the Steering Committee MoE Mr. Bavuudorj Director of Renewable Energy Division Mongolian Energy Economics Institute Mr. Tumenjargal Managing Director

Government of National Dispatch Center Mr. Baljinnyam Managing Director Mongolia National Dispatch Center Ts. Unurmaa Chief Engineer

National Renewable Energy Center Ts.Tseren Managing Director Transco Mr. Nyamsambuu CEO

EDF Mr. Philippe Lienhart Strategy for NAPSI Team Leader

EURACIFIC Mr. Raphaël Goué Economist

CEPRI & HDU Mr. (Peter) Pingliang Zeng System expert

EDF Ms. Justine Yuan R&D Expert Consultant NovaTerra LLC Mr. Baldorj Chimmeddorl System expert Team NovaTerra LLC Mr. Tovuudorj Consultant

NovaTerra LLC Mr. Batlkhagva Consultant

NovaTerra LLC Mr. Purevdagva Consultant

NovaTerra LLC Mr. Itgel Bold Consultant

Mongolia Mr. Byambasalkhan Bayanjargal

Country South Korea Mr.Jung Hwan Kim Coordinators China Ms.Geng Dan

Japan Mr. Shota Ichimura

Mr. Shigeru Yamamura Principal Energy Specialist

ADB Mr. Kaoru Ogino Principal Energy Speacialist

Ms. Precious Le Bonne Energy Division East Asia Department Japan REI Mr. Shota Ichimura Country Coordinator from Japan Senior Manager, Supergrid Team, KEPCO Mr. Sungho Ryu Power System Planning Department Manager, Supergrid Team, Power KEPCO Mr. Kim Ho Suk System Planning Department ROK KEEI Dr. Sungkyu Lee Senior Research Fellow

KNC Pr. Koo Chairman

KNC Dr. Dongil Lee General secretary Director of Global Energy SGERI Mr. Hongcai Dai Interconnection Researcher of Global Energy SGERI Mr. Liujung Zhao Interconnection China Research Fellow, Economic and GEIDCO Dr. Chen Fu Technology Institute Research Fellow, Economic and GEIDCO Dr. Kiu Zhe Technology Institute Director of IRENA Innovation and IRENA Mr. Gurbuz Gonul International Technology Centre Organizations UN Mr. Michael Williamson, Section Chief of Energy Division

Mailing List:

Government of MoE Mr. Enkthaivan Director General Mongolia MoE Mr. Sarangerel Director

Consultant Team NovaTerra LLC Mr. Enebish Consultant CEO Project Office, SoftBank Group SB Energy Corp. Ms. Undrakh Otgonbayar Japan Corp. Strategic Business Division REI Ms. Mika Ohbayashi

Russia ROSSETI Ms. Anna Bessarabova Chief Expert International Energy Charter Mr. Kanat Botbaev Transit Advisor Organizations

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AGENDA

Venue: Shangri-La Hotel (London Room), Ulaanbaatar, Mongolia

Time Activities

08:30 – 09:00 REGISTRATION AND NETWORKING

(Coffee and Tea) I. Steering Committee No.5: Strategy for Northeast Asia Power System Interconnection (NAPSI) Session Chair: Bayanjargal Byambasaikhan, Country Coordinator, Mongolia Presentations by Country Coordinators and Participants

09:00 – 09:10 Introduction by the Head of the Steering Committee Ovgor Bavuudorj, Director, Renewable Energy Division,

Ministry of Energy, Mongolia

09:10 – 10:00 Progress Updates

People’s Republic of China Zhoa Liujun (SGERI)

Japan Shota Ihimura (REI)

Republic of Korea Mr.Ryu (KEPCO)

Russian Federation (Rosseti via Skype)

Participating organizations II. Module 6: Power Trade and Regulation Session Chair: Philippe Lienhart, Project Team Leader, Electricite de France (EDF)

Presentations by the TA Consultant Team

10:00 – 10:20 Benchmarking of Existing Interconnection Grid Studies Description, Organization, Trade & Tariff, Projects

EDF Consultant Team

10:20 – 11:05 Investment cost recovery and regulation - Reeale Poer Iestets i Mogolia - Coetioal Poer i Mogolia - Iteroetio Ifrastrutures i NEA

Philippe Lienhart Peter Zeng, Project Consultant, CEPRI

11:05 – 11:25 NETWORKING BREAK

(COFFEE AND TEA)

11:25-11:45 Financing Facilities Raphael Goue, Euracific Strategies

11:45-11:50 Conclusions of the Consultant Presentation Philippe Lienhart III. Discussion and Closing

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Session Chair: Kauro Ogino, Team Leader, ADB All Participants

11:50 – 12:50 Discussion (Facilitated by Philippe Lienhart) Feedback and comments from attendees Formal position of stakeholders

12:50 – 12:55 Next Steps Philippe Lienhart

12:55 – 13:00 Closing by the Head of the Steering Committee Ovgor Bavuudorj, Director, Renewable Energy Division, Ministry of Energy, Mongolia

13:10 – 15:00 NETWORKING LUNCH SESSION

Shangri-la Hotel, Cafe Park

Summary of the Minutes of Meeting of the Steering Committee:  Introduction by the President of the Steering Committee  Presentations of Country Progress Updates from SGERI, REI, KEPCO  Presentations of the previous NAPSI studies by Project Team  Presentation of Module 6 report on Power Trade and Regulation by Project Team  Comments and Feedback from the attendees  Conclusion of the President of the Steering Committee

 Mr. Byambasaikhan, ADB’s Country coordinator for Mongolia, chairs the first session. 1. Introduction by the President of the Steering Committee Opening remarks by Mr. Bavuudorj, Head of Renewable Energy Division in the Ministry of Energy, Mongolia Mr. Bavuudorj represents the Government of Mongolia and the Project Client. As President of the Steering Committee N°5, Mr. Bavuudorj welcomes all delegates and participants to the Workshop N°5 of Strategy for NAPSI. In 2016, the Government of Mongolia together with ADB started to work on Technical Assis- tance for the integration of Mongolia to the Asian Supergrid activities. In 2017, the Northeast Asia Power System Interconnection (NAPSI) started in Ulaanbaatar. We have organized 4 workshops in Mongolia, Korea, Japan and China where 5 Module reports have been validated. This time, we will cover Power Trade organization with the corresponding Regulatory framework. It will be very interesting to hear the new findings of the Project Consultant Team.

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As an introduction to the SC5, Mr. Bavuddorj would like to say some words on domestic Energy Policy. Mongolia has launched the development of Renewable Energy in the energy system. Accord- ing to our statistics data, the total Renewable generation capacity will be more than 20% this year 2019 and will reach 15% of total generated energy. It is quite a big achievement for a small populated country with very long and cold winter sea- sons. Just recently in October 2018, the government has adopted the Mid-Term Energy Sector De- velopment Plan for Climate Change. The share of Renewable energy will increase with more Wind and Solar and also with new hydro power plants and with the development of Power Storage. It is quite a challenge of absorbing the intermittency of renewable energies in the Energy Sys- tem of Mongolia. For that purpose, the Mongolia Government has announced the introduction of Smart technologies for increasing the capacity of the Power Transmission Grid, for improving the System Stability and for maintaining the Coal-fired power Plants. Welcome to Mongolia and I wish you a very interesting Steering Committee N°5!

2.Progress updates Mr. Zhao Liu Bin from SGCC Energy Research Institute presents the latest research results on Northeast Asia Electricity Interconnection

Mr. Shota Ichimura from REI presents the mix in Japan and the result of their study of interconnection between Hokkaido and Washiwazaki/Fukushima and between South Korea and Japan. Final report for June 2019 is expected.

Mr. Ryu Sungho from KEPCO presents the latest development in Asia Supergrid, mentioned a MOU signed between ROSSETI and KEPCO and joint study launched in the end of 2018 with Japan. During his presentation, he emphasized that a multilateral institution is needed for NEA Supergrid, like the ENTSO-E, there are no major technical problems for the feasibility of the project and that Intergovernmental practical organization is necessary to reduce the political and financing risks.

Complementary speeches by IRENA and UNESCAP: Mr. Gurbuz Gonul, from IRENA, presents the Clean Energy Corridors Initiative. IRENA can provide support to NAPSI Project from various work streams. Mr. Michael Williamson from UNESCAP, mentions that Energy Division of UNESCAP was formed two years ago, encouraging electricity interconnection between member states. UN- ESCAP is very interested by the progress of NAPSI Project: interconnections are part of large scale expansion of Renewable Energy for meeting the Paris Agreement targets.

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 Mr. Philippe Lienhart, Strategy for NAPSI EDF Team Leader, chairs the second session.

3.Presentation of the previous NAPSI studies by Project Team Philippe presents the main outlines of the 5 previous reports.

4.Module 6 report presentation This second part is focused on the presentation of the Module 6 interim report: - Benchmark of Existing Interconnections – Philippe Lienhart - Investment cost recovery and regulation – Philippe Lienhart - Financing facilities – Raphael Goué - Conclusions of the Consultant presentation – Philippe Lienhart

 Mr. Kaoru Ogino, ADB, chairs the third Session. 5.Comments and feedback from the attendees First of all, Mr. Kaoru OGINO announces that ADB would like to extend the Project Strategy for NAPSI Technical Assistance to Mongolia for another 6 months ( final workshop at the end of 2019), for 2 reasons: the need to show an action-oriented strategy to the Mongolian Gov- ernment and prepare the next Technical Assistance to Mongolia. And ADB needs more time to find complementary funding resources. Some discussions are on-going about next workshop. A Mongolian Government initiative is planned in UB in June 2019 giving the opportunity of discussions with neighboring countries. One side-event could be the Strategy for NAPSI workshop. In case this side-event could not held in June in UB, the next workshop will be organized in June, July or by September in Seoul offering opportunities for more interactions with Korean Government. A word for introducing ADB experience in Asia cooperation. ADB has several regional depart- ments. At this moment, there are 3 regional platforms basically organized by the Govern- ments: - GMS in Southeast Asia : Greater Mekong Sub-region SASEC in South Asia : South Asia Sub-regional Economic Cooperation ۔ CAREC in Central Asia: Central Asia Regional Economic Cooperation ۔ For Northeast Asia at this moment, NAPSI is informal. We have the strong support of the Mongolian Government and discussions with think tanks of neighboring countries. ADB would like to upgrade this network for getting the NEA Government supports and launching some concrete Projects. For this purpose, all ideas and guidance are welcome.

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Mr. Byambasaikhan informs also that a platform called UB dialogue has been launched two years ago by Mongolia Government with UNESCAP including an energy cooperation agenda ruled by the Ministry of Energy. Discussions are on-going between the Ministry of Foreign Affairs and UNESCAP for a new event in close future. Regarding our Steering Committee, it would be interesting to have a discussion for a similar understanding on the concept proposed in the Module 6 report of NAPSI Authority.

Mr. Philippe Lienhart presents the NAPSI Authority. As many topics are involved at regional level: - Interconnection infrastructures, - Market organization with the important issue of off takers in each NEA countries for the Re- newable Energies produced in Mongolia, - Harmonization of national Regulation modifications, the need for a regional coordination at high level between NEA countries is critical. At first step, the Project Team proposes to implement a regional coordination between the Regulators (if there is no Regulator, between the Ministries of Energy) and as target, the creation of the NAPSI Authority where representatives of each country are working together. The 2 main objectives of the NAPSI Authority are: - Regulation: coordination, organization and monitoring of regulation evolutions - Infrastructure management for the interconnection including financing, construction, cost recovery and operation of interconnections with a dedicated load dispatch center

For Mr. Kaoru Ogino, the idea of the NAPSI authority is very welcome. We need some times to go further on this idea. Mr. Kaoru OGINO proposes that the extension of the Technical Assistance determines what will be necessary for organizing the ownership, for the financing and for the need of human resources. These outcomes of the TA could, after, help for organizing commitments with representatives from NEA Governments.

For Mr. Shigeru Yamamura, ADB, the EU model can’t be transferred to Northeast Asia as there is no regional framework for stable political cooperation today. Therefore, taking into consideration ADB’s experience in GMS, it may be more fruitful to consider as a first step bilateral agreements. It would be helpful for the Project to understand the bilateral agreements that have already been made between China and Mongolia. Open access of Chinese grid is a prerequisite. Mr. Shigeru Yamamura would like to ask Ministries of Energy and country representatives what prospects are on-going, first between Mongolia, China and South Korea (Japan and Russia in second stage).

Mr. Bavuudorj confirms that bilateral discussions have started between Mongolia and China on power trade, but they are still at very early stage.

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It seems to Mr. Jung-Hwan Kim ADB’s Country coordinator for ROK, that State Grid, KEPCO, ROSSETI and Softbank are already having discussions on Regional Interconnection. How does Mongolia discuss with the 4 parties (SGCC/KEPCO/ROSETTI/SB) joining this very early stage of NAPSI Authority? The presentation focused on Europe, but it seems to him it is really different from NEA. We need more concrete staged approaches such as short, mid and long term strategies (5GW, 10GW and 100GW scenarios), which could have different governances.

Mr. Philippe Lienhart would like to clarify the role of EU example in the Module 6 report: the Project Team recommendation is NOT at all to replicate the European model in NEA. What is precisely recommended from the Europe experience is only the cost recovery methodology for interconnectors which is totally independent from generation pricing. What is also interesting in Europe is the coordination that works very well between the Regu- lators of the countries. The same type of coordination exists also in Africa (ERERA for example in WAPP) and in South America (CRIE in SIEPAC).

Mrs. Geng Dan, ADB’s Country coordinator for China, informs that the representatives from Chinese Ministry of Energy (National Energy Administration) would have appreciate to attend our today’s meeting but they needed more time for internal approval. They have talked together for preparing the Steering Committee N°5. From the policy making level, the Ministry has already established working groups on integration of not only domestic but also foreign generation connecting with neighboring countries. Our NAPSI Project can bring the opportunity for a new relationship between China and Mongolia. This initiative can come from the National De- partment for International Cooperation and from the Ministry of Energy. They can be invited to our next workshop if they are sufficiently notified in advance, and we can possibly arrange a meeting with the Ministry of Energy of Mongolia for starting bilateral dialogue through our NAPSI platform.

For Mr. Liujung Zhao, SGERI, Power Trade and Regulation are very important for interconnection. The biggest issue is policy coordination, indeed, power systems are very different between the countries. Therefore, it is important to have agreement between governments.

For Dr. Sungkyu Lee, KEEI, NEA countries are implementing actively new energy transition policies for decreasing the fossil-fuel share and increasing the share renewable energies in relation with Climate Change and pollution reduction requirements. These energy transition policies can put pressure on electricity prices and on grid stability in each country. It is important to increase regional energy cooperation and establish a regional vision of electricity market. The regional interconnection will also facilitate energy transition and will bring benefits to system stability. It is necessary to increase investments on electricity and transmission, to all energy actors, including financial investments (ex by: ADB, AIIB, World bank)

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For encouraging regional cooperation, Dr. Sungkyu LEE would like to suggest to create the “Northeast Asia Electricity Forum”, inspired by the European Electricity Forum and high-level intergovernmental meetings with all players of electricity markets.

For Mr. Philippe Lienhart, the forum that Dr. Sungkyu Lee is referring to is the Forum of Florence in Italy, consisting in TSOs and Regulators from all EU countries. However, it is not an open session. It proved to be a good way for building consensus and for moving forward the internal Electricity Market and Climate Change energy policies. Sure, it is interesting to promote such initiative in Northeast Asia.

For Pr. Koo, KNC, the key is to know how to establish trade and pricing in Northeast Asia including the implementation of corresponding regulation. For next workshop, Pr. Koo sees 2 major issues that have to be taken into consideration: 1. Electricity trading: Asia has no experience on free electricity market 2. The crossing of Chinese grid for exporting Renewable energies produced in China

For Dr. Lee, KNC, as the NEA political context is very sensitive, decision makers of NEA countries should be invited to the next NAPSI workshop

Dr. Chen Fu and Dr. Liu Zhe are connected with Skype and present their position on the Module 6 report. First, they thank for the invitation to SC5. SIEPAC is a very good example to be considered when designing NAPSI regional electricity market for several reasons: 1. The state owned companies are at the center of the decision making which is the best factor for solving the major concern of energy security. The Electricity Market Treaty between the 6 countries has facilitated the cooperation between the stakeholders, has pro- moted the establishment of a regional Regulatory entity and has developed partnership for harmonization process 2. The legal and economic independence of the regional institutes has helped for promoting a regional vision, protect the reputation of institutions and facilitation the implementation of common processes 3. The continuous support of the Regulator entity who is committed to support cooperation between countries, to help as market mediator and for solving dispute. In order to develop a harmonized power market between the 6 countries.

Mr. Gurbuz Gonul would like to make some remarks on 2 topics: - The level of market integration whose main feature is the physical interconnection - How to establish a Regulatory structure for Power Trade and interconnection infrastructures. About the chosen examples of regional interconnections, the EU is the most integrated. But there are different levels of integration. SIEPAC is a good example with the MER that could be seen as a 7th market in addition to the 6 existing national markets.

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There are other options in Africa (ex WAPP) which have developed from existing structure like OMVS and OMBG. 1st comment: There might not be needed to have the ultimate integration (especially at first stage) but, the best would be doing it step by step. 2nd comment: Possible role of coal in the NAPSI development. Decisions have to be made considering long term, because the coal-fired plants that are built now will still be here in the future and will have impacts on environment. Taking into consideration also the financing constraints by banks. The general framework of Climate Change is also important with the risk of bearing stranded cost in the future. 3rd comments is about Renewable Energy that could not live without the need base production: this is a 20 years ago argument! Innovation can also be part of the solution: interconnections are the best way, storage as the cost is decreasing is a game changer and the entire system flexibility, biomass, hydro have also to be taken into consideration

Mr. Philippe Lienhart is not so sure that large scale battery storage is the only solution for the 20 next years as the costs will remain high. Innovation will be helpful as a combination of solutions: smart grids, flexibility, storage, etc. Regarding what Pr. Koo stressed on, Philippe Lienhart confirms that the role of China is key for the regional interconnection Project. Discussions with GEIDCO are necessary in short future.

Mr. Michael Williamson supports the previous expressed views to establish an intergovernmental body to oversee the interconnection process. In 2016, UNESCAP published a report on Asia Pacific energy interconnection and one of the key conclusions was that an intergovernmental framework and corresponding institutions to govern the whole process was necessary, not only for the management of system operation but also for realizing feasibility studies as a cooperation platform that requires funding, human resources and also political supports. Mr. Williamson doubts the future need of more coal for balancing Mongolia’s system as well as clean coal (the 2 long duration experiments in Canada and Mississippi spent 7 billion with no evidence). The solution will be in systems thinking, and with new added value solutions such as flexibility not only brought by generation but also by load and low margin electricity from interconnections. Mr. Kaoru Ogino concludes the discussion. He thanks for the remarks. ADB is willing to continue the studies and to discuss with experts and with relevant governments from the different countries.

6.Conclusion of the President of the Steering Committee Mr. Bavuudorj, MOE presents his closing remarks. It was a very important meeting with valuable comments and suggestions. It was interesting to have presentations about the updates from the participating countries.

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The Module 6 report is validated: the Project Team has made important recommendations. Mr. Bavuudorj supports the idea to create the NAPSI Authority. Even if it will take some times to realize it but we have to go forward in this direction. On the discussion side, it was very valuable. Some good suggestions emerged such as organizing discussion meetings between the countries, organizing a regulatory forum, etc. The Min- ister of Energy will study which are the possible next steps. Some answer for the comments on coal. The reason why Mongolia wants to look to coal as an option is because of the specific needs in terms of energy. Mongolia has very long and cold winters which require stable heating in Mongolia. Indeed, MoE s studying alternatives, but personally Mr. Bavuudorj thinks that in the next decade, coal will still be necessary. Thank you all for your active participation.

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ANNEX 2: THE ACTIVITIES AND OUTPUTS OF THE TORS

Estimated with N° Key Activities Milestones

Output 1. Power systems and markets in the Northeast Asian countries From assessed Q3 2017 1.1 Conduct analytical studies including political, economic, technical, in- 1 stitutional, and legal aspects To

2 1.2 Hold stakeholder consultation meetings to collect and incorporate their Q1 2018 feedbacks

Output 2. Power system interconnection projects prioritized and investment plan developed

2.1 Identify key actors and stakeholders for the NAPSI From 3 2.2 Set up NAPSI steering committee Q3 2017 4 2.3 Organize and hold NAPSI steering committee meetings to discuss the To 5 findings of a comprehensive analysis of Northeast Asia power systems and markets; and brainstorm and develop Mongolia’s strategy for NAPSI and Q3 2019 identify short-, medium-, and long-term priority actions

6 2.4 Draft and gather feedback and comments on Mongolia’s strategy and action plan from a wider range of stakeholders

2.5 Finalize Mongolia’s strategy for NAPSI, and a detailed action plan that 7 identifies pilot investment projects and investment strategies

Output 3. Mongolia’s renewable energy capacity expansion plan to export clean electricity analyzed

8 3.1 Conduct a wind and solar resource assessment From

9 3.2 Analyze the cost of energy and select clean energy technologies Q3 2017

10 3.3 Update the domestic investment plan for transmission line and associ- To ated facility refurbishment Q1 2018 3.4 Select sites for renewable energy plants for power export, schedule 11 planting, and costing

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3.5 Develop Mongolia’s renewable energy capacity expansion plan to export clean electricity

List of the final documents:

Reports: - Inception, interim, draft & final reports for Output1, 2 &3.

Output 1&2: - Overview of each power market in the Northeast Asia sub-Region: cf Module 2 and 3 reports - Mongolia's current power market: cf Module 2, 3 and 4 reports - 20-year growth country projections for high, low and base-case growth scenarios for each power market: cf Module 2 and 3 reports - Most optimized regional interconnection plan for Northeast Asia: cf Module 5 report - Energy markets and future Northeast Asia power interconnection: cf Module 2 report - Northeast Asia power interconnection road map: cf Module 5 report - Action plan for Mongolia: cf Module 2, 4, 5 and 6 reports - Load demand projection and profile for countries in Northeast Asia: cf Module 2 and 3 reports

Output 3: - A policy note on legal and regulatory improvements for power trade expansion: cf Module 6 report - A revised Mongolia’s power system integration plan (as proposed in the Updating En- ergy Sector Development Plan, UESDP): cf Module 4 report - Solar and wind resource potential map: cf Module 4 report - Candidate list of power plans in Mongolia that will be needed for power exports, planting schedule, and Mongolia power capacity addition plan for power export: cf Module 4 report

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ANNEX 3: EDF

As a global leader in low-carbon energy, the EDF Group covers every sector of expertise, from generation to trading and transmission grids. EDF builds on the expertise of its people, its R&D and engineering skills, its experience as a leading industry operator and the attentive support of its customers to deliver competitive solutions that successfully reconcile economic growth with climate protection. EDF Group is particularly well established in Europe and had to adapt to the European Com- munity decisions on the 100% opening of the electrical market started in 2000 and to Renew- able Energy development policy 20% in 2020. . EDF Group is fully committed to the energy transition and has defined a strategy called Cap 2030 which underpins the Group’s goal of being an efficient, responsible electricity company that champions low-carbon growth, in line with European targets on Renewable Energy by 2020 and 2030 as well. As EDF is an active utility in numbers of countries in Europe, in America, in Asia and consequently has developed high skills for observing the evolutions of the electric markets in many countries all over the world. EDF being active on the whole electricity value chain in different countries around the world, EDF have experienced renewable development through its subsidiary EDF Energies Nouvelles is a leading producer of electricity from renewable sources. The company develops, builds and operates green electricity power plants in 21 countries. EDF R&D has developed various methodology and tools for the analysis of generation mix systems including grid at a country level or even for interconnected countries (e.g. Europe). This EDF expertise will be a key asset for this project with the support of local partners (Nova Terra) or international ones (CEPRI…) which will provide key additional data and information on the Mongolia and neighbouring countries energy context. Thanks to its worldwide expertise on energy system management, power plants operation, development of generation and network assets, EDF will carry out a thorough analysis of the current Northeast Asia energy system and will undertake a feasibility study of possible scenarios of trades of massive renewables (mainly wind and utility-scale solar PV) from Mongolia with neighbouring countries. EDF is represented by dedicated team in the countries members of NAPSI.EDF presence and relationship in Northeast Asia: EDF has been involved in the power market in Asia for over 30 years. Investments in power generation in Asia, and China in particular, are one of EDF Group’s most important industrial stakes. EDF’s activities in Asia are part of a deliberate growth strategy. Under this strategy, the Group is involved in long-term projects, which reflect a spirit of co-operation and partnership, and a commitment to EDF’s corporate and environmental values. The Group is investing in EPR nuclear reactors in China and in other projects in the rest of the region that will give it access to state-of-the-art technology, as well as promote its industrial expertise – particularly for power generation projects. EDF has set up partnerships with the major Chinese Utilities / Gencos companies and is developing its activities in renewable energies, grids and energy services for urban and industrial uses.

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In Asia and especially in China, EDF has developed industrial and financial partnerships for many years. Cooperation enables the EDF Group to share its industrial expertise and cutting edge technology with local players and to establish long term, balanced and mutually beneficial relations.

EDF’s organization in Asia: In China, the EDF Group’s activities are under the responsibility of the EDF Delegation to China based in Beijing. The EDF Group has been in China for more than 30 years through its advisory services in nuclear, thermal and hydropower technologies. Today it is one of China’s most significant foreign investors in power generation, with investments in coal-fired thermal facilities that have a total installed capacity of 6,260MW. With the Taishan project Phase I (2 x 1,750MW reactors), EDF also became an investor in an electricity-generation project involving an EPR nuclear power plant. Lastly, EDF is developing new partnerships, which are opening it up to new investment perspectives in nuclear power (e.g. The General Partnership Agreement between EDF and CGN was signed in 2007 and complemented in 2014 by implementation of agreements related to engineering, R&D, and plant operation), gas power plants, hydropower, electricity distribution, and energy efficiency.

Electricity transmission & distribution activities: Present in China since 2011, EDF International Networks has signed technical support contracts in China concerning the planning and performance improvement of distribution networks in the Shanxi and Shaanxi provinces. EDF International Networks aims at developing business in China so that it may apply its expertise, methods and most effective tools to optimize network management and performance, particularly in a context of cooperation with the two major players in China, State Grid and Southern Grid. For the rest of Asia, the Group’s activities are under the responsibility of the International Divi- sion Asia, based in Bangkok, Thailand, with a liaison office in New Delhi, India and a delegation in Tokyo, Japan, which cover also the Republic of Korea. EDF has a permanent office in Tokyo covering Japan and South Korea. Long-term collaborations have been carried out with all the major Japanese and Korean utilities in the field of energy efficiency, renewable energies, nuclear power, grid development. Major projects include the construction of power plants in Laos and Vietnam and long-term joint research programmes on RES and nuclear energy. EDF is regularly involved in international exchanges and discussions on regional issues in energy.

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EDF’s activities in Asia:

EDF experience and organization for Renewable energies in Asia EDF is involved in the development of renewable energies in Asia. EDF, the European leader in renewable energy, continues to extend its reach into Asia. The company – already recognized worldwide as a major player in low carbon energies – is committed to using its experience and expertise in green energy generation to expand the market for renewable energy in China, India and beyond. EDF Energies Nouvelles is a market leader in renewable energy electricity, with a portfolio of more than 9 GW gross installed capacity focused for the most part on wind (onshore and offshore) and solar photovoltaic energy. Mostly operating in Europe and North America, EDF Energies Nouvelles continues its development by taking strong positions in promising

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emerging areas such as Brazil, Chile, China, India or South Africa. The Company is also present in other segments of the renewable energy market: marine energy, biomass and distributed energies. EDF Energies Nouvelles manages renewable energy projects’ development and construction as well as operation and maintenance for its own account and for third parties. EDF Energies Nouvelles is a subsidiary of the EDF Group dedicated to renewable energy. In the Chinese wind energy sector, EDF Energies Nouvelles has acquired a majority stake in UPC Asia Wind Management (AWM) which develops and builds wind projects in China. UPC Renewables have developed and constructed Wind Farms in China since 2006. UPC completed construction on four Wind Projects for a total capacity of 171MW in three provinces in China. The 42MW Huangyan I Wind Project will be completed in 2017. The Feicheng 49MW Wind Project was started in 2016 and will be in Operation in 2017. UPC have a pipeline of 2,000MW of Wind projects being developed throughout China. Working to harness wind and solar power in India: EDF Group’s subsidiary EDF Energies Nouvelles (EDF EN) is working on the development of solar and wind power facilities. EDF EN is well-placed to help deliver renewable energies to India through more than 300 MWc in operation or under construction in solar and wind portfolio in the Indian market. EDF has a permanent office in Moscow covering Russia. Long-term collaborations have been carried out with Russian utilites especially in the field of nuclear power.

EDF’s R&D activities, international and partnerships:

EDF conducts research and development to:  consolidate and develop competitive carbon-free generation mixes: one of the major challenges of the transition is to ensure the effective coexistence of traditional generation resources, particularly by further improving the safety and performance of the current nuclear fleet and extending its life span, with the development of new renewable energy sources;  prepare the electricity networks of tomorrow, firstly, by optimizing the life span of network infrastructure and, secondly, by facilitating the adaption of the electricity network by improving the management of network assets, optimization models and economic scenarios for new transport infrastructure projects, the insertion of intermittent energies and the development of smart grid;  develop and test new energy services for customers, that provide flexible low-carbon energy demand through better demand awareness, increased customer energy efficiency, the promotion of new efficient uses for electricity often associated with renewable energy (heat pumps, electrical mobility, etc.), the development of technical and economic modelling to engineer buildings, industry and sustainable cities, and the further integration of uses and consumption into the electricity network via smart grids and tariffs. To conduct its research and development programs, EDF R&D has developed a large number of partnerships worldwide, the purpose of which is to maintain its expertise at the highest global level in the disciplines central to EDF’s challenges, and to supplement its internal reservoir of skills in specific areas.

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The partnership policy of R&D takes various forms both nationally and internationally. R&D is also present within the Energy Transition Institutes (Instituts de la transition éner- gétique, ITE) set up as part of “Investments for the Future” initiative, for example: SuperGrid, focusing on major transmission networks to connect remote renewable energy production sites; EDF has also set up a European Economic Interest Grouping together with the Karlsruhe Institute of Technology (KIT) called EIFER, which is a large international R&D centre of the EDF Group working on local energy systems and the energy transition. The China R&D center based in Beijing, one of EDF’s seven international R&D centers, is a particular asset when it comes to taking part in large-scale Chinese demonstrators for smart grids, sustainable cities, and a number of renewable energy technologies. This center is also a resource in facilitating the implementation of the research partnership for nuclear power in China. The creation of the center has been accompanied by significant development of academic and industrial partnerships in China. For instance, EDF has signed a joint research program in China relating to thermodynamic solar power. The cooperation under- way with the Chinese Academy of Science’s Institute of Electrical Engineering mainly concerns research and innovation work carried out on a testing platform dedicated to solar thermal power technologies located in Badaling. One of the challenges for EDF is to further improve its modelling capacities using measurements performed during experiments con- ducted on this platform.

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ANNEX 4: CHINA EPRI

China Electric Power Research Institute (CEPRI): CEPRI is a wholly owned subsidiary of State Grid Corporation of China (SGCC). The core businesses of SGCC are the build and operation of power grids that cover 88% of the national territories and serve a population of over one billion people. SGCC was ranked 7th in the Fortune Global 500 since 2012 and is the largest utility in the World. SGCC also involves in thermal power, hydro power and renewable energy sectors. SGCC wholly owns 6 regional (North China, East China, Central China, Northeast China, Northwest China and Southwest China) power grid companies and 26 provincial electric power companies, and 38 subsidiaries and entities, with 1.86 million employees. Through years of endeavors, SGCC has been successfully building and operating one of the largest and most advanced power grids in the world by overcoming many obstacles in planning, technology, finance, personnel, construction and operation aspects. By the end of 2008, SGCC’s net assets reached RMB 1365.9 billion (220 billion USD) and: Electricity sales: 2,123.5 TWh; Total length of 110/66kV and above transmission Line: 513,903 km; Total 110/66 kV and above substation capacity: 1,608,480 MVA; Power supply reliability rate: 99.865% (Urban) and 99.545% (Rural); Line loss: 6.1%.

In recent 5 years, the average annual growth rate of the transformation capacity, transmission line length and electricity sales is 17%, 12% and 13% respectively.

SGCC updated power grid technologies, completed 6,241 technical reform projects with an investment of RMBY 35.168 billion, refurbished lines with a total length of 36,600 km and a transformation capacity of 38,850 MVA. In 2008, SGCC increased the transmission capacity of existing power grid by 34.104 GW.

Ultra High Voltage (UHV) Development and Smart Grid: The development of UHV GRID is a strategic choice for SGCC. UHV Grid delivers significantly economic, technical and environmental benefits, and optimizes method of transmission of primary energy to realize the building of large scale, trans-regional, long distance and low loss power supply. In January 2009, the first 1000 kV pilot UHV AC Changzhi-Jinmeng transmission line and sub-station project (645 km) has been commissioned and put into commercial operation. And SGCC also first launched ±800 kV and ±660 kV DC transmission and substation projects in the world. These achievements mark SGCC a leading and pioneer company in UHV technology in the world. SGCC Built EHV power grid and realized all level of power grids harmonized operation and development. SGCC also involves and pays close attention to the study and development of Smart Grid.

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ANNEX 6: NOVA TERRA NovaTerra is working on a number of cutting-edge projects and businesses in the country and the region. With its extensive experience in structuring, negotiating and managing large-scale transactions, NovaTerra team has contributed substantially on investment inflow into the country by promoting and facilitating the closing of transactions involving private investment in multiple sectors-municipal, mining and infrastructure, and energy.

It’s current energy portfolio includes a development of utility scale solar energy generation project in the Gobi region of Mongolia together with its international partners. This project will harness vast solar energy resource to supply clean solar power to the national grid as well as large industrial and mining customers. NovaTerra is building on its existing technical, financial and local experience in fast-tracking the development process. The project is expected to achieve financial close in 2019 and be constructed by Q2 of 2020.

NovaTerra has also initiated the first regional conference in power system interconnection in November 2012, and coorganized it with the Government of Mongolia under the auspices of the Mongolian President. This conference was attended by NGOs, private sectors and research institutions from the North East Asian countries. One of the outcomes of this conference is the current technical assistance by the Asian Development Bank aimed to enhance regional cooperation and integration.

With its extensive experience in establishing partnerships and joint-ventures with partners from PRC, Japan and Republic of Korea, the NovaTerra team established a joint-venture between Mongolian and Japanese investment companies (Newcom LLC and SoftBank Energy Corp) to develop and build a 50MW wind power generator in 2012.

From concept to commissioning, NovaTerra executives managed Mongolia’s first IPP by leading private equity and fundraising from international banks, including EBRD. Developed bankable Feasibility Study for international investment and developed Wind Farm SCADA system, Wind Farm Control System for local utilization. During project development, NovaTerra experts also lead the execution of the first Power Purchase Agreement in Mongolia.

NovaTerra team have structured and completed deals in a complex-situations and that are complaint to international standards and requirements, including:

 Oyu Tolgoi underground mine development. Led the negotiations as a Government of Mon- golia’s chief negotiator, that ended a five-year dispute between the Government and Rio Tinto. This led to signing a US$4.4 bln project finance deal with 20 international banks to finance Oyu Tolgoi’s underground mine construction. Oyu Tolgoi is Mongolia’s largest investment project estimated to cost about US$20 bln. Oyu Tolgoi currently imports all of its power supply about

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300MWs from PRC through challenging power trade framework that NovaTerra’s partners helped to put together.  Equity sale of commercial bank where the expert led the structuring of the divestment and National Bank of Canada investment into one of Mongolia’s largest banks.  Development of Mongolia’s largest Copper Cathode Production Plant. Experts lead the investment of US$50 mln for project development.  Structuring of large-scale energy transaction in Central Asia and Caucus region. NovaTerra expert managed US$3 bln portfolio.

NovaTerra proactively coordinate with the government and business councils to address and formulate policy issues in multiple sectors to improve credibility and strengthen those sectors in our efforts set a clear public-private dialogue.

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ANNEX 7: PROPOSITION OF COMPLEMENTARY STUDIES IN THE FRAME OF A PROJECT EXTENSION

Here are the propositions of topics by the Project Team for complentary studies:

 ID for NAPSI with PR consultant The Strategy for NAPSI study consists in 6 reports and sets of slides presented in the 5 workshops and conferences. A comprehensive wrap up for large audiences is necessary for easily understand the consistence of the results of the studies with a pleasant presentation including:  The completeness of the study results: Renewable in Mongolia and regional electricity market and interconnection grid  The unprecedented and specific nature of the results compared to previous studies  The necessary political decisions to be made for moving forward

This communication work can be realized with a Mongolian Public Relation consultant and can have the form of a brochure, slides or/and short video. We suggest to elaborate a comprehensive deliverable mainly bound for investors and financing institutions. Following the realization of the NAPSI strategic presentation, the Project Team could organize a roadshow in Ulaanbaatar, Tokyo, Seoul, Beijing, Moscow, Paris, London, New York and Washington to present the NAPSI project to investors which should be interested by investing in a NAPSI project.

 Strategy NAPSI Authority including funding NAPSI Authority proposed in Module 6 report is a paradigm for ruling and managing the electrical interconnection and market among the 5 countries. The study consists to inventory the bricks that it is composed of. Here are the main fields:  Regulation to be implemented at regional level and the follow-up of the necessary evolutions and harmonization of the National regulations  Organization governance of the NAPSI Authority  Proposal of a business plan to ensure the autofinancing of the authorities through a contribution to be paid by the power generation companies and a fee paid by the transmission company  Design of the concession scheme for the power generation companies and tendering process  Interconnector Project management from the design, pre-feasibility, feasibility specifica- tion, tender to the construction and commissioning  Maintenance : policies, operation data analysis and management, staffing , lessons learned from operation  Operation : real time supervision with dedicated load dispatch center, preparation of maintenance yearly, monthly, weekly daily, O&M data quality, IT and telecommunications

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 Coordination with GEIDCO Now that the Module 4 report has assessed that the Mongolian Solar and Wind energies are the most cost-effective of the region, the capacity to find off-takers in the other countries appears to be the most crucial issue for the success of Power Trade and as to be ensured assuming that power grid of State Grid Corporation of China (SGCC) has to be crossed for joining Korea and Japan. On the other hand, GEIDCO plays an important role in promoting interconnection within Northeast Asia region, their inclusion in the process would really enhance the credibility of the NAPSI project.

The delivery consists of making proposals for the strategy to be built with China for a win-win partnership among the countries including solicitations and meetings with the relevant representatives of the countries.

 Bilateral agreement with off-takers The delivery is a proposition of the main features of the bilateral contracts between a Mongo- lian investor in Renewable Energy in Mongolia and the off-taker of the 4 other countries, and at least the best effort for 1 MOU signed between ROK and Mongolia on that matter.

This study will also include North Korea supply/demand and off-take analysis.

 Toolbox regional interconnection Starting from the benchmark of existing regional interconnections in the world, propositions a list of strategic decisions and arrangements that could apply in NAPSI.

 REALIZATION OF A SPECIFIC INTERNATIONAL FINANCIAL ASSESS- MENT RELATED TO “TA-9001 MON: Strategy FOR NORTHEAST Asia Power System Interconnection Objective: As a key output of the above mentioned Strategy for NAPSI Project, we should assess how potential international investors may consider to invest in one of the NAPSI related infrastructures: renewable power generation, conventional hybrid power generation (CHP) and interconnection grid, from a bottom-up analysis in meeting a relevant sample of investors: Mul- tilateral and Bilateral Financial institutions, Infrastructure Funds, Strategic Partners, Infrastruc- ture Funds as well as the London Stock Exchange.

Scope: The analysis will consist in organizing a bottom-up analysis in meeting key financial stakeholders in London, Paris as well as Beijing, Tokyo and Seoul if required in order to per- form 25-30 face to face interviews based on a questionnaire that will help to assess the interest for international investors to invest in one of the NAPSI related infrastructures, as well as the pro and cons, the barrier to investment which should be considered to be highlighted as potential risk of the NAPSI infrastructure financial feasibility. We will also assess how the investors’ panel may consider international agreements such as the recent 3 parties MOU signed between JBIC and the Overseas Private Investment Corporation of the US Department of For- eign Affairs and Trade and the Export Finance and Insurance Corporation of Australia which aims among others to finance infrastructures in third parties countries and how it may apply to Mongolia.

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EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

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The duration should not exceed 8 days involving full time senior consultants of the Strategy for NAPSI project including Mongolian expertise and representation.

Output: A recommendation to the Mongolian Ministry of Energy regarding the key issues investors may face to invest in the frame of the NAPSI Project and a set of recommendations to improve the attractiveness to involve international investors in any of new generation or grid infrastructures.

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EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr Strategy for NAPSI Draft Final report - May 2019

MINISTRY OF ENERGY, GOVERNMENT OF MONGOLIA Government Building 14, Khan-Uul District Chinggis Avenue, 3-r Khoroo Ulaanbaatar, 17060 Mongolia

Contact: Mr. Enkthayvan Director of Renewable Energy Division

ASIAN DEVELOPMENT BANK 6 ADB Avenue Mandaluyong City, 1550 Metro Manila, Philippines

Contact: Mr. Kaoru Ogino Project Manager, Energy Division (EAEN), East Asia Department (EARD) [email protected]

Consultant: EDF EDF CIST, Immeuble Spallis, 2 rue Michel Faraday 93282 Saint-Denis Cedex France

Contact: Mr. Philippe Lienhart Strategy Innovation New Business Manager Strategy for NAPSI Technical Assistance to Mongolia Team Leader [email protected]

Deliverable: Draft Final Report Date: October 24th, 2019

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EDF ELECTRICITE DE FRANCE – with a capital of 1 006 625 696.50 euros – TA-9001 MON: Strategy for Northeast Asia Power System Interconnection

552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 19 - 188 www.edf.fr