Technical Assistance Consultant's Report Mongolia: Strategy For

Home , Arvaikheer, Asian Super Grid, Bayankhongor Province, Bulgan (city), Choibalsan (city), Energy in Mongolia

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 – 17 - 228

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 Inception Report - June 2017

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

- TСe ADB’s Country CoordТnators of MonРolТa, People’s RepublТc of CСТna, RepublТc 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 a reminder of the place of the Module 1 in the Project organization:

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PREFACE

This document1 Тs tСe InceptТon Report for tСe AsТan Development Bank’s TecСnТcal Assistance (TA) No. TA-9001 MON: Strategy for Northeast Asia Power System Interconnection2. The Inception Report draws upon the consultations and analytical work conducted by the TA Team of consultants in collaboration with senior officers from Ministry of Energy. The report takes into account the consultations held with numerous stakeholders including the participants to the Inception Workshop held on 20th June 2017 in Ulaanbaatar and the comments by Ministry of Energy and Asian Development Bank. The views presented in the report are the responsibility of the TA Team and do not necessarily reflect the view of the Government of Mongolia and Asian Development Bank. The Project Team would like to thank the Authorities, the Utilities, the representatives and the experts of all countries for consideration and contributions.

Philippe Lienhart TA-9001 MON Team Leader EDF Ulaanbaatar, June 20th 2017

1 To be referred to as « ADB TA-9001 MON (2017) Inception Report. Technical Assistance for the Strategy for Northeast Asia Power System Interconnection, Asian Development Bank, May 2017. 2 https://www.adb.org/projects/48030-001/main 2

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Table of contents

Executive summary ...... 12 1. Introduction ...... 19 2. Kick-off and general status of project...... 20 3. Preliminary tasks ...... 22

3.1. Visits ...... 22 3.1.1. Agenda of visits ...... 23 3.1.1.1. Acknowledgements ...... 23 3.1.1.2. Identification of the stakeholders ...... 23 3.1.1.3. Need for complementary visits ...... 23

3.2. Objectives, challenges and risks ...... 23 3.2.1. Background ...... 23 3.2.2. Objectives ...... 23 3.2.3. Challenges, risks and preventive actions ...... 24

3.3. Planning and Staffing ...... 26 3.3.1. Planning ...... 26 3.3.2. Project team composition: Consultants and Experts ...... 27 3.3.3. Deadlines ...... 28

4. Data collection ...... 32

4.1. Methodology ...... 32 4.1.1. This Review and Data Gathering consistence ...... 32 4.1.2. Treatment of Required data ...... 32 4.1.3. Required economic data ...... 32 4.1.4. Existing generation mixes ...... 34 4.1.5. Planned generation development ...... 35 4.1.6. Historical and existing demand ...... 35 4.1.7. Required transmission grid data ...... 35 4.1.7.1. Present and future bulk power system ...... 35 4.1.7.2. Operation of the bulk power system ...... 36 4.1.7.3. Existing system performance ...... 36 4.1.7.4. Protection schemes ...... 36 4.1.7.5. Environmental data ...... 36 4.1.8. Methodology for Collecting Grid and Power Data ...... 37

4.2. Report and Data collected ...... 38 3

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4.2.1. Mongolia ...... 38 4.2.2. China...... 43 4.2.3. Japan...... 44 4.2.4. Republic of Korea ...... 45 4.2.5. Russia ...... 47 4.2.6. Completion of the data base ...... 49

5. Overview of the next steps ...... 50

5.1. Module 2: Market and Power Trade Assessment ...... 50 5.1.1. Review of the electricity sector ...... 50 5.1.2. Assessment of the power generation and import ...... 53 5.1.3. Cost of imported power and tariffs of generation sources ...... 58 5.1.4. Renewable generation already implemented in Mongolia ...... 60 5.1.5. Assessment of the existing transmission network ...... 64 5.1.6. Deliverables of Module 2 ...... 70

5.2. Module 3: Planning and evaluation criteria - Assumptions for the studies ...... 70 5.2.1. Technical Criteria ...... 70 5.2.2. Economical-financial criteria ...... 71 5.2.3. Political criteria ...... 75 5.2.4. Socio-environmental criteria ...... 90 5.2.5. Proposed scenarios ...... 97 5.2.6. Deliverables of Module 3 ...... 97

5.3. Module 4: Mongolia Energy sector profile and projections (Conventional generation, Renewable energy capacity expansion plan) ...... 98 5.3.1. Review and update pf demand forecast ...... 98 5.3.2. Potential trade opportunities ...... 101 5.3.3. Review of existing Generation Expansion Plan ...... 102 5.3.4. Identification of generation supply options ...... 107 5.3.5. Review of existing transmission master plan ...... 110 5.3.6. Identification of interconnection options ...... 117 5.3.7. Deliverables of Module 4 ...... 121

5.4. Module 5: Mongolia and North East Asia Power Grid Development ...... 124 5.4.1. Review of current criteria and models ...... 125 5.4.2. Determination of the least cost ...... 126 5.4.3. Selection of technology (AC or DC) ...... 128 5.4.4. Cost estimate of each option ...... 128 5.4.5. Deliverables of module 5 ...... 129

5.5. Module 6: Power Trade and Regulation ...... 129 4

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5.5.1. Objectives ...... 129 5.5.2. Issues/proposed solutions ...... 129 5.5.3. Deliverables of Module 6 ...... 129

6. Workshops ...... 131

6.1. Ulaanbaatar ...... 131

7. Steering Committee ...... 135

7.1. Proposition of the list of attendees...... 135 7.2. Organization and principles ...... 135

APPENDIX 1: From ADB “Technical Assistance Report on Mongolia Strategy for NAPSI” – November 2015 APPENDIX 2: “Regional Cooperation where NAPSI countries are active” by Nova Terra APPENDIX 3: References

APPENDIX 4: Description of “Power System Analysis Software Package”

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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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

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Currency equivalents (as of 15th June 2017) Currency unit – Tugrik (MNT) MNT1.00 = $0.00042 $1.00 = MNT2360 In this report, "$" refers to US dollars.

Abbreviations and List of Acronyms ADB Asian Development Bank AuES Altai-Uliastai Energy System CAPEX Capital Expenses CES Central Energy System CES Central Energy System CHP Combined Heat Power CHP3 Combined heat power plant 3 CHP4 Combined heat power plant 4 CHPP Combined Heat Power Plants

CO2 Carbon Dioxide CRPS Central Region Power System DES Dalanzadgad Energy System EA Executing Agency EES Eastern Energy System ERC Energy Regulatory Commission ERES Eastern Energy System GIS Geographic information system GWh Gegawatt hour HPP Hydropower plant HVDC High voltage direct current KV Kilovolt KW Kilowatt KWh Kilowatt hour LCOE Levelized Cost of Energy LOLP Lost Of Load Probability 7

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MNT Mongolian Tugrik MoE Ministry of Energy MW Megawatt NAPSI Northeast Asia power system interconnection NASA National Aeronautics and Space Administration NREC National Renewable Energy Corporation NREL National Renewable Energy Laboratory NTC National Transmission Company OH Overhead (line) OHL Overhead line OPEX Operating Expenses OT Oyu Tolgoi copper/gold mine and vicinity PRC People’s RepublТc of CСТna PTG Power Transmission Grid PV Photovoltaic SOE State owned enterprise TA Technical Assistance TT Tavan Tolgoi coking coal mine and vicinity TWh terawatt-hour UESDP Updating Energy Sector Development Plan UNDP United Nations Development Program USD United States dollars W Watt WES Western Energy System

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LIST OF FIGURES

Figure 1: Energy systems of Mongolia, NDC ...... 50 Figure 2: Difference in winter peak and low loading operation during 24 hours, NDC ...... 52 Figure 3: Difference in summer peak and low loading operation during 24 hours, NDC ...... 52 Figure 4: Installed capacity of energy systems of Mongolia, NDC ...... 54 Figure 5: Supply from local generations, NDC ...... 56 Figure 6: Supply from local generations, NDC ...... 56 Figure 7: Past 6 years' electricity generation and import of Central Energy System, NDC ....57 Figure 8: Schematics and locations of transmission lines (red 220kV, Blue 110kV, green 35kV), NDC ...... 64 Figure 9: GDP USD current, World Bank ...... 72 Figure 10: GDP growth 2014 vs 2015, World Bank ...... 72 Figure 11: Electricity demand forecast MW, Energy master plan 2013 ...... 74 Figure 12: Population growth rate ...... 76 Figure 13: Total number of households in Mongolia ...... 76 Figure 14: Total registered businesses ...... 77 Figure 15: The number of registered businesses in Mongolia, Mongolian Statistical Yearbook 2015 ...... 77 Figure 16: Comparator economies rank on the ease of doing business, World Bank ...... 80 Figure 17: FDI - bn USD, Bank of Mongolia ...... 80 Figure 18: ODI flows vs FDI flows in USD billion, World Bank ...... 83 Figure 19: Net FDI in USD billion, World Bank ...... 83 Figure 20: CO2 emissions per capital 1960 - 2013, World Bank ...... 91 Figure 21: Population density, World Bank 2015 ...... 91 Figure 22: CO2 emission metric ton per square km, World Bank 2015 ...... 91 Figure 23: Installed power generating capacity of China, China Electricity Council 2016 ...... 93 Figure 24: Japan Energy production by source 1973 - 2015, IEA 2016 ...... 94 Figure 25: Demand forecast of Mongolia, NDC ...... 98 Figure 26: Demand forecast by the ADB, low or organic growth scenario, UESDP ...... 98 Figure 27: Demand forecast by the ADB, medium or bear growth scenario, UESDP ...... 99 Figure 28: Demand forecast by the ADB, high or bull growth scenario, UESDP ...... 100 Figure 29: Comparison of demand forecast in million kWh, ADB and NDC ...... 100 Figure 30: Dornod's load vs Total system load MW, MoE ...... 105 9

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Figure 31: Proposed projects under pipeline (coal-hydro-wind-PV), ...... 107 Figure 32: Annual global solar radiation, kWh/m2/year, Energy Authority of Mongolia 2009 ...... 111 Figure 33: Wind resource map of Mongolia , NREL & NREC 2004 ...... 113 Figure 34: Mongolia mean wind speed, Vortex ...... 114 Figure 35: Hydro Energy Resources of Mongolia, Energy Authority of Mongolia 2009 ...... 115 Figure 36: Renewable biomass resources, NREC 2005 ...... 116 Figure 37: Wind farm projects, Mongolian Wind Energy Association ...... 120

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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LIST OF TABLES

Table 1. Past 6 years study of power demand increase of CES (by distribution), NDC ...... 50 Table 2. Energy consumption of CES for 2013-2015 (monthly basis), NDC ...... 51 Table 3. Annual peak loading of CES for last 6 years, MW, NDC ...... 51 Table 4: Generation data of different type of power plants (million kWh), NDC ...... 53 Table 5: Installed capacity of generation sources, MW, NDC ...... 54 Table 6: Completed projects which increased installed capacity (MW), NDC ...... 55 Table 7: Total of power generation of Mongolia by 2015 year, million kWh, NDC ...... 55 Table 8: Past 6 years' electricity generation and import of Central Energy System, (million kWh), NDC ...... 56 Table 9: Imported electricity of Mongolia, thousand kWh /2015 year, NDC ...... 57 Table 10: Border ports of General Taxation office of Mongolia importing power, NDC...... 58 Table 11: Energy tariff of CHPs for March month of 2016, NDC ...... 59 Table 12: CHP 4 tariff for 2016 year, NDC ...... 59 Table 13: Current installed renewable energy capacity, ERC ...... 62 Table 14: Loading of 220 and 110kV OHL at 19:00 of winter peak load operation, NDC ...... 65 Table 15: Loading of transformers of substations measured at 19:00 of winter peak load, NDC ...... 66 Table 16: Aging study of power transmission lines, National Power Transmission Network SOE ...... 67 Table 17: Performance of Central Heat Plant 3, CHP3 ...... 103 Table 18: Performance of Dornod Region Power System Company, SOE ...... 106 Table 19: Solar energy resource of Mongolia, NREC 2006 ...... 110 Table 20: Intensity of solar energy ...... 111 Table 21: Solar radiation data of Sainshand in Dornogovi Aimag, Mongolia (Retscreen, 2011) ...... 112 Table 22: Wind energy potential of Mongolia (good to very good wind resource at 30 m height) Source: NREL & NREC ...... 113 Table 23: Saksaul forest resources in selected Aimags, NREC 2006 ...... 116 Table 24: Pipeline of renewable energy projects in Mongolia, ERC ...... 117 Table 25: Electric power grid interconnections in Northeast Asia: A quantitative analysis of opportunities and challenges ...... 124

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EXECUTIVE SUMMARY

Introduction 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 Community decisions on the 100% opening of the electrical market started in 2000 and to Renewable Energy development policy 20% in 2020. EDF Group is fully committed to the energy transition and has defined a strategy called Cap 2030 wСТcС underpТns tСe Group’s Рoal of beТnР 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 has experienced renewable development through its subsidiary EDF Energies Nouvelles which 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 ТnternatТonal ones (CEPRI…) wСТcС wТll provТde key addТtТonal data and ТnformatТon on the Mongolia and neighboring 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 neighboring countries. EDF is represented by dedicated team in the countries members of NAPSI.

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Technical Assistance Strategy for NAPSI

The goal of the Project is to prepare a strategy for Northeast Asia power system ТnterconnectТon (NAPSI) usТnР MonРolТa’s abundant renewable enerРy. In tСТs report NortСeast Asia consists of People’s RepublТc of CСТna (PRC), RepublТc of Korea, Japan, Russia and Mongolia. The TA is co-financed by the Climate Change Fund, the PRC Regional Cooperation and Poverty 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. Four Workshops are scheduled during the 25-month duration of the Project: the first and the last in Ulaanbaatar the other in Beijing, Seoul and Tokyo.

The Steering Committee is chaired by the Ministry of Energy of Mongolia with the assistance of ADB.

The report The Inception Report for the TA–9001: Strategy for Northeast Asia Power System Interconnection presents: - The data collection methodology required for the various tasks, the collected data and the still missing data. - The work plan: the project is divided up into 6 modules. The Inception Report provides a short review of key issues that will be analyzed more in detail over the subsequent phases of the assignment.

• Module 1: Inception Mission

• Module 2: Market & Power Trade Assessment Module 2 deals with market and power trade assessment. The methodology implemented is decomposed in four steps. The first step consists 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?

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The step three will allow 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 will be 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 will be made with the baseline reference scenario results, and sensitivity analyses will be performed to assess the robustness of the proposed scenarios to the variation of the main influent parameters.

• Module 3: Planning & Evaluation Criteria – Assumptions for the studies This Module will cover 3 objectives:

1. Multi-criteria ranking methodology for Generation The first purpose of Module 3 is to establish the multi-criteria ranking methodology which will be used to rank the Generation projects. 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),  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 Loss of Load Probability (LOLP), o Cost of Unserved energy, o MarРТn ratТo…

2. Criteria for Transmission Planning 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.

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 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.

3. Definition of the Scenarios

• Module 4: Energy Sector Profile & Projections (Conventional Generation, Renewable Energy Capacity Expansion Plan) This Module will present 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, CAPEБ and OPEБ…) - Estimate of short term and long term electricity demand in Mongolia and neighbouring countries

EDF R&D has 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 has 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, cСaracterТstТcs…) ТncludТnР costs (Investment, operatТon and maТntenance…). Regarding energy demand forecast, EDF is used to setting up and analyzing scenarios at a country or even a contТnent level (e.Р. Europe…).

• Module 5: Mongolia and North East Asia Power Grid Development

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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 Тn tСТs reРТon wСТlst maxТmТzТnР tСe transmТssТon Тnvestment returns and MonРolТan’s capability for exporting clean energy. Analysis will be carried out using transmission system model with details that satisfy the purpose of this study including Mongolian transmission systems, equivalent/simplified transmission system models for Russia, China, Republic of Korea and Japan. This will allow 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 2037 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 Northeast Asia grid integration.

Key Mongolia System Assumptions: Two possible cases can be considered for the interaction between renewable system and local Mongolia transmission network: 1. Integrated approach: this assumes that there will be some physical interconnection between renewable generation system and existing/future Mongolia transmission network, possibly through a back-to-back HVDC interconnection. Under this assumption, studies would consider how to export renewable generation from Mongolia and also their impact and reinforcement of local systems. 2. Quarantined approach: This assumes that renewable export base would be developed independent of and physically separated from local Mongolia power network development. In this case, studies would only consider how to export renewable generation. These two assumptions require quite different network models and study approaches. It is therefore, important to seek advice and agreement from the Client, EA and Steering committee. The result of the studies will be: 1. A benchmark of technologies suitable for NAPSI interconnection scheme 2. The optimized expansion plan for NAPSI scheme.

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• Module 6: Power Trade and Regulation Two objectives: o Creating an enabling environment to effect power trade, o Promoting coordinated regional planning and development (generation and transmission). Issues / proposed solutions: o Interconnection operating modes o Existing and future management structures o Regional problems and institutional reforms o Other needed coordination structures management (Power Pool) o Functional features & characteristics required

Module Period Activities Deliverables 1: Inception May to 1.1 Mobilization and Start up Inception report for June 2017 1.2 Data and Literature Review outputs 1, 2, and 3 1.3 Initial Consultations 1.4 Workshop 1 1.5 Inception Report 1.6 Project Steering Committee Meeting 2: Market & Power July 2017 2.1 Field Consultations Market Trade Assessment to March 2.2 Workshop 2 & 3 Assessment report, 2018 2.3 Interim, Draft & Final Reports Interim report for 2.4 Project Steering Committee outputs 1 Meeting 3: Planning & July 2017 3.1 Workshop 2 Planning and Evaluation Criteria to October 3.2 Draft & Final Reports Evaluation Criteria – Assumptions for 2018 3.3 Project Steering Committee report, Draft final the studies Meeting report for outputs 1, 2 and 3 4: Mongolia Energy July 2017 4.1 Workshop 2 & 3 Energy Sector sector profile and to March 4.2 Interim, Draft & Final Profile and projections 2018 Reports Projections report, (Conventional 4.3 Project Steering Committee Interim report for Generation, Meeting output 3 Renewable Energy capacity expansion plan) 5: Mongolia and March 5.1 Workshop 4 Generation and North East Asia 2018 to 5.2 Draft & Final Report interconnection 17

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Power Grid October 5.3 Project Steering Committee Investment Development 2018 Meeting Planning Report, Draft final report for output 2 6: Power Trade November 6.1 Final Workshop 5 Power Trade and Regulation 2018 to 6.2 Interim, Draft & Final Report Strategy Report, June 2019 6.3 Project Steering Committee Final report for Meeting outputs 1, 2, and 3 Key Activities defined by ABD:

Output 1. Power systems and markets in the Northeast Asian countries assessed

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

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

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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1. INTRODUCTION

The purpose of the Technical Assistance is to develop a power system interconnection roadmap for Mongolia, which can contribute to the realization of the Northeast Asian power system integration in the future.

The anticipated outputs are a strategy and an action plan roadmap for the NAPSI benefiting from MonРolТa’s vast enerРy resources: - Power systems and markets in the Northeast Asian countries assessed, - Power system interconnection projects prioritized and investment plan developed, - MonРolТa’s renewable enerРy capacТty expansТon plan to export clean electrТcТty analyzed - Participation to the knowledge sharing and consensus building for the NAPSI implementation.

TСe Consultant’s work wТll be performed takТnР Тnto account tСe partТcular context of tСe sub- region: - The studies included within the scope of this project will be conducted in the closest possible collaboration with the Energy Policy Department of the Ministry of Energy. - Thanks to constant dialogue, the Consultant will be able, at each key stage of its mission, to check that the directions taken later as best as possible for the interests of Mongolia and in preserving consensus with neighboring countries given the sensitive geopolitical situation in Northeast Asia.

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2. KICK-OFF AND GENERAL STATUS OF PROJECT

The project is taking officially with the kick-off meeting organized in the form of a workshop held in Ulaanbaatar on June 20th 2017. Moreover, the anticipated mission held on May 22 and 23rd, 2017 was very helpful to meet all key representatives of Mongolia Authorities and Regulator, the electrical Transmission and System entities and to finalize agreements and local subcontract with Nova Terra.

For the first module (M1 – Inception mission), significant progress has been achieved during the first project month and a half which is documented in this Report. First preparations were also carried out for two following modules (M2 and M3). So far, the Project progress is fully in line with the work and activity schedule. As envisaged, the Project makes also intensive use of local expertise (involvement of local sub-contractors Nova Terra) and contacts with energy specialists which can also be seen in the list of utilities and key personnel met.

The Inception Report covers the period of Project 1,5 Month , i.e. from May 1st to June 15th, which is also defined as the Inception Mission of Phase 1 of the Project. This phase was anticipated during the whole Month of April 2017 with organization works with all involved entities:

EDF: CIST Power Transmission & System Engineering Center in Paris - Saint Denis and Beijing.

R&D EFESE Market and Grid Studies in Paris suburb Saclay, R&D MFEE in Paris suburb Chatou for Renewable Energy, EIFER JV with the University of Karlsruhe for Renewable Energy in Germany N6 Market and Grid Studies in China Beijing. International Division of EDF for Russia and CEI in Moscow for Japan and Korea in Tokyo Nova Terra in Ulaanbaatar for local Market/Supply-Demand, Transmission Grid, System and Renewable expertise China EPRI in Beijing for Market/Supply-Demand, Transmission Grid, System Studies and with collaboration with ROSSETI for Russian Market/Supply-Demand and Transmission Grid in Moscow

With the submission of the Inception Report, the Project proceeds into Module 2, 3 and 4 wСТcС are defТned as “Market and Power Trade Assessment”, "PlannТnР and evaluatТon 20

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crТterТa" and “EnerРy Sector ProfТle & ProjectТons”. TСese modules wТll be completed wТtС the Workshop N° 2 (interim) this fall and N°3 next spring 2018. The venues are to be decided by the Steering Committee which held in Ulaanbaatar on June 20th 2017.

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3. PRELIMINARY TASKS

3.1 VISITS

Mission Meeting Scheduled to date: - All Outputs: MeetТnР ScСedule for tСe Team Leader’s MТssТon Тn Ulaanbaatar (May 2017):

Date Organization\Institution Person Position Monday May Ministry of Energy Mr. Chimeddorj Director General of 22nd, 2017 (MoE) Strategy and Policy Department Mr Angarag MoE

Mr. Yeren-Ulzii, MoE National Power Mr. Chinbat Senior Managing Transmission Grid Director and Chief Engineer of the National Transmission Grid Mr. Nyamsambuu CEO

Mr. Jamyantiv Customer service Jamyanjav department director Energy Regulatory Mr. Tleikhan Chairman of the Commission (ERC) Energy Regulatory Commission Mr. Lkhagva Jambaa Director Energy Market Research & Planning Division Mr. E.Tuvshinchuluun, Commissioners Mr. D. Bassaikhan Tuesday May National Dispatching Mr. Bukhbold Chief Dispatcher of 23rd, 2017 Center (NDC) the National Dispatch Center Mr. Baatartsogt Senior Engineer Mr. B. Ganbat Central Dispatch Department Director National Renewable Mr. Tseren National Renewable Energy Center SOE Energy Center (NREC) Director Mr. D.Purevsuren General Engineer

Mrs Amanbyek Wind energy Kunsaya research and calculation engineer

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And for the project: Meeting In ROSSETI Offices on April 17&18th, 2017 Meeting in Beijing with China EPRI and EDF China Not mentioned numerous conference calls with contacts in Karlsruhe, in Moscow, in Beijing, in Tokyo, in Manila (ADB), etc.

3.1.1 Agenda of visits

3.1.1.1 Acknowledgments The Consultant including its own subcontractors Nova Terra would like to acknowledge the Ministry of Energy and the ERC for the welcoming and all help, facilitation and recommendations during the first stage of the Project. In particular the Consultant appreciated the excellent organization of the meetings and the introduction of all key representatives in Mongolia.

3.1.1.2 Identification of stakeholders The Consultant understood that a strong need was the identification of all stakeholders of the Project. This task is not yet completed and the next missions and workshops in all involved countries will allow to establish an exhaustive list.

3.1.1.3 Need for complementary visits The Consultant expects that first Workshop in Ulaanbaatar will bring opportunities with to plan meetings with key relevant representatives of the five involved countries to be sure that all linked projects will be known by the Consultant team and consequently properly taken into account by our Project. The periodic workshops and missions during the overall completion of the Project will be the opportunity to follow up all projects carried out in parallel of our project.

3.2 OBJECTIVES, CHALLENGES AND RISKS

3.2.1 Background See Appendix 1: From ADB Technical Assistance report on Mongolia Strategy for NAPSI – November 2015 See Appendix 2: Regional Cooperation where NAPSI countries are active members by Nova Terra: 3.2.2 Objectives (From ADB Technical Assistance report)

The impacts of the TA will be (i) carbon footprints of the power system in Northeast Asia reduced, (ii) power system in Northeast Asia optimized, and (iii) stakeholder's agreement reached on the NAPSI Steering Committee plan. The outcome of the TA will be a strategy and an action plan road map for the NAPSI prepared utilizing MonРolТa’s vast enerРy resources.

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The outputs of the TA will be (i) power systems and markets in the Northeast Asian countries assessed, (ii) power system interconnection projects prioritized and an investment plan developed, (ТТТ) MonРolТa’s renewable energy capacity expansion plan to export clean electricity analyzed, (iv) knowledge sharing and consensus building for the NAPSI steering committee implemented, and (v) a regional knowledge and investment platform for the NAPSI steering committee initiated.

3.2.3 Challenges, risks and preventive actions

The challenges and risks identified for the Project completion are summarized in the following table:

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Challenges Associated risks Preventive action

Volume, un-homogeneity and Delay in project completion, Anticipation of data collection and inconsistency of Data. discrepancies and non-reliable meeting with local partners and comparisons of options (e.g. counterparts. cost estimates) Data validation with Authorities and Utilities of the 5 countries

Short duration of the overall Studies not enough detailed Job completion in day to day project. and/or delay in studies. collaboration with local counterparts of the 5 countries and with Mongolian representatives allowing periodic validation.

Multiplicity of stakeholders from Delays in acceptance process. Management action when necessary, the 5 countries with possible from Steering Committee. antagonist interests.

Accuracy of data collected. Difficulty to focus on the relevant Give the right orientation in data analysis figures. to emphasize and identify relevant data.

Constancy of common Delays in acceptance process, Validation of major hypothesis with all agreement on major input changes of figures, trend, stakeholders involved in the Project at assumptions for the overall assumptions, resulting in new adequate milestone (mainly Workshop N° duration of the project. runs of models, and delay 2, 3 and 4).

Consultant agreement on the Delay in project completion, Validation with all stakeholders involved findings of previous studies. necessity of due diligence and in the Project at adequate milestone revisions. (mainly Workshop N° 2)

Limitation of the number of Delay in project completion and Validation of the relevant scenarios with scenarios to be examined needs of additional services due all stakeholders involved in the Project at (demand, costs, supply options, to multiplication of scenarios. adequate milestones (Workshops N° 2, 3, etc). 4).

Agreement on shared criteria for Delay in project completion. Validation with all stakeholders involved project ranking. in the Project and Steering Committee at adequate milestone (mainly Workshop N° 3).

General political risk in one of Delay in project completion or Anticipated warning. the 5 countries. change of study scope. Management action from Steering Committee if necessary.

Absence of consensus between Delay in project completion and Management action from Steering stakeholders. additional services due to Committee if necessary. changes in scenarios. 25

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3.3 PLANNING AND STAFFING 3.3.1 Planning

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3.3.2 Project team composition : Consultants and Experts Mr. Mr. Mr. Mr. Mr. Mr. Engineer Dorjsuren Dorjsuren Dorjsuren NovaTerra NovaTerra Purevbayar Purevbayar Purevbayar National Power Power National Byambasaikhan 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. Mr. Purevdagva 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 Nova Terra 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 Economist NovaTerra NovaTerra (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 Mr. Mr. Tuvshin Battsereg Tuvshin Battsereg 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. Mr. Raphaël Goué 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

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3.3.3 Deadlines The project is divided in 6 modules that will require validation from MoE of Mongolia and ADB.

Module 1: Inception

Outputs: • Project data base (electronic archive). • 5-countries Workshop N°1 organised at the end of the inception mission to present the first findings and the work plan. This Workshop will be organised in Ulaanbaatar after the draft inception report. • Presentation to the Steering Committee • Experts’ mobТlТsatТon on tСe next modules can only start once data Тs avaТlable and approved. The Inception report will include the remarks of the workshop and the Steering Committee and become Final after approval by the MoE of Mongolia/ADB.

Schedule for the Inception report: 1 month after commencement of Services i.e. June 15th; 2017.

Module 2: Market & Power Trade Assessment Outputs: • Draft Market Assessment report • 5-countries Workshop N°2 (This Workshop will be organised in China, Japan or Republic of Korea according to organisation decisions) • Presentation to the Steering Committee • The Draft Market Assessment report will include the remarks of the workshop and become Final after approval by the MoE of Mongolia/ADB. The Market Assessment report will be part of the interim report for outputs 1&3: 5 months after commencement of Services i.e. October 2017.

The Draft final report for outputs 1&3: 9 months after commencement of Services i.e. March 2018.

Module 3: Planning & Evaluation Criteria - Assumptions for the studies

Outputs:

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• Draft Planning and Evaluation Criteria report • 5-countries Workshop N°3 (This Workshop will be organised in China, Japan or Republic of Korea according to organisation decisions) • Presentation to the Steering Committee • The Draft Planning and Evaluation Criteria report will include the remarks of the workshop and become Final after approval by the EA/ADB. The Planning and Evaluation Criteria report will be part for the interim report for outputs 1&3: 5 months after commencement of Services. Proposed March 2018 instead of February 2018 due to China New Year Day Feb 16th 2018.

Module 4: Mongolia Energy sector profile & projections (Conventional generation, Renewable Energy capacity expansion plan) Outputs: • Energy Sector Profile and Projections report for discussion and approval by the EA/ADB • 5-countries Workshop N°4 (This Workshop will be organised in China, Japan or Republic of Korea according to organisation decisions) • Presentation to the Steering Committee • The Draft Energy Sector Profile and Projections Energy Sector Profile and Projections report will include the remarks of the workshop and become Final after approval by the EA/ADB. The Energy Sector Profile and Projections report will be part of the interim report for outputs 1&3: 5 months after commencement of Services. The Draft final report for outputs 1&3: 9 months after commencement of Services i.e. March 2018.

Module 5: Mongolia and North East Asia Power Grid Development Outputs: • Draft Generation and interconnection Investment Planning Report • 5-countries Workshop N°5 (This Workshop will be organised in China, Japan or Republic of Korea according to organisation decisions) • Presentation to the Steering Committee • The Draft Mongolia and North East Asia Power Grid Development report will include the remarks of the workshop and become Final after approval by the MoE of Mongolia/ADB. The interconnection Investment Planning report will be part of the draft final report for output 2, 17 months after commencement of Services i.e. October 2018. 29

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Module 6: Power Trade and Regulation Outputs: • Draft Power Trade Strategy Report to be validated by the EA/ADB • 5-countries Workshop N°6. This last Workshop will be organised in Ulaanbaatar • Presentation to the Steering Committee • The Draft Power Trade Strategy report will include the remarks of the workshop and become Final after approval by the EA/ADB. The Power Trade and Regulation report will be part of the Interim report for outputs 1, 2&3: 25 months after commencement of Services i.e. May 2019.

List of deliverables of the Modules:

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, 1 institutional, 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 Mogolia’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 Mogolia’s strategy and action plan from a wider range of stakeholders

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

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Output 3. Mogolia’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 To associated facility refurbishment Q1 2018 3.4 Select sites for renewable energy plants for power export, schedule 11 planting, and costing

12 3.5 Develop Mogolia’s renewable energy capacity expansion plan to export clean electricity

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4. DATA COLLECTION

4.1 METHODOLOGY

4.1.1 This Review and Data Gathering consists of:

The collection of the latest feasibility studies conducted, including the collection and possible update of basic data for the projects. This basic data, on which the relevance of the study will be judged, will be submitted for approval by the Client.

Nova Terra visited the MoE in order to collect the additional data and information with a questionnaire describing the relevant information and parameters of the power systems. Also during this visit whatever available data and information considered relevant have been collected from the utilities and local authorities.

The detailed and accurate description of the power systems (with regard to technical, operational, economic, financial, regulatory and legal aspects) has been provided to the Consultant. This description constitutes the foundation and is the prerequisite for the reliable execution of the studies and the correct interpretation of their results.

4.1.2 Treatment of Required data

Upon commencement of the services, previous study reports pertaining to the project, and to the power industry in Mongolia in general have been collected. These reports form the basis for preparation of an inventory of existing data and then identification of data to be collected during the study. The data collected are not only the data given in the existing reports, but shall also encompass raw data from which these reports were prepared. This will include data of coal fired power, hydro, wind and solar resource information.

As far as possible, we prefer to collect data in electronic format to more readily facilitate their further processing.

As part of the data gathering and collection activity we have established an electronic database (SharePoint), which has allowed accessto all members of the project team. This database is in the form of a dedicated hard disk drive on one of the project computers. In addition, individual folders and files will be also copied onto external hard disks in order that a secure backup is available.

It is recognized that maintaining project data in a secure environment, which is accessible in the future, is of great importance to MoE and any other agencies providing data. Therefore, any data received on USB devices, which are prone to deterioration, are copied on to external hard disks and both the USB device and CD/DVD returned to donor of the information. By this means tСe donor’s arcСТvТnР of exТstТnР data Тs updated to a more secure format.

4.1.3 Required economic data 32

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The data required to implement successfully the economic study is listed (non-exhaustively) here after:

• ConfТrmatТon of tСe duratТon of tСe study up to 2036.

• General economТc data to valТdate tСe internal demand: - Macroeconomics data available from relevant parties, as the Mongol Bank or the Mongolia Statistical Office for instance, and to be discussed with the relevant parties to cover the project timeframe from (i.e. GDP, Inflation, currency etc.). - Demographics information from relevant agencies (population growth, urbanization ratios, household structures evolution). - Evolution of the country economic structure to assess the development of the business environment in Mongolia. - Financial information that will be taken to assess project returns as the discount rate.

• Industry economТc data Тn MonРolТa: - Existing (subsidized and non-subsidized) and expected price of fuel-thermal coal / nature of the contracts and price at the different stage of the value chain. - Existing feed-in tariffs applicable to the renewable energy sector in Mongolia. - Existing expected on-grid and off-grid electricity prices. - Expected failure rate of different types of generators. - Cost of land and construction cost for renewable energy facilities in Mongolia, based on existing feasibility studies. - Quality of service.

• ReРТonal Data (P.R. CСТna, Japan, Republic of Korea, Russia): - Macroeconomics data of the different countries (GDP, currency vs. USD etc.). - Energy load profile including peak power in the different countries of the studies on domestic consumption, and balance between the demand and supply, as well as interconnection capacities with neighboring countries. - Existing carbon/fuel energy price. - Existing Feed in Tariffs on renewable energy and evolution in the past 10 years. - Transmission costs in the different countries. - Construction costs for the different category of power supply unit in each country.

• PrefeasТbТlТty and/or feasТbТlТty reports on tСe dТfferent enerРy projects that have been developed in Mongolia in the past 10 years besides the existing CHPs, including any studies related to the interconnection with China for the supply of the Oyu Tolgoi mine.

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What is most important at this stage is to define the objective to be attained in terms of quality and security standard of supply. Indeed, requirements in terms of total capacity to be installed for each year of the period being studied are directly linked to the planned objective.

The quality of the electrical supply can be expressed in numerous ways (LOLP, unsupplied energy, cost of failures, etc.).

To determine power requirements, the Consultant suggests using a method that is employed and recognized around the world, and which is based on the Loss of Load Probability or LOLP index. This provides an accurate and sensitive measurement to be obtained for the reliability of the generation system by specifying the number of days per year during which the generating capacity is insufficient (i.e. the expected number of days per year during which the РeneratТon system’s capacТty Тs lower tСan demand).

The LOLP index is commonly assessed using probabilistic models that take into account the distribution of the energy resources studied (thermal, hydraulic, etc.).

Note 1: in this study, we will need to take into consideration the differences between each country and attempt to harmonize the service quality criterion.

Note 2: the Consultant considers that any constraints resulting from the will of the member countries to achieve energy independence do not fall within the scope of its study. - Exchange rates between the local currencies and the reference currency (US dollar or other). - Drift rates (or tariff escalation rates) for electricity prices. - Drift rates (or CAPEX escalation rates) for equipment and labor prices. - Depreciation rules. - Rates of income tax. - Other taxes.

4.1.4 Existing generation mixes

The typical data required to assess the existing generation mixes is listed here after:

• Hydroelectric power plants: location, site plans, hydrological resources based on statistical series, evaporation, energy efficiency, installed capacity (MW), forced and planned outage rate, useful storage capacity, operating constraints, fixed and variable operating costs, planned dismantling date, etc.

• Thermal Power Plants: location, type and number of generating unit, type of fuel, unit capacity and heat release rate, net power (MW), auxiliary consumption, forced and planned outage rate, thermal efficiency, operating constraints (if any), fixed and variable operating and maintenance costs, planned dismantling date, etc.

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• Renewable generation, e.g. Wind and Solar generation: Location (format shape file or equivalent GIS format), type, installed capacity (MW), operating constraints, fixed and variable operating costs, planned dismantling date, etc. For Wind: turbines height and type (+power curve), etc. For PV panels: panels technology and characteristics, tilt angle and orientation, etc.

4.1.5 Planned generation development

It is Тmportant for tСe Consultant to understand tСe Рovernment and EA’s development plans for new generation over the study period, specifically:

• Planned generation station: type (hydro, coal, wind, solar, etc.), location (format shape file or equivalent GIS format), number of generating units, unit capacity, type of fuel, fixed and variable operating and maintenance costs, expected commissioning date, etc.

4.1.6 Historical and existing demand

Forecasts of peak power and energy loads will be refined for the country concerned by this study, based on previous feasibility studies and on the most recent data available: • Records showing monthly or daily demand over the longest period possible. • Records showing power demand (each hour) over the entire year preceding the study. • Records showing daily / hourly temperatures over this same year. • Existing prices of energy (Energy and power). • National plans to reduce the demand (if existing). • National projections.

4.1.7 Required transmission grid data

4.1.7.1 Present and future bulk power system

The typical data required to assess the existing and future bulk power system is listed here after: • Detailed network single line diagrams (all substations/power stations). • Electrical characteristics of power transmission lines and transformers (e.g. electrical parameters). • Electrical characteristics of generating units (e.g. sub transient, transient and static parameters of generating units). • Scaled geographical maps, showing existing substations, lines and power stations. • Maps showing planned future power stations • Planned lines, cables and substations.

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• Detailed maps of areas where the future transmission lines may cross. • Interconnection transmission overhead line data (if any). • Transmission system planning & operating standards.

4.1.7.2 Operation of the bulk power system

The typical data required to assess the operation of the bulk power system is listed here after: • System operation: general principles, decision process, operations, normal, faulty, alert and emergency procedures. • Operation schemes. • Operational planning.

4.1.7.3 Existing system performance

The typical data required to assess the existing system performance is listed here after: • List of system problems/shortfalls from users' point of view. • System operation and maintenance data.

4.1.7.4 Protection schemes

The typical data required to assess the Protection schemes is listed here after: • Voltage and frequency limits. • Protection characteristics of the main transmission lines in case of overload or fault. • Protection schemes and defense plans installed on the power system (such as parameters of the under frequency load-shedding, etc.).

4.1.7.5 Environmental data

The typical data required to assess the Environmental impact as well as solar and wind potential (excluded areas and buffer) is listed here after (format shape file or equivalent GIS format): • General data concerning ambient conditions, meteorological data and environmental pollution factors. • Existing survey maps and documentation. • Scenes and maps of satellite images, if available. Elevation (possible online version STRM30) • Protected areas such as Natural Parks. Natural and technical risk area (e.g. flooding area) • Land cover (e.Р. roads, settlements, otСer build-up areas, type of agriculture, water land, forest, desert etc.)

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• MТlТtary areas • Radars (meteoroloРТcal, etc.)

4.1.8 Methodology for Collecting Grid and Power Data

Power networks in Northeast Asia countries vary significantly in terms of network size, structure, voltage levels, reliability, network characteristics, planning and operation criteria. The impact Northeast Asia power interconnectors on national transmission systems also differ significantly. Therefore, it is necessary to carry out network analysis although the level of details may depend on the characteristics of national power network concerned. At this stage we suggest to adopt three approaches to collecting necessary grid and power data: a) open sources b) project members c) direct approaches to individual countries and power network companies

Over the past few years, there have been a number of studies carried out to investigate Northeast Asia power interconnection, such as ADB, Northeast Asian Super Grid by Gobitec, Republic of Korea and China interconnection by Korea Electric Research Institute (KERI), Mongolia and China Interconnection, Northeast Asia Power Interconnection by State Grid Corporation of China. Most of these reports or executive summaries are available in public domain.

The NAPSI project is led by EdF which has many years of experience working on Northeast Asia region and has accumulated a vast range of data, and is also composed of members from China (CEPRI), Mongolia (Nova Terra) and Russia (Rosseti) that are experienced power engineering companies in their respective countries. Therefore, most of grid and power data required are expected to be provided from databases of project members, which will be governed under project confidentiality agreement.

Where there is a data gap identified, it is anticipated that the project would approach countries and power network operators directly through its contact to request for provision of these data.

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4.2 REPORT AND DATA COLLECTED

4.2.1. Mongolia

4.2.1.1. Market Supply/Demand

1) Reports Numerous Market Supply/Demand data are available. Listed below are selected reports: - Statistics on Energy performance, 2017-Energy Regulation Commission - Updating Energy Sector Development Plan, 2013 – Ministry of Energy - Scaling Up Renewable Energy Program, 2015 –Government of Mongolia - Gobitec And Asian Super Grid For Renewable Energies In Northeast Asia - Evolution of the power market structure in Mongolia

These reports give a comprehensive description of Mongolian electricity supply/demand market.

2) Data Data collected so far and available can be categorized as follows: - Power generation data by existing power plants - Power consumption data - Power imports & exports - Power demand forecasts - Macroeconomic analysis and forecasts

3) Data missing - Latest report and data on the on-going power projects - Latest energy forecast study (Existing study was done in 2013)

4.2.1.2. Grid 1) Reports At present there are no available reports on the Mongolian Grid. All data will be collected from the necessary agencies and processed.

2) Data Data collected so far and available can be categorized as follows: 38

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- Unsupplied energy - Operation schemes - List of system problems/shortfalls from users - Protection characteristics of transmission lines(overload or fault) - Protection schemes and defense plans installed on the power system - System operation (general principles, decision process, operations, normal, faulty, alert and emergency procedures) - The data from previous studies for Network. - The data from the power and distribution companies, like the five main energy systems: • the Central Energy System (CES), including Dalanzadgad Energy System (DES), • the Western Energy System (WES), • the neighboring Altai-Uliastai Energy System (AuES), and • the Eastern Energy System (EES). • data regarding interconnection with Russia for the WES and CES. • data regarding interconnection with China, for the small capacity cross-border interconnections at the border areas of Hovd and Omnogobi (South Gobi) provinces. - The data from the National Power Transmission Grid Company, the National transmission Company (NTC). - The data from Siberian Grid in Russia, import capacity from Russia, etc.

Previous work for economic dispatch simulation and load demand forecasting, long term power demand forecasting, primary energy resource assessment, secondary energy technology choice, transmission and distribution system assessment, long term power sector investment plan, policy recommendation, long term electricity and heat demand forecast, etc. (as Тn ADB. 2013. UpdatТnР tСe EnerРy Sector Development Plan. Consultant’s report. ManТla (TA 7619-MON)). The models, simulation tools for Mongolia energy sector analysis and basis for updating the investment plan in the future, i.e. energy sector master planning models including long term electricity and heat forecasting, economic screening to determine the least cost investment options, economic dispatch simulation, investment optimization, financial benchmarking, and tariff setting. The energy sector master plan (2013–2025) comprised of (i) energy sector policy review, (ii) macro-economic analysis, (iii) electricity and heat load forecasts, (iv) primary and secondary energy assessment, (v) central energy system electricity expansion plan, (vi) small energy region expansion plan, (vii) heat expansion plan, (viii) transmission and distribution expansion plan, and (ix) financial analysis.

3) Data missing - Cost of failures - Operational planning 39

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4.2.1.3. Renewable Energy

1) Reports Numerous Renewable Energy data are available. Listed below are selected reports: - NREL – Mongolia Wind Atlas, 2001 - APCTT-UNESCAP - Renewable Energy Report Mongolia, 2008 - Scaling-up Renewable Energy Program: Investment Plan for Mongolia, 2015- Government of Mongolia - IRENA Mongolia Renewables Readiness Assessment , 2016 - Environment Information Center (website) – Ministry of Tourism and Environment

These reports give a comprehensive description of Mongolian renewable energy environment and future plans.

2) Data Data collected so far and available can be categorized as follows: - Global Wind (map and detailed data from NREL – 2001) and Solar data (only map) - First assessment of renewable power capacity and production, but based on out of date technologies (e.g. 500kW wind turbine) - Existing renewable power plants and future short term projects - The models and data used to analyze potential regional interconnections of electrical grids and related infrastructure to allow the trading of power, in particular, but not exclusively, electricity generated from renewable resources across Northeast Asia.The Transmission lines and associated facility refurbishment as contained in the Updating Energy Sector Development Plan (UESDP) technical assТstance fТnal report and MonРolТa’s power system ТnteРratТon plan proposed Тn the UESDP technical assistance final, Manila (TA 7619-MON) - For Renewable wind & solar (PV/CSP): the data for wind and solar generation, at the finest time and space resolution as possible; also the IRENA global atlas underlying data (wind and solar time series). 3) Data missing - Detailed methodology of previous Renewable energy potential assessment (key hypothesis, constraints etc.), in particular for solar PV. - Accurate wind data (annual and monthly mean wind speed at wind nacelle height: 80 or 100 m) and solar data (annual and monthly mean solar Global Horizontal Irradiance GHI – daily and yearly kWh/m2). A minimum 10-year meteorological dataset is required. Such data can be purchased via wind and solar resource provТders (e.Р. VaТsala, SolarРТs…)

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- Regulation rules and key landscape constraints regarding the implementation of wind turbines and solar PV ground mounted panels (e.g. buffers around settlements, roads, transmТssТon lТnes; protected areas, excluded areas…). - As a dedicated tool based on Geographic Information System (GIS) will be developed for the assessment of both wind and solar ground mounted photovoltaic potential (see description § 4.3.6.1), all data should be provided in a GIS compatible format (geospatial data)

For Renewable Energy - Mongolia: In both existing wind and solar potential assessments, the lack of detailed resource data and methodology for the selection of suitable areas (criteria for exclusion of areas are unknown) and the use of « out of date » technologies (e.g. 500kW wind turbines), confirm it is worth carrying out a new and comprehensive potential assessment study.

EDF’s Renewable Assessment Methodology is based on GIS (Geographic Information System), statistics and expertise on technologies in order to assess various types of renewable potentials. EDF’s methodology, relies on a pre-existing approach for potential analysis and takes into account several types of potential. The gross potential represents a maximum value and is calculated on the basis of currently available resources e.g. wind speed or solar irradiance. An extensive analysis of regulatory constraints and of technical limits allows to determine a technical potential e.g. remaining wind power potential after exclusion of protected areas, of steep areas, etc. Lastly, economic considerations are used to calculate the cost of the produced energy (LCoE) and to cap, if required, the potential to comply with economic constraints (e.g. limits of feed-in tariffs). Additionally, for wind power and ground-mounted PV, the possibility to take into account some optional land-use constraints enables to retrieve an acceptable potential. The tool provides a value of installable power capacity in MW and of energy generation in GWh for each renewable energy source, with the associated cost in $/MWh at various levels (whole country, « aimags », « soums » or specific areas). Results are set out in tables and maps. For solar ground mounted PV and onshore wind a GIS-based analysis is carried out in order to identify land areas on which the potential is located and farms can be implemented without major constraints. The accuracy of the assessment depends on the availability and quality of geospatial data (shape file or GeoTiff format). The methodology comprises the following steps:

- Step 1: Using geospatial data, assessment of suitable land areas for the implementation of wind and ground-mounted PV power plants according to key geographical and environmental constraints. A list of key criteria for each renewable energy source is set up, in order to remove excluded areas and to explore favourable sТtes, usТnР “buffers” around specТfТc areas (e.Р. roads, rТvers, very steep slopes, protected areas, economТc proxТmТty to power РrТd / substatТons…).

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- Step 2: For each selected favourable area, using resource data (e.g. average wind speed or solar irradiance) and technology characteristics (e.g. wind turbine model), the technical power capacity is assessed, based on an implementation density (e.g. 40 MW/km2 for ground-mounted PV or 10 MW/km2 for wind turbines).

- Step 3: Next step of the study in specific densely populated areas, is the assessment of a social acceptability criterion. The sensitivity analysis is carried out using various "acceptable" densities of machines (in particular for wind turbines). An "acceptable" power capacity is calculated for each density. However, this step may be not necessary in the case of Mongolia due to the low density of population.

- Step 4: the Levelized Cost of Electricity (LCoE) is calculated for each "acceptable" farm, using CAPEX, OPEX and load factor assessments. For each renewable energy source, a "supply curve" setting up power capacity (or energy yield) as a function of LCoE provides a good overview of the potential exploited economically.

- For wind power, EDF envisages to use various European and Chinese turbine models, ranging from 1 to 4MW with different rotor diameters (representative of today and future technologies). Using the power curve of each turbine model and the wind speed frequency distribution (Weibull parameters), the load factor will be calculated and thus the energy yield. The implementation of the turbines (farm layout) will take into account wake effects and a 4D/7D configuration will be chosen for the spacing distances (D: rotor diameter – Turbines will be placed at 7 rotor diameters in prevailing wind direction and at 4 rotor diameters across prevailing wind direction). Therefore, the wind power density (MW/km2) will be calculated for each turbine model. The tool allows as well to optimize the energy yield and to select the most suitable wind turbine, according to the wind resource (e.g. larger rotor in less windy areas).

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Regarding ground mounted PV, conventional silicon panels will be used (e.g. nameplate rating of 327Wp – module density of 200W/m2), including variants such as single axis-trackers and bifacial technology. An optimal southward 20° tilt panels configuration will be assumed. On each suitable land area, the reference areal power density will be 40MW/km2. Using solar GHI data, the capacity factor will be calculated.

4.2.1.4 The key policies:

• The National Renewable Energy Program, • The National Action Program on Climate Change (NAPCC), • The State Policy of Energy (2015-2030), etc.

4.2.2 CHINA 1) Reports There are many reports available about Chinese power systems and energy sectors including those produced by Global Energy Interconnection Cooperation Organization (GEI). Many reports are available on the Project SharePoint. Listed below are selected report:

- Global Energy Review and Outlook

- Study of Wind for Arctic Development

- Special Address Presentation by Zhenya Liu, GEIDCO

- Global Energy Interconnection

- China-2050-High-Renewable-Energy-Penetration-Scenario-and-Roadmap- Exec-Summary

- DBS-Renewable China-insights-transiting-to-a-low-carbon-economy 2016

- IEEFA-Chinas-Global-Renewable-Energy-Expansion_January-2017

- integration of large scale renewable energy in china

- 2016 IEE PESGM - China Transmission Planning

- IHS China Power Market Fundamentals - September 2016

- IHS-China Power Generation Cost Tracker 2016 - April 2016

- 13th Five Year plan of PRC

These reports give a comprehensive description of Japanese energy and power network operation and future plans, as well as quality of supply.

2) Data 43

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Data collected so far and available on the SharePoint can be categorized as follows:

- National macro-economic data

- Energy load profile including peak demand, demand and supply balance, domestic consumption regional interconnection transfer

- Electricity market structure

- Electricity on-grid and off-grid prices

- Major generation such as nuclear, gas, coal, hydro, wind, PV, etc., including capacity location, generation cost

- Quality of service

- Feed-in tariff for renewable generation

- Historical demand data

- Environmental data

- Projected demand up to 2050

- Transmission data including line parameters and major substation load

Please note that as transmission data will only be used by CEPRI for power system analysis studies and are also in Chinese. They have not been uploaded into the SharePoint to save unnecessary workload. 3) Data missing Currently, the data missing for the Chinese power network includes:

- Historical wind and PV data

4.2.3. JAPAN

1) Reports A number of reports on Japanese power systems and energy sectors are available on the Project SharePoint. Listed below are selected report:

- Electricity Review Japan – FEPC 2016

- Energy Policies of IEA Country Report – Japan 2016 - Japan - Cost of electricity (IEA 2016)

- Japan's Energy Plan - METI 2015

- Japon_2016 (OCCTO)-network map

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- Outlook of Electricity Supply-Demand (OCCTO FY2015)

- Report on the Quality of Electricity Supply - OCCTO 2016

These reports give a comprehensive description of Japanese energy and power network operation and future plans, as well as quality of supply.

2) Data Data collected so far and available on the SharePoint can be categorized as follows:

- National macro-economic data

- Energy load profile including peak demand, demand and supply balance, domestic consumption regional interconnection transfer

- Electricity market structure

- Electricity on-grid and off-grid prices

- Major generation such as nuclear, gas, coal, hydro, wind, PV, etc., including capacity location, generation cost

- Quality of service

- Historical demand data

- Environmental data

- Projected demand up to 2050

3） Data missing Currently, the data missing for the Japanese power network includes:

- Historical wind and PV data

- Feed-in tariff for renewable generation

- Expected failure rate of major generator types

- Cost of RE installation, including land cost

- Transmission data including line parameters and major substation load

4.2.4 REPUBLIC OF KOREA

1) Reports A number of reports on Korea power systems and energy sectors are available on the Project SharePoint. Listed below are selected report

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- KEPCO_2016_Sustainability Report_[EN-Interactive]_

- 2nd Energy Master Plan (MOTIE - janvier 2014)

- 7th_Basic_Plan_English - KPX 2015

- Market Structure 2017

- Power Market Operation Process - (Extrait KPX Brochure 2015) These reports give a comprehensive description of Japanese energy and power network operation and future plans, as well as quality of supply.

2) Data Data collected so far and available on the SharePoint can be categorized as follows:

- National macro-economic data

- Energy load profile including peak demand, demand and supply balance, domestic consumption regional interconnection transfer

- Electricity market structure

- Electricity on-grid and off-grid prices

- Major generation such as nuclear, gas, coal, hydro, wind, PV, etc., including capacity location, generation cost

- Quality of service

- Feed-in tariff for renewable generation

- Historical demand data

- Environmental data

- Projected demand up to 2035

3) Data missing Currently, the data missing for the Republic of Korean power network includes:

- Historical wind and PV data

- Expected failure rate of major generator types

- Cost of RE installation, including land cost

- Transmission data including line parameters and major substation load

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4.2.5 RUSSIA

a) General economics

- Macroeconomics data: GDP, Inflation

- Demographics information: Population growth, Urbanization ratios, Household structures evolution

- Energy load profile: Peak power, Domestic consumption, Balance demand/supply, Interconnection capacities with neighbors

- Feed-in tariffs applicable to the RE (last 10 years)

- Objective of quality and security standard of supply: Total capacity to be installed for each year, Requirements - Constraints to achieve energy independence: Depreciation rules, Rates of income tax

b) Generation - Hydro Power plants: Installed capacity (MW), Fixed and variable operating costs (Two-part tariff), Planned dismantling date - Thermal power plants: Location, Type and number of generating unit, Type of fuel Unit capacity and heat release rate Net power (MW), Planned dismantling date - Planned generation station: Type, Location, Number of generating Unit, capacity, Type of fuel, Expected commissioning date

c) Demand - Existing prices of energy (Energy and power) - National plans to reduce the demand. - National projections of demand until 2036 - Transmission system planning & operating standards

d) Grid & system - Operation of the bulk power system - System operation (general principles, decision process, operations, normal, faulty, alert and emergency procedures) - Operation schemes - Operational planning

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- Protection schemes Voltage and frequency limits

Ministries of Energy of Mongolia and Russia are discussing on project "Transit 500 kV Designated - Kyzylskaya - Mongolia - Gusinoozerskaya GRES", which will be connected to the Russian southern Energy System to western energy system through Mongolia.

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4.2.6. Completion of the data base

The list of missing data has been identified for each country. The Local Partners are working closely with the different Utilities and Ministries in order to gather these data and reports, and get validation of data. In parallel, the Consultant has begun the analysis and review of the available data in the perspective of the work to be done in Modules M2, M3 and M4.

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5. OVERVIEW OF THE NEXT STEPS 5.1 MODULE 2 : MARKET AND POWER TRADE ASSESSMENT 5.1.1 Review of the electricity sector

Mongolian Central Energy System Depending on the remotely located demand centers within the large territories and development of infrastructure, Mongolian Energy system consists of four parts which are Central, Western, Eastern and Altai-Uliastai energy systems. These energy systems are connected to each other with power transmission lines.

Mongolia is the most sparsely populated country and having four independent energy systems like Central Energy system, Western region energy system, Eastern region energy system, and Altai Uliastai energy system.

Figure 1: Energy systems of Mongolia, NDC

The Central Energy system consists of one (1) transmission network (Central Energy system - CES), and six (6) power distribution networks and connected to the Energy system of Buryatiya, Russian federation via 220kV overhead power transmission line.

Central Energy system (CES) Central Energy system of Mongolia covering 80% of total demand of Mongolia, it is increasing and expanding from year to year.

Table 1: Past 6 years study of power demand increase of CES (by distribution), NDC

Year 2010 2011 2012 2013 2014 2015 Consumption, million kWh 3639.8 3861.2 4203.4 4442.6 4723.8 4801.2 Rise, by kWh 221.4 342.2 239.2 281.2 77.4 Rise, by % 6.08% 8.86% 5.69% 6.33% 1.64% 50

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Viewing from above the energy consumption of CES has been rising on average of 5.7% in the last 6 years. As per request of Clean Energy Asia LLC, last 3 years data of power generation and distribution results of CES has been detailed.

Table 2: Energy consumption of CES for 2013-2015 (monthly basis), NDC

Year 2013 year 2014 year 2015 year Month Generation Distribution Generation Distribution Generation Distribution 1 522,478.27 444,652.78 547,071.31 467,777.78 560,552.60 482,648.78 2 451,857.34 382,614.88 479,687.76 408,993.86 486,846.95 418,650.34 3 455,790.28 389,670.14 477,360.60 408,858.64 503,475.24 433,560.80 4 419,895.42 361,876.93 411,742.31 354,466.67 431,760.96 374,054.93 5 380,738.30 332,213.43 415,320.56 363,875.96 408,180.20 359,810.42 6 347,512.09 307,259.72 363,514.09 323,433.17 371,155.21 329,356.93 7 340,552.77 301,563.53 376,073.44 330,540.24 368,715.07 325,832.40 8 355,284.06 313,562.55 390,437.31 343,460.26 381,321.09 337,801.87 9 379,823.93 333,149.94 413,547.12 361,421.27 413,117.48 363,295.21 10 454,306.60 392,280.00 485,500.46 419,133.42 486,259.20 423,965.32 11 481,228.05 414,728.40 513,719.51 443,590.46 523,699.93 453,349.85 12 547,257.82 469,317.28 577,394.88 498,274.48 577,173.42 498,899.43 Total 5,136,724.93 4,442,889.56 5,451,369.35 4,723,826.22 5,512,257.34 4,801,226.28

In 1993, the peak load of CES reached to 468MW. As of January 2016, it increased to 973MW. CES has imported 157MW power to cover peak load in 2013 year. In 2016 it became 76MW, because of commencement of additional generation capacity of at CHP3 and CHP4.

Table 3: Annual peak loading of CES for last 6 years, MW, NDC

Item 2011 2012 2013 2014 2015 2016 Local generation (MW) 735 708 753 825 873 897 Imported power (MW) 47 155 157 144 92 76 Peak load (MW) 782 863 910 969 965 973

Character of load is more household user dependent and having difference between low and high peak load of 200 to 370MW and it is compensated by generation of CHP4 and imported power. Basically, CHP4 is designed to run in base mode, but nowadays it is running in load reРulatТon reРТme, wСТcС Тs neРatТvely Тmpacted Тts plant’s stable operatТon.

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1000 907 900

800

700 582 600

500 Difference between peak and low load is 325MW 400

300

200

100

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Figure 2: Difference in winter peak and low loading operation during 24 hours, NDC

700 629

600

500

391 Difference between peak 400 and low load is 238MW

300

200

100

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Figure 3: Difference in summer peak and low loading operation during 24 hours, NDC

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5.1.2 Assessment of the power generation and import

Note that this paragraph deals with thermal generation only. Renewable generation already implemented in Mongolia is described in section 5.1.4.

As of 2015 year, Тn MonРolТa 96.15% of total electrТcТty РeneratТon Тs produced by coal fТred combТned Сeat and electrТcТty РeneratТon power plants, 2.68% by wТnd enerРy, 0.11% by dТesel plant, 1.04% by small capacТty Сydro power plants, 0.01% by small capacТty solar power plants. TСe followТnР table sСows tСat РeneratТon of dТfferent type of source.

Table 4: Generation data of different type of power plants (million kWh), NDC

Generation source 2010 2011 2012 2013 2014 2015 Combined heat and electricity 4256 4450 4775.5 5014 5191.3 5465.8 generation plant Diesel power plant 21.4 20.2 28.7 5.4 8.2 6.4 Hydro power plant 35.3 52.6 52.1 59.9 66.3 59.3 Wind power plant 0 0 0 52.9 125.4 152.5 Solar power plant 0 0 0 0 0.6 0.6 Total Generation 4312.7 4522.8 4856.3 5132.2 5391.8 5684.6

Viewing from the worldwide practice, it is feasible to have coal and diesel power plants in the system, which consists not more than 70% of total generation. For Mongolia case it is 96%, therefore it is quite necessary to restructure current power generation system of Mongolia.

Shortage of new big capacity local generations leads to reduce system reserve capacity to override peak load and negatively affecting to the stability of system.

MonРolТa Сasn’t added any РeneratТon capacТty Тn perТod of 1986 to 2008 year. During the last decade, the following new power plants were commissioned:

- October 2008: Durgun 12MW Hydro power plant (3 * Kaplan 4MW turbines) on Chono Kharaih river (38 GWh/y) - September 2008:Taishir 11MW hydro power plant (3 * 3.45MW and 1 * 0.65MW francis turbines) on Zavkhan river - 2011: Ukhaa Khudag 18MW coal fired power plant - 2013: Salkhit Wind farm 49.6MW (31 * GE 1.6XLE-82.5 turbines) developed by Clean Energy LLC (168.5GWh) - In 2014, CHP4 added 50MW; and in 2015 tCHP4 added 123MW.

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Capacity of generation sources

Figure 4: Installed capacity of energy systems of Mongolia, NDC

Installed capacity of generation sources as of 2015 year is summarized in the following table. Expansion of CHP3 by 50MW and CHP4 by 123 MW is included. Seasonally operated Bogd river hydro power plant and other small capacity hydro power plant are not included.

Table 5: Installed capacity of generation sources, MW, NDC

Generation Installed Available Remarks № source capacity capacity Due to negative pressure turbine 1 Erdenet CHP 36 28 the generation is limited to 28MW 2 Darkhan CHP 48 46 3 CHP 2 24 24 No spare reserve of steam boiler, 4 CHP 3 186 157 its forced to stop one turbine 5 CHP4 703 600 One unit has to be standby Salkhit Wind 6 49.6 49.6 Farm 7 Choibalsan CHP 36 36 Dalanzadgad Due to outages mostly 2 units 8 9 3.4 CHP available to run at once Ukhaa Khudag 9 18 18 Power Plant Depending on water level one 10 Taishir Hydro PP 11 3.1 generator able to generate up to 3.1MW Two turbines operating depending 11 Durgun hydro PP 12 8 on water level Total 1132.6 972.7 54

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Looking at the above data, the present maximum available generation capacity of Mongolia is 972.4MW, but in actual it is lower, because the power plants cannot run without reserve capacity.

Table 6: Completed projects which increased installed capacity (MW), NDC

Date 2011.01.28 2012.12.26 2013.12.18 2014.12.02 2015.12.24 2016.01.12 Pmax 788 863 910 969 965 973 CHP 2 16 17 17 19 23 21 CHP 3 114 122 110 135 137 163 CHP 4 482 482 575 567 585 601 DarkСan 43 45 43 45 45 44 CHP Erdenet CHP 26 29 27 28 27 17 SalkСТt АТnd 2 31 48 44 Farm UkСaa KСudaР 8 7 power plant Import 107 168 136 144 92 76

In 2015 year, total of Mongolia power generation reached to 7076.3 million kWh, from which 5684.6 million kWh generated by local power sources and 1391.7 million kWh imported. Oyu Tolgoi LLC has consumed 1090.4 million kWh or 78% of total imported energy.

Table 7: Total of power generation of Mongolia by 2015 year, million kWh, NDC

Supplied by local Supplied by Total Region generation sources № Import (GWh) (calculated) 1 Central Energy system 5335.9 176.3 5512.3 2 Western region energy system 34,5 111,7 146,2 3 Altai Uliastai energy system 31.5 - 31.5 4 Dornod region energy system 184.7 4,24 188.9 5 Southern region 98.0 1098.8 1195.7 Total 5684.6 1391.7 7076.3

Power consumption of central region centralized energy system has been rapidly increasing and existing generation sources are almost working for its maximum capacity.

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Dornod Region Southern Region Energy Energy System system3% 2%

Altai Uliastai Energy System 0% Central Energy Western Energy System 94% System 1%

Figure 5: Supply from local generations, NDC

Central Energy Western Energy System, 176.3 System, 111.7 AltaiUliastai Energy Syste, 0

Dornod Region Energy System, 4.24 Southern Energy System, 1098.8

Figure 6: Supply from local generations, NDC

Table 8: Past 6 years' electricity generation and import of Central Energy System, (million kWh), NDC

Items (GWh) 2010 2011 2012 2013 2014 2015 Local electricity generation 4312.7 4522.8 4883.3 5134.6 5133.6 5335.9 Imported electricity 157.5 200.6 307.8 325.3 288.5 176,3

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ЦалааыLocal generations дотооды үлдэлэлт ImportedИпотлоо energy алаа 5400 500 450 4500 400 3600 350 300 2700 250 200 1800 150 900 100 50 0 0 2010 2011 2012 2013 2014 2015

Figure 7: Past 6 years' electricity generation and import of Central Energy System, NDC

Local generation power plants have been covering 93.7 to 97% of total demand of Central energy system. Absence of new generation sources led to cover the rising demand by imported electricity. In 2006 year, 6% of total demand was covered by imported electricity. In 2015 it has decreased to 3%. Generation capacity expansion at CHP3 by 50MW, and CHP4 by 123MW led to have such decrease of import. As of 2015, totally 1391.7 million kWh is imported, from which 284.55 millions of kWh energy is imported from Russian Federation with the remaining 1107.7 million kWh from China.

Table 9: Imported electricity of Mongolia, thousand kWh /2015 year, NDC

Imported Import № Licensee Substation electricity locations (MWh) Imported energy from Russian federation 284,545.09 1 Davit Western region energy Khandgait- Davst 463.95 2 Horshoo system Co. Chadam-Ulaangom 106,497.87 3 Khankh Khubshul Energy Co. Mondi-Khankh 646.43 National Power 4 Altanbuleg Darkhan-Selendum 176,332.06 transmission Grid Co. Dornod region energy 5 Ereentsav Soloviyevsk-Ereentsav 604.78 system Co. Imported energy from China 1, 107,707.74 Dornod Energy System 6 Uvdug Uvdug – Bayankhoshuu 1,587.78 Co. Sukhbaatar branch of 7 Bichigt Dornod Region Energy Zuun-Khatavch – Bichigt 2,048.31 system Co. 8 Zamiin-Uud UB railway Erlian – Zamiin-Uud 64.34 9 Zamiin-Uud Oyu Tolgoi LLC Gants mod- Oyu Tolgoi 1, 090,045.42 Chinkhua Mak 10 Zamiin-Uud Sekhe-Shivee khuren 8,758.4 Nariin sukhait LLC Western region energy 11 Yarant Taikeshiken-Bulgan 5,203.49 system

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The above data shows that the imported energy from China is relatively high, because of development of mining projects in the Gobi region, mainly Oyu Tolgoi LLC mining project, which has imported 1090 million kWh energy from China alone.

About 62.07% of total energy imported from Russian federation spent for covering of rising demand of Central Energy System and 37.5% for Western energy system.

Table 10: Border ports of General Taxation office of Mongolia importing power, NDC

№ Import from Imported port (locations) Licensee 1 Russian Arts Suuri Custom office-Zavkhan 2 federation Ulihan Custom office-Dornod 3 Havriga Custom office-Dornod 4 Sumber 5 Bichigt Custom office -Sukhbaatar China 6 Hankhi Custom office –Huvsgul 7 Gashuunsuhait 8 Yarant Custom office -Khovd

5.1.3. Cost of imported power and tariffs of generation sources

In accordance with request from Clean Energy Asia LLC, the study for energy tariffs of generation sources of Mongolia have been conducted.

As per energy import contract made with Russian Federation, the 2 parties update semi annually the tariffs.

Tariff for second half of 2015 year was calculated as follows:

Import price=1,28Ruble * Eimported + 250,50ruble * Edeviation. +(К+с)Ruble * Paverage

Of which:

Eimported – imported energy in certain month, kW*h 1.28 Ruble – cost of 1 kW energy Edeviation –deviation from the import schedule (curve) at certain month, MW*h 250.50 Ruble – cost of 1MW*h- import deviation Deviation of import – is difference between planned and actual daily import (cause by rise of demand, decrease of demand, outages from the malfunction of equipment of power plants and etc.) Рaverage (Pд) – average of maximum power of month, MW

The maximum power consumed during 02:00 to 19:00 hour (by Moscow time) of working day (as per Russian schedule) is registered as daily maximum power. At the end of the month the 58

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ἱ- number of working days at certain month as per Russian schedule. К – 539 000 Ruble/kW*h - price for monthly maximum power Тск –144686,52 Ruble/MW transmission tariff

In accordance with energy contract made with Russian federation for the first half year of 2016, the cost of exported energy will cost 1kW*h = 1.4cents (USD). Energy Regulatory Commission (ERC) settling the tariff of power plants operating in Mongolia.

In June, September, October, and December of 2015, the ERC has updated and added generation tariffs of local power plants (licensee).

National Dispatching Center has established Commercial Regulation Department, which will implement economical efficient commercial regulation, improve profit of single buyer model, decrease losses by monthly evaluation and assessment of balance of single buyer model, and calculates average price.

Let’s take a look for tСe tarТffs of power plants approved from ERC by decree No.97 issued in 2016.

Table 11: Energy tariff of CHPs for March month of 2016, NDC

№ Licensee Energy tariff MNT/kWh 1 CHP-2 47,18 2 CHP-3 25,71 3 CHP-4 21,9 4 Darkhan CHP 37,17 5 Erdenet CHP 32,92 6 Ukhaa Khudag Power Plant 130,0 7 Dalanzadgad CHP 46,1

Table 12: CHP 4 tariff for 2016 year, NDC

Quarter Capacity tariff thousand

№ MNT/month 1 1st quarter 10 188 018,0 2 2nd , 3rd quarter 7 425 878,4 3 4th quarter 10 295 577,1

CHP 4 is a biggest power plant, which supplies 70% of total electricity demand of Central energy system of Mongolia, and 65% of total heat demand of Ulaanbaatar district heating 59

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552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 17 – 228 www.edf.fr Strategy for NAPSI Inception Report - June 2017 system. CHP4 commenced in 1983 year with 6 boilers and 4 turbine generators in total of 360MW installed capacity. By expansion in 1991 year the installed capacity has increased to 540MW. During 1996 – 1997 faced with problems of wear of equipment. During 1997 to 2008, The Government of Mongolia took soft loan from Government of Japan for rehabilitation of CHP4. Since then condition of CHP4 has been improved and working stable.

CHP4 is the biggest and low cost power plant; it produces electricity almost four times cheaper than imported electricity.

In 2015, CHP4 has added more 123MW and operating with 8 boilers and 7 turbine generators.

5.1.4. Renewable generation already implemented in Mongolia

Most of the projects implemented in the renewable energy field were demonstration projects for rural electrification and they were financed by foreign donor organizations. Equipment used was mainly imported from abroad (system capacities were between 400W-8kW). Experts, scientists and technicians of the Mongolian Academy of Science and Universities undertook these projects. In fact, the skills and capabilities of these specialists, technicians and institutions are inadequate for sound implementation of projects. Therefore, it is necessary to improve capacity building by means of training, transfer of renewable energy technologies through cooperation with international organizations, which have adequate experience in renewable energy field. In addition, it is required to teach experts more on carrying out design and economic calculations of renewable energy systems as well as analysis on environmental impacts. As Mongolia has a good solar energy resource, it can be utilized in generating electricity for electrification purposes in the countryside. In most rural areas heating and cooking are based on bТomass and fossТl fuels. Government and ParlТament Сave approved “NatТonal Renewable EnerРy ProРram” and are plannТnР to exploТt tСe renewable enerРy resources. The 100,000 Solar Ger program was initiated by the Government of Mongolia in 2001 which has been implemented until 2009. Currently, over 104,000 Solar Home Systems are operating throughout the country. (APCTT-UNESCAP, 2007) SHS systems (mainly imported ones) were sold to herders at discounted (discount provided by the Government as a subsidy) price and herders also were able to obtain soft loan from commercial bank.

200kW PV-Diesel System in Noyon Soum, Umnugovi Aimag (KfW bank, 2006) 60

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Mongolia has started seeing a potential market for solar PV and wind generators. Low-cost PV systems and wind generators bought in China are used in the country side, without (donor) assТstance, maТnly Тn rural areas, for use wТtС lТРСts, satellТte TV’s, and radios. Mongolia also started to successfully manufacture PV modules and wind generators. UNDP studied the feasibility of a PV module manufacturing plant. In February 1998 a Photovoltaic Division of the Post and Telecommunications Authority of Mongolia established state-of-the-art manufacturing facility for PV module assembly facility with assistance from the Nordic Development Fund. Its production capacity of 0.5 MW per year (for one shift) runs at the moment at 5–10% of capacity. This plant imports solar cells, related raw materials from abroad and produces 12, 24, 50W PV modules. Mono and polycrystalline modules are produced for about USD$3.8 – 4.0/Watt and are sold for about USD $4.5/Watt. Twenty-five radio repeater stations and about 250 rural telecom offices are supplied by stand-alone PV systems, which use PV panels produced in Mongolia. At present, at least more than 105,000 solar home systems reportedly are in used by herders for lighting, operating radio receivers, TV sets, satellite dishes and charging mobile phones. The PV systems have capacities in the range of 5 to 200W. And over 4,500 wind generators reportedly are in use in rural areas with capacities mainly between 50 and 200W. No large-scale hydropower plant (HPP) has been developed in Mongolia, yet. Projects for construction of large hydropower plants (Egiin Hydro Power Plant 220 MW and Orkhon Hydro Power Plant 100 MW) were stopped due to lack of funds. The small hydro power plants are run-off-river designs that provide electricity to neighbouring rural areas except during the winter. There are about 10 mini-hydropower plants t operating in warm season, being built on high mountain rivers located in west and north of the country with capacity ranging 160 – 900 kW. In some cases, they also provide electricity to centers of neighbouring soums. In the Western Energy System region, under a loan provided by the Kuwait Fund, an 11 MW hydropower plant was constructed at Ulaanboom gorge of Taishir River. This hydropower plant supplies electricity to two Aimag centres and 19 soums. The Durgun hydropower plant with 12 MW capacity was constructed between 2004-2008 and connected to Western Interconnected Electricity Grid. A private entity Clean Energy LLC., a subsidiary of Newcom LLC., has implemented the SALKHIT : a 50 MW wind farm at an area located about 70 km south of Ulaanbaatar city. The construction work of this wind farm has been completed and has been connected to the Central Interconnected Electricity Grid, (MMR&E, 2012).

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Current installed renewable energy capacity

Table 13: Current installed renewable energy capacity, ERC

Balance of renewable energy generators of Mongolia, kW Installed capacity, No Name Location (kW) Ownership Operation status One. Hydropower plants Bogdiin Gol Hydropower Bogd river, Uliastai soum, АltaТ-UlТastaТ EnerРy 1 2,000.0 In operation plant Zavkhan province System SOJSC Delger soum, Govi-Altai АltaТ-UlТastaТ EnerРy 2 400.0 In operation Guulin Hydropower Plant province System SOJSC Makhan Hydropower Mankhan soum, Khovd Not operating. /soum is connected to 3 150.0 Local government Plant province, the grid/ Munkhkhairkhan Munkhkhairkhan soum, 4 150.0 Local government Not operating Hydropower Plant Khovd province Taishir Hydropower Taishir soum, Govi-Altai АltaТ-UlТastaТ EnerРy 5 11,000.0 In operation Plant province System SOJSC Durgun Hydropower Durgun soum, Khovd Western Energy 6 Plant province 12,000.0 System SOJSC In operation Tosontsengel Ider river, Tsontsengel АltaТ-UlТastaТ EnerРy 7 375.0 In operation Hydropower Plant soum, Zavkhan province, System SOJSC Uench soum, Khovd Not operating. /soum is connected to 8 Uench Hydropower Plant 930.0 Local government province the grid/ Erdenebulgan Eg river, Erdenebulgan Under maintenance/repair. /soum is 9 200.0 Local government Hydropower Plant soum, Khuvgul province connected to the grid/ Khunguin 10 Zavkhanmandal river,Zavkhanmandal soum, 111.0 АltaТ-UlТastaТ EnerРy In operation hydropower plant Zavkhan province System SOJSC Undurkhangai Chigjiin river, Undurkhangai 11 200.0 Not operating Hydropower Plant soum, Uvs province, Local government Galuutain river, Tsetsen- 12 Tsetsen Uul Hydropower Uul soum, Zavkhan 150.0 АltaТ-UlТastaТ EnerРy In operation Plant province System SOJSC Orkhon river, Kharkhorin 13 Kharkhorin hydropower soum, Uvurkhangai 526.0 Local government Not operating plant province, Sum 28,192.0

Two. Wind Power Systems Erdenetsagaan Wind Erdenetsagaan soum, 1 Local government system Sukhbaatar province 100.0 Not operating Baganuur- Southeastern Khatanbulag Wind Khatanbulag soum, 2 150.0 regional electricity Under repair. system Dornogovi province distribution network SOJSC Sevrei soum, Umnugovi 3 Sevrei Wind system 80.0 Local government Not operating. /Connected to the grid/ province, Bogd soum, Uvurkhangai Not operating. /soum is connected to 4 Bogd Wind system 80.0 Local government province the grid/ Sum 410.0

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Three. Solar Power Systems When Noyon soum was connected to Noyon soum, Umnugovi the grid the solar system was moved 1 Noyon solar system 200.0 Local government province to the center of Khatanbulag soum in Dornogovi province. When Tsetseg soum was connected Tsetseg soum, Khovd Western Energy to the grid the solar system was 2 Tsetseg solar system 100.0 province System SOJSC moved to the center of Altai soum in Govi-Altai province. Bugat soum, Govi-Altai АltaТ-UlТastaТ EnerРy 3 Bugat solar system province 140.0 System SOJSC In operation Altai soum, Govi-Altai АltaТ-UlТastaТ EnerРy 4 Altai solar system province 200.0 System SOJSC In operation Bayantooroi solar Bayantooroi bagh, Tsogt АltaТ-UlТastaТ EnerРy 5 system soum, Govi-Altai province 100.0 System SOJSC In operation Durvuljin soum, Zavkhan АltaТ-UlТastaТ EnerРy 6 Durvuljin solar system province 150.0 System SOJSC In operation Urgamal soum, Zavkhan АltaТ-UlТastaТ EnerРy 7 Urgamal solar system province 150.0 System SOJSC In operation Sum 1,040.0

Four. Solar-wind hybrid systems When Matad soum was connected to Matad solar-wind hybrid Matad soum, Dornod the grid the solar-wind hybrid system 1 52.5 Local government system province PV(30)/WP 22.5 was moved to the center Khatanbulag soum in Dornogovi province. When Manlai soum was connected to Manlain solar-wind Manlai soum, Umnugovi the grid the solar system was moved 2 150.0 Local government hybrid system province, PV(30)/ WP (120) to the center of Tseel soum in Govi- Altai province. Going to transfer to Tseel solar-wind hybrid Tseel soum, Govi-altai 3 150.0 the Altai-Uliastai In operation system province, PV(30)/WP(120) Energy System Bayantsagaan soum, Bayantsagaan solar- 4 Bayankhongor province 150.0 Local government Not operating. Battery failure. wind hybrid system сум PV(30)/АP(120) Shinejinst soum, Shinejinst solar-wind 5 Bayankhongor province 150.0 Local government Not operating. Battery failure. hybrid system PV(30)/WP(120) Bayan-Undur soum, Bayan-Undur solar-wind 6 Bayankhongor province 150.0 Local government Not operating. Battery failure. hybrid system PV(30)/WP(120) Baganuur- Southeastern Mandakh solar-wind Mandakh soum, Dornogovi 7 200.0 regional electricity In operation hybrid system province PV(120)/WP(80) distribution network SOJSC Onts bagh solar-wind Onts bagh, Durvuljin soum, АltaТ-UlТastaТ EnerРy 8 0.4 hybrid system Zavkhan province System SOJSC Tsagaanchuluut bagh, Tsagaanchuluut solar- АltaТ-UlТastaТ EnerРy 9 Zavkhan province 6.1 wind hybrid system System SOJSC PV(5)/WP(1,1) Naran solar-wind hybrid Naran soum, Sukhbaatar 10 5.0 Local government system province PV(2)/WP(3) Center of Zurkh bagh, Galt Zurkh solar-wind hybrid 11 soum, Khuvsgul province 3.3 Local government system PV(1,5)/WP(1,8) Bayan-Undur soum, Bayan-Undur solar-wind 12 Uvurkhangai province 5.4 Local government hybrid system PV(3,3)/WP(1,8) Sum 1,022.7 Total 30,664.7 Out of this: possible to use/under repair 27,798.7 In operation/under repair. impossible to use/not operating 2,866.0 Soums connected to the grid/Battery damaged 63

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Solar, wind systems and solar-wind hybrid systems capacities were too low for the existing load at soums centers. The main reason was the limited budget for each system. Because of this reason the installed small-scale renewable energy systems were often overloaded and battery was over-discharged regularly. Besides control system of all solar-wind hybrid systems had Chinese written scheme on display of the control computer made it difficult to understand. Considerable number of batteries has been deteriorated and cannot be used anymore.

5.1.5. Assessment of the existing transmission network In accordance with Energy Law, 220kV and 110kV overhead power transmission lines (OHL) belongs to the transmission grid. OHL of 0.4 to 35kV and distribution substations belongs to distribution network. 220kV Substations at Ulaanbaatar, Erdenet and Darkhan cities are connected by ring circuit via 220kV OHL, and connected to energy system of Russian Federation (Selendum) via Darkhan 220kV OHL. 220kV OHL expands from 220kV ring to the east and reached to Baganuur, and Choir. Choir and Mandalgovi connected via 220kV OHL, but currently used with 110kV voltage level.

Figure 8: Schematics and locations of transmission lines (red 220kV, Blue 110kV, green 35kV), NDC

110kV OHLs supplies power to the regional grid. Dornod region and Altai Uliastai energy system use 110kV OHL for connection to the central energy system. Western region energy system connected to the Krasnoyarsk energy system of Russian Federation. South Gobi reРТon’s Oyu TolРoТ mТne connected wТtС CСТna РrТd by 330kV OHL.

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Transmission capacity of network and its loading Main factor of maintaining of reliable and stable operation of energy system and supply with energy to consumer is transmission capacity of power transmission and distribution network. Mongolia has long 220kV OH Lines spread out all over the country and currently transmitted power at present is in allowable level. Regarding 110kV OHL, basically it is able to transmit 25 to 50MW. For Mongolia case, due to long lines currently operating at 110kV OHL having lower transmission capacity about 10 to 16%, loading of 220kV and 110kV OH Lines of Central energy system for winter 2014 –2015 year are summarized in the table. The measurement was done at every 19:00.

Table 14: Loading of 220 and 110kV OHL at 19:00 of winter peak load operation, NDC

Beginning and end of OHL Type of No. of OHL Loading, % (substation) Conductor 257 ACSR-300/48 24,5 Darkhan-Selendum 258 ACSR-300/48 24,5 202 Darkhan-Erdenet ACSR-400/51 30,3 203 Switchyard 4-Erdenet ACSR-400/51 20,9 205 ACSR-300/39 35,5 Switchyard 4 – Ulaanbaatar 206 ACSR-300/39 35,5 207 Baganuur-Choir ACSR-300/39 24,2 208 Switchyard 4 - Erdenet ACSR-300/39 11,4 209 Ulaanbaatar-Baganuur ACSR-300/39 25,8 101 ACSR-240/39 3,6 Ulaanbaatar-Nalaikh 102 ACSR-240/39 4,4 103 ACSR-240/39 24,3 Ulaanbaatar-Tuul 104 ACSR-240/39 22,6 105 ACSR-240/39 36,9 Switchyard 3 – Tuul 106 ACSR-240/39 36,9 107 ACSR-240/39 59,5 Ulaanbaatar – Dornod 2 108 ACSR-240/39 26,6 109 ACSR-240/39 79,2 Switchyard 4 – Dornod 2 110 ACSR-240/39 17,5 111 ACSR-240/39 18,4 Switchyard 4 - Switchyard-3 112 ACSR-240/39 18,4 65

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Darkhan CHP - Darkhan 113 ACSR-240/39 16,5 220 114 Switchyard-4 –Bayasgalant ACSR-120/19 26,4 115 Shariin Gol – ZuunKharaa ACSR-120/19 23,2 116 ZuunKharaa – Bayasgalant ACSR-120/19 12,5 117 Switchyard-4- Bayasgalant ACSR-120/19 17,1 118 Switchyard-4 – Tseverleh ACSR-120/19 53,3 119 Nalaikh – Khushigt ACSR-240/39 0,1 123 ACSR-120/19 14,0 Nalaikh- Salkhit 124 ACSR-120/19 13,5

From above, we can see that during winter peak load operation the 220kV OHL is maximum loaded to 35.5% (During partial stop of CHP4, total flow of OHL No. 257 and 258 is 220MW, which is 50% ). Most overloaded OHL is 110kV OHL No.109, which loaded to 79.2%. Loading condition of power transformer of 220kV and 110kV substation of Central energy system has been measured by control measurement taken at 19:00 of winter peak load operation. The result is summarized in table 19.

Table 15: Loading of transformers of substations measured at 19:00 of winter peak load, NDC

Transformer in Substation Voltage level Loading, % operation А-1 33,3 Darkhan-220 220/110/35 kV А-2 31,3 А-1 43,4 Erdenet-220 220/110/35 kV А-2 43,4 А-1 54,1 Ulaanbaatar-220 220/110/35 kV А-2 54,0 SWITCHYARD-4 220/110/6 kV А-2 77,9 -1 72,3 SWITCHYARD-3 110/35/6 kV -2 86,0 Baganuur-220 220/110/35 kV А-1 44,7 Choir-220 220/110/35 kV А-1 93,4 Sainshand 110/35/10 kV -1 79,2 Zamiin Uud 110/10 kV 70,2

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Bor-Undur 110/35/10 kV -1 5,4 Undurkhaan 110/35/6 kV 77,3 Mandalgobi 110/35/10 kV 66,9 Tavantolgoi 110/35/10 kV -1 30,4 Bayasgalant 110/35/10 kV -2 58,3 Sukhbaatar 110/35/6 kV -2 102,4 1 66,4 Bayankhongor 110/35/10 kV -2 66,4 -1 33,7 Kharkhoring 110/35/10 kV -2 33,8 Arvaikheer 110/35/10 kV -1 89,6 Bulgan 110/35/10 kV -2 46,5 -1 80,5 Murun 110/35/6 kV -2 80,5

At Darkhan 220/110/35 kV substation autotransformer-1 and 2 (А-1,2) was in operation and loaded by 31,3 %, 33,3 % respectively; at Erdenet 220/110/35 kV substatТon А-1,2 in operation, each loaded by 43,4%; at SWITCHYARD-4 А-2 was in operation and at CHP4 the AT-2 was loaded by 77.9% because of CHP4’s unТt 1 and 2 turbТne generator of 110kV was under maintenance. At SWITCHYARD-4 necessary urgently take measures for parallel operation of А-1, 2. During winter peak load autotransformer at SWITCHYARD-4 being overloaded when one of unit TG1 or TG2 at 110kV under maintenance and reliability of system decreasing. At Baganuur-220 substation the autotransformer А-1 was in operation and loaded to 44, 7%; at Choir-220 substation the А-1 in operation – loaded 93, 4%.

Aging study of power transmission lines

Table 16: Aging study of power transmission lines, National Power Transmission Network SOE

Commenc Length # of Type of OHL name Age ed in (km) poles conductor

SD-257, 258 1976 39 111.3 291 ACSR-300/39 Erdenet-Darkhan 201, 202 1976 39 151.86 403 ACSR-300/39 ULAANBAATAR-Э 203, 204 1990 25 259.7 647 ACSR-400/51 SWITCHYARD4-ULAANBAATAR 1983 32 29,4 ACSR-300/39 205, 206 ULAANBAATAR-Darkhan 208 1982 33 199.7 660 ACSR-300/39 67

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ULAANBAATAR-Baganuur 209, 1983 32 146.8 399 ACSR-300/39 210 6.3 ACSR-300/39 Baganuur-Choir 207 1984 31 561 171.7 ACSR-240/32 113 1976 39 8.3 38 ACSR-240/32 114 1963 52 45.04 161 ACSR-120/19 115 1967 48 69.54 254 ACSR-120/19 from BaruunKharaa 1967 48 3.9 15 ACSR-120/19 116 1967 48 55.5 199 ACSR-120/19 Bayasgalant 1990 25 132.6 465 ACSR-120/19 Khutul-А,B 1985 30 45.1 157 ACSR-120/19 Orkhon 1969 46 51.94 196 ACSR-70/11 Uildver-A,B 1993 22 6.8 28 ACSR-120/19 Sukhbaatar 1965 50 102 380 ACSR-120/19 from Burkhant 1965 50 1.8 7 ACSR-95/16 from Davkhar 1965 50 0.43 3 ACSR-70/11 from Tosgon 1965 50 0.2 1 ACSR-120/19 from Dulaankhan 1994 21 9.9 38 ACSR-120/19 Darkhan-110 1965 50 5.74 28 ACSR-120/19 from Burkhant 1965 50 1.57 7 ACSR-95/16 from Davkhar 1965 50 0.4 3 ACSR-70/11 from Tosgon 1965 50 0.05 1 ACSR-120/19 Darkhan-Yeruu 1971 44 77.3 301 ACSR-70/11 from Bugant 1972 43 53.9 207 ACSR-70/11 from Tolgoit 1972 43 5.03 19 ACSR-70/11 Khalganat-А, 1975 40 60.8 290 ACSR-70/11 from 4 urgult 1975 40 0 ACSR-70/11 from 3 urgult 1975 40 0 ACSR-70/11 from 2 urgult 1975 40 3 17 ACSR-70/11 Bulgan-А,B 1980 35 54.5 211 ACSR-150/24 Murun 2004 11 291.9 1058 ACSR-120/19 ERDENET GOK-А,B 1980 35 1.3 7 ACSR-185/29 ERDENET GOK-D,E 1990 25 1.6 8 ACSR-300/39 35kV-Block-1 1987 28 2.7 13 ACSR-150/24

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35kV-Block-2.3 1987 28 2.6 17 ACSR-150/24 Kharkhoring-A,B 1984 31 204 832 ACSR-120/19 from Khishig Undur 1984 31 1.4 5 ACSR-120/19 from Sansar 1985 30 60.7 228 ACSR-70/11 Arvaikheer 1991 24 125.4 443 ACSR-120/19 Tsetserleg 1987 28 117.1 411 ACSR-120/19 Bayankhongor 2005 10 205.5 808 ACSR-120/19 from Bayanteeg 2005 10 0 ACSR-120/19 101.102 1990 25 24.75 95 ACSR-240/39 103.104 1978 37 6.7 29 ACSR-240/39 from Amgalan 1978 37 1.7 7 ACSR-120/19 105.106 1978 37 9.5 44 ACSR-240/39 from Umnut 1978 37 0.5 1 ACSR-240/39 107.108 1989 26 10.7 43 ACSR-240/39 from Ulaankhuaran 1989 26 0.6 3 ACSR-120/19 109.110. 1984 31 12.27 60 ACSR-240/39 from Umart 1984 31 1.5 5 ACSR-120/19 from Baruun 1984 31 0.25 1 ACSR-240/39 Yuldver-110 , 118 1992 23 20.9 101 ACSR-120/19 Tseverleh 110 1993 22 3 16 ACSR-120/19 117 1968 47 90.2 324 ACSR-120/19 from Bayanchandman 1968 47 0.8 2 ACSR-120/19 Yarmag A,B 1988 27 3.3 18 ACSR-120/19 111. 112 1983 32 5.09 25 ACSR-240/39 KСolboo А,-35 1966 49 4.2 26 ACSR-95/16 Tseverleh 35 1973 42 3.3 20 ACSR-95/16 Uul 1981 34 7 31 ACSR-150/24 Khot 1986 29 0.8 7 ACSR-150/24 Tuv 1983 32 5.4 25 ACSR-120/19 from Galuut 1987 28 4.7 23 ACSR-120/19 Bor-Undur 1984 31 90.5 320 ACSR-120/19 Bayanmunkh 1991 24 81 289 ACSR-120/19 Undurkhaan 1997 18 100.8 328 ACSR-120/19 Mandalgovi 1996 19 182.6 714 ACSR-240/39

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Khar-Airag 1985 30 99.1 343 ACSR-150/24 Sainshand 1990 25 124.3 442 ACSR-120/19 Zamiin Uud 2003 12 193.6 702 ACSR-120/19

5.1.6 Deliverables of Module 2 The final deliverable will include the following items: - Review of the macroeconomic context in Northeast Asia, and impact on the area load demand projections - Development of the baseline reference scenario (what would be the situation in the area in the coming years without the implementation of the NAPSI project?) - Study of credible scenarios combining renewable generation development and increase of cross border trades with neighbouring countries - Economic valorisation of the most credible scenarios and comparison with the baseline reference scenario results: this study will include sensitivity analyses to the main influent parameters.

The current chapter emphasizes on the information required understanding we have established a database as mentioned before that will support our analyses:

5.2 MODULE 3: PLANNING AND EVALUATION CRITERIA - ASSUMPTIONS FOR THE STUDIES The main objective of Module 3 will consist in the following elements to agree on hypotheses for the scenarios that will enable a profitable development of new power generation units and the network. In that sense, the first purpose of this module is to establish the multi-criteria ranking methodology which will be used to rank the Generation and Transmission scenarios, which goes beyond the financial analysis:

This analysis encompasses 4 dimensional criterions

 Technical analyis  Economical-financial criteria  Political and regulatory criteria  Socio-environmental criteria

5.2.1 Technical Criteria 70

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Whether the technical analysis will be performed in Module 5: « Grid », in this part we would be assessing at a high level the technology that would be integrated in the financial business case in order to assess the financial feasibility.

The main drivers to assess will be

- Which strategy is the government of Mongolia willing to develop, understanding whether it would be preferred to developed a combination of conventional and renewable energies to match the 30%, an all renewables case, a go-between case; - Which renewable mix should be developed and up to which level: hydro, wind, solar biomass, geothermal; - Which impact on the transmission and requirement to segregate two independent grids or not: the NAPSI regional grid vs. the Mongolian integrated grid; - Type of transmission lines to convey the export capacity in terms of voltage, 230kV to 800kV and total capacities; - Type of current: direct vs. alternating leading to implementation of HCVC and HCVA solutions; - Transport itself: air, submarine etc; - Interconnectors.

Analyses will also include all required information related to the optimization of the dimensioning:

- Downtime;

- Maintenance time;

- Network losses

- the development of redundancies in the network to support the appropriate service levels:

- any other parameters which may impact the dimensioning.

Those solutions impacting the business case would be deployed not only in Mongolia but also in the different countries. Therefore it would be important to assess the technologies to be implemented in the different countries through our contacts in the NAPSI region and Russia.

It could be also possible that the inputs could be eventually adjusted at the end of module 5 to be consistent with the outcome of the technologies that would be decided and implemented in the final module.

5.2.2 Economical-financial criteria

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552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 17 – 228 www.edf.fr Strategy for NAPSI Inception Report - June 2017 a) Economies of the different markets

In this part we will compare the different economies of the region in order to get the required macro-economic components. The analysis will include the GDP and GDP par capital which for instance show Mongolia is located in a wealthy region and should get some benefits from cooperating with a the other NAPSI countries which is reflected by the vast disparities of the region that include the second global economy, China, two OECD members, Japan and the Republic of Korea, as well as the Russian Federation, one of the permanent security council member with China at the UN, besides Mongolia which has the opportunity to play a leading role as being at the crossroad of the region.

Figure 9: GDP USD current Figure 10: GDP growth, World Bank

In that sense we understand the opportunity for Mongolia to take advantage of its landlocked situation within one of the global richest region representing 25% of the global GDP.

• TСe followТnР data wТll be requТred to valТdate tСe Тnternal demand Тn MonРolТa: - Macroeconomics data available from relevant parties, as the Mongolbank or the Mongolia Statistical Office for instance, and to be discussed with the relevant parties to cover the project tТmeframe from (Т.e. GDP, InflatТon, currency…). - Demographics information from relevant agencies (population growth, urbanization ratios, household structures evolution). - Evolution of the country economic structure to assess the development of the business environment in Mongolia, but as designed as well by international financial institutions. - Financial information that will be taken to assess project returns as the discount rate and its components as the risk free rate and the country beta that are provided by the Central Bank of MonРolТa and ratТnР aРencТes as FТtcС or Moody’s.

• Industry economТc data Тn MonРolТa are also requТred as:

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- Existing (subsidized and non-subsidized) and expected price of fuel-thermal coal / nature of the contracts and price at the different stage of the value chain. For instance we will assess with the CHP3 and CHP4 the price of the coal supplies from Baganuur and Shivee Ovoo. - Existing feed-in tariffs applicable to the renewable energy sector in Mongolia, with a focus on the renewable energy law, the current situation of the Salkhit Windfarm, but also through meetings with the renewable energy center, the ERC and the ministry of energy to position the long term tariff policy with the global trend regarding feed in tariffs that are under pressure currently due to the reduction of the renewable energy production cost structure.

We will consider the existing expected on-grid and off-grid electricity prices which are currently set as follow:

If it is connected to the Transmission Grid, the tariffs will be set within the frames of the following: • Supplying by the Wind source generators 1 kWh 0.08-0.095 USD • Hydro Power Plant up to 5000 kW capacity 1 kWh 0.045-0.06 USD • Supplying by the Solar source generators 1 kWh 0.15-0.18 USD In case of Stand-Alone source: • Supplying by the Wind source generators 1 kWh 0.10-0.15 USD • Hydro Power Plant up to 500 kW capacity 1 kWh 0.08-0.10 USD • Hydro Power Plant from 501- 2000 kW capacity 1 kWh 0.05-0.06 USD • Hydro Power Plant from 2001- 5000 kW capacity 1 kWh 0.045-0.05 USD • Supplying by the solar source generators 1 kWh 0.2-0.3 USD, The law states.

- Cost of land and construction cost for renewable energy facilities in Mongolia, based on existing feasibility studies. - Quality of service, expected failure rate of different types of generators and eventual curtailment in order to assess the long term efficiency. - Transmission costs in Mongolia that will be discussed with the National Power Transmission Grid

The 2013 Energy Master plan will have to be completed up to 2036. If Mongolian data are available up to 2030, we would consider as in any long term business case that the 2030-2036 period will extrapolate the trend designed in the previous master plan that will have to be adjusted according to the scenarios we will design.

The economic analysis of the NAPSI region will include a comprehensive analysis of the economic environment which among:

 Structure of the GDP in the different markets with the two visions:

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• By nature: consumption, investment, savings, export • By sectors: primary, secondary and tertiary  Inflation which will be assessed in order to elaborate the business plan in current USD  Currency fluctuation: hypothesis will be drawn after discussion with local market experts from central banks and private banks following the development of questionnaires  Analysis of the Debt and Debt/GDP will be also performed for the different countries as Тt wТll Тmpact tСe Тnvestment strateРy but also tСe perceТved Тnvestment rТsk….  WACC: rating, central bank rate, beta those information will state the required return the investors may require in investing in Mongolia

b) Electricity consumption in the different markets We will in this part assess the electricity consumption in the different markets and will segregate by category of customers as much as we can:

• Residential • Corporates: professionals and large corporates We will do so in the different markets in order to understand:

 For Mongolia We will need to readjust the hypothesis of the master plan regarding the detailed internal demand as designed in the existing 2013 master plan which estimated electricity demand to grow by 12 to 15% up to 2018. Under all growth scenarios, demand was expected to exceed 3000MW by 2025.

Figure 11: Electricity demand forecast MW, Energy master plan 2013

 For the other NAPSI countries

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The various documents in our possession show the existence of data for the period or at least are sufficiently long to be extrapolated:

 China has data up to 2050 (i.e. data from CEPRI as those provided by ETRI, IEA or CNPC research center) – we will focus in detail to the bordering regions of China where the export of power may be used whenever we will provide a big picture of the Chinese demand;  Japan (as the Japan Energy plan for 2030 published by the METI)  R.O. Korea up to 2029 (7th Basic Plan English - KPX 2015)  Russian Federation (reference to be found to be provided by Rossetti –IRENA Renewables energy map Russia 2017 up to 2030) whenever we will provide a detailed analysis in the bordering regions with Mongolia. c) Then we will assess the supply requirement

 A full demand/supply in the region and gap analysis will be performed to assess the potential gaps In this part we will assess the capacity development and the potential gap within the different countries involved in NAPSI which will require detailed analysis Our analysis will include according to the consultant know how the most adequate service level.

 Our assessment will consider Mongolia energy independency target to cover its demand thorough domestic supply;  It will consider the best options for export in the NAPSI region according to the supply/demand gaps in the different countries;

5.2.3 Political and regulatory criteria In this part we will assess the country specifics that may impact the network dimensioning, as well as the political and regulatory environment to assess the potential market access constraints in the different countries.

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552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 17 – 228 www.edf.fr Strategy for NAPSI Inception Report - June 2017 a) Demographics

According to the National Registration and Statistics Office the total population of Mongolia is 2.9 million with annual growth rate of 2.06. The urban population of Mongolia is 72%. Although the total North East Asia Population Growth Rate population of the country is (%) 2.5 significantly smaller compared to Russia, Japan, China and Korea, 2 the country had the highest population growth 1.5 rate. With the rise in population, 1 household numbers have been rising consecutively 0.5 in the past 4 years at an average rate of 3.8% a year. The median number 0 of persons per household China Japan Korea Russia Mongolia was 3.5 in 20153. In the -0.5 relevant year, the total number of households was Figure 12: Population growth rate 859.1 thousand, from which 67.4% reside in urban areas. Compared to China, Japan, Russia and Korea, Mongolia has a higher household count at 3.5, while Japan median household is 2.3, China is 3.1, Russia is 2.6 and Korea is 2.7.

Total Number of Households ('000 households) in North East Asia

60 000 000

40 000 000

20 000 000

0 China Japan Korea Mongolia

Figure 13: Total number of households in North East Asia

3 Mongolian Statistical yearbook 2015, National Registration and Statistics Office (2016) 76

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Total Registered Businesses (2015) 50 40 30 40.6 20 10 4.7 0.1 0 China Russia Mongolia Figure 14: Total registered businesses

The number of registered businesses in Mongolia 2015 was 126.5 thousand with 43%4 percent in the wholesale and retail trade, repair of motor vehicles, household goods sector.

Other service Other community, social and personal sertvices Health and Social work Education Public administration and defence, compulsory social security real estate, renting and other business activities 2015 Financial and insurance service Transportation and Logistics 2014 Hotels and restraunts 2013 Wholesale and retail trade, repair motor vehicles, hoouseholds goods 2012 Construction Electricitiy and gas supply Manufacturing Agriculture, Forestry and Fishing Mining and quarrying

0 10 000 20 000 30 000 40 000 50 000 60 000

Figure 15: The number of registered businesses in Mongolia, Mongolian Statistical Yearbook 2015

As one of the most sparsely populated countries in the world, demographic figures are significantly smaller than the other NAPSI countries. However, Mongolia enjoys extensive natural resources and neighbors with one of the most populated country in the world. Combined, these factors equip Mongolia with great potential to grow its economy, its exports and regional influence. Upon further research in Module3, this project shall concentrate on taking a further in-depth look at tСe reРТon’s РrowТnР/declТnТnР demographics. Bordering economic provinces and its needs.

4 Mongolian Statistical yearbook 2015, National Registration and Statistics Office (2016) 77

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In this part we will provide a neutral analysis of the regional context for Mongolia.

i. Mongolia

In 1990 Mongolia transitioned into multiparty system from a single party rule. Today Mongolia holds regular elections for public office and has 25 registered political parties. Parliamentary elections are held every four years with the next elections to be held in 2020. Presidential elections are also held every four years with election to be held in June 2017.

In 2015 the EIU Democracy Index Mongolia was ranked at 62 from 167 countries. According to the public participation index, public participation in democracy in Mongolia has also been steadily rising since 2011, which has led to greater transparency and accountability in the government. Looking for an equilibrium between its two neighboring partners, Mongolia has increasingly developed its so-called “tСТrd neТРСbor polТcy”.

Therefore, while China and Russia are the top two trading partners of Mongolia representing, respectively, 62.1% and 13.0% of the country overall trade in 20155, EU as a whole was MonРolТa’s tСТrd partner representТnР 5.6%6.

ii. Russian Federation

Similar to Mongolia, Russia transitioned to a multiparty system in the 1991. The politics of Russia (the Russian Federation) takes place in the framework of a federal semi-presidential republic. According to the Constitution of Russia, the President of Russia is head of state, and of a multi-party system with executive power exercised by the government, headed by the Prime Minister, who is appointed by the President with the parliament's approval. Legislative power is vested in the two houses of the Federal Assembly of the Russian Federation, while the President and the Government Issue numerous legally binding by-laws. On the federal level, Russia elects a president as head of state and a legislature, one of the two chambers of the Federal Assembly. The president is elected for, at most, two consecutive six-year terms by the people (raised from four years from December 2008). The Federal Assembly (Federalnoe Sobranie) has two chambers. The State Duma (Gosudarstvennaja Duma) has 450 members, elected for five-year terms (also four years up to December 2008), using a mixed electoral system. Half (225 deputies) are elected by proportional representation with a five percent threshold. The other half are elected via single member districts. The Federation Council is not directly elected; each of the 85 federal subjects of Russia sends 2 delegates to the Federal Council, for a total of 170 members. iii. People Republic of China China has a one party policy with a planned market economy. The ruling party of China is the Communist party and the primary organs of state power are the National People's Congress (NPC), the President, and the State Council. Members of the State Council include the

5 Mongolia’s Foreign Trade Review, December 2015 Mongol Bank 6 Source: EU, Trade in goods with Mongolia. April 2016 EU Commission, Directorate-General for Trade,

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Premier, a variable number of Vice Premiers, five State Councilors (protocol equal of vice premiers but with narrower portfolios), and 29 ministers and heads of State Council commissions. The present head of state is Mr. Xi Jingping. He will serve two five year terms, his second term is expected to be renewed in 2017. The government of Japan is a constitutional monarchy in which the power of the Emperor is limited and is relegated primarily to ceremonial duties. The Cabinet, composing of the Ministers of State and the Prime Minister, directs and controls the Government. The Cabinet is the source of power of the Executive branch, and is formed by the Prime Minister, who is the head of government. He or she is designated by a publically elected House of Representatives and house of Councilors and is appointed to office by the Emperor. The present prime minister is Shinzo Abe. The next public elections are scheduled to be held in 2018. The political system of Republic of Korea is based on a Republic form of government with the President as Chief of the State and Prime Minister as the Head of Government. Powers of the government is shared between the executive, legislature and judiciary. The Cabinet comprises of a council of ministers who are appointed by the President on the recommendation of the Prime Minister. The present head of state is Moon Jae-in, after the previous president was impeached due to corruption allegations. His term is expected to last 5 years. iv. Conclusion The Mongolian political system has been present for the past 20 years. Although it is a comparatively young democracy, the system has had continuous stability and has encouraged political debate, free speech and accountability. Compared to its neighbors the country maintains a unique system with carefully calibrated checks and balances amongst its decision making branches. Mongolia has been referred as a success story in managing its transition to democracy. For instance it was considered as a case study for Myanmar in its transition period. In Module 3 we will closely examine the NAPSI countries regional geopolitical situation and collaboration with neighbors and will go more in depth to assess how the regional context may affect the regional grid development. c) Regulatory environment to foreign investment

This part consists in comparing the different frameworks applied to foreign investment and the ease to invest in the different markets As a fТrst analysТs comТnР from tСe Аorld Bank “DoТnР BusТness 2017” MonРolТa busТness environment is far beyond APAC average.

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How Mongolia and comparator economies rank on the ease of doing business

Korea, Rep (Rank 5)

Japan (Rank 34)

Kazakhstan (Rank 35)

Russian Federation (Rank 40)

Mongolia (Rank 64)

China (Rank 78)

Regional Average(East Asia &Pacific)

0 100 Distance to frontier score

Figure 16: Comparator economies rank on the ease of doing business, World Bank

 Mongolia

 Foreign Direct Investment ForeТРn dТrect Тnvestment (FDI) Сas been an Тmportant drТver of tСe country’s fast economТc growth. Total FDI in Mongolia reached a peak of USD 4.71 billion in 2011, more than 80% of which was due to large capital inflows to the mining sector. By 2015, FDI fell drastically to USD 232 million (Figure 11), mainly due to: 1) TСe slowdown of CСТna’s economТc РrowtС and subsequent declТne Тn mТneral prТces. 2) Regulatory misappropriated decisions (confiscating selected mining licenses, levying mining-specific windfall profits tax, assuming veto rights over mining company business decisions, etc.) created a negative perception amongst investors. The current government elected in June 2016 has clearly vowed to improve the development of infrastructure to foster foreign investment in Mongolia. Considering the impact of FDI on the Mongolian FDI - bn USD economy, the government leaders have taken a more active stance towards attracting investors. 4.7 With the newly elected party back in power after 3.8 four years, it is anticipated the government will be introducing improved and stable investment 2 1.7 policies. Due to the June 2016 trilateral 0.381 agreement between Russia, China and 0.6 0.232 Mongolia, support will be ramped-up by its 2009 2010 2011 2012 2013 2014 2015 neighbors through numerous large Figure 17: FDI - bn USD, Bank of Mongolia infrastructure projects.

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 The Foreign Investment Law Overview

Investment including foreign investment in Mongolia is regulated primarily through the Law on Investment which was enacted on October 3, 2013. One aim of this law is to support and encourage investors and to attract more investment into Mongolia. In that sense, the main objective is to protect the legal rights and interests of investors in Mongolia without any distinction between foreign investors and domestic investor and to stabТlТze tСe tax envТronment by ТssuТnР ‘StabТlТzatТon CertТfТcate’. Where a foreign state owned entity proposes to hold 33% or more of the total issued shares of a Mongolian legal entity operating in the banking and finance sector, it shall obtain approval from the state central administrative body in charge of investment affairs. The basic requirement is where more than 25% of the total issued shares of a Mongolian entity are owned by a foreign investor; at least US$100,000 must be invested by each foreign investors. As the mining sector is viewed as strategically important for the development of the country, restrictions to foreign investment in this sector are solely limited to State Owned Enterprises and affiliates which may require a specific approval from the Invest in Mongolia Agency.

 Exchange control policies Mongolia has not implemented an exchange control framework which in other words means there is no difficulty to implement any back and reverse foreign exchange transaction. The single issue that can be faced is the availability of foreign currency to perform a transaction in the Mongolian marketplace. USD is the preferred foreign currency and companies and individuals often get dual currency accounts with USD and MNT. The Mongolian government wants funds to flow easily in and out of the nation. Regarding domestic transaction, those are by the law of Mongolia on Conducting Settlement in National Currency adopted in 2009 in local currency, the Tugrik or MNT, except those entities allowed specific waivers as determined by the Central Bank of Mongolia and the Financial Regulatory Commission. Foreign-held interest bearing dollar accounts remain subject to a 20% withholding tax, unless the term is reduced pursuant to an applicable tax treaty. The bank retains 20% of all such interest payments sent abroad, and remits this withholding to the Tax Authority of Mongolia, in accordance to the tax treaties existing between Mongolia and the countries issuing the loan. Other good news is the absence of delays in remitting investment returns or receiving in-bound funds. Most transfers happen within 1-3 business days or at most a single business week.

 Tax environment With the implementation of the IMF Extended Facility Fund program new tax laws have been approved by the parliament of Mongolia. However, the amendments have only been made on personal income and importation of certain goods while corporate taxes remain unchanged.

 Corporate taxes The first MNT 3 billion (about USD 1.25 MN) in annual income of corporate companies is taxed at 10%, while the remaining amount after MNT 3 billion is taxed at 25%. 81

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 Withholding taxes on dividends Dividend, interest, and royalty income of a Mongolian resident taxpayer are subject to WHT at 10%. Income from sale of right is subject to WHT at 30%. Withholding tax is applied to the gross proceeds on the sale of immovable property at 2%. Non-resident taxpayer with no presence in Mongolia is subject to WHT at 20% on income sourced from and earned in the territory of Mongolia. This covers the following types: - Dividend; - Interest; - Royalty; - Rental; - Management and administrative expenses; - Income goods sold, work or services provided in Mongolia; - Work or services provided directly or through electronic means. - Taxes on interests (applied to foreign financial institutions) Foreign-held interest bearing dollar accounts remain subject to a 20% withholding tax, unless the term is reduced pursuant to an applicable tax treaty. The bank retains 20% of all such interest payments sent abroad, and remits this withholding to the Tax Authority of Mongolia.

 China

 Foreign Direct Investment and Outbound Direct Investment

CСТna’s outbound dТrect Тnvestment (ODI) exceeded Тnbound foreТРn dТrect Тnvestment (FDI) for the first time in 2015. Over the past year, the Chinese government has increased its support for Chinese companies investing abroad, as made visible in developments including the Asian Infrastructure Investment Bank, tСe “One Belt, One Road” ТnТtТatТve, and tСe “Several OpТnТons of tСe State CouncТl on AcceleratТnР tСe Development of ServТce Trade.”

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ODI flows vs FDI flows (in USD billion)

Figure 18: ODI flows vs FDI flows in USD billion, World Bank

According to the World Bank, FDI in China declined by 7% in 2015 compared to the previous year. In 2015, foreign investors in China faced a challenging environment. While the Chinese government has consistently affirmed its support for market reforms and greater market based competition, recent regulatory and policy developments have increased concern in the foreign business community regarding the trajectory of reforms, including those that would allow foreign-invested enterprises (FIEs) to provide goods and services to the Chinese people on a level playing field with their Chinese competitors.

Net FDI (USD bln)

300

280

260

240

220 2010 2011 2012 2013 2014 2015

Figure 19: Net FDI in USD billion, World Bank

 The foreign investment law overview Currently, there are three key legislations governing foreign-invested enterprises (FIEs): the Sino-Foreign Equity Joint Venture Law (EJV Law), the Sino-Foreign Contractual Joint Venture Law (CJV Law) and the Wholly Foreign-Owned Enterprise Law (WFOE Law). These laws, as 83

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552 081 371 R.C.S. Paris EDF References: CIST – DCO – PhL – 17 – 228 www.edf.fr Strategy for NAPSI Inception Report - June 2017 well as their amendments and implementing rules and regulations, together form a distinct body of law for foreign investors in China. On January 19, 2015, the Ministry of Commerce (MOFCOM) of the People's Republic of China (PRC) published a draft law called the Foreign Investment Law of the PRC and began to solicit public comments thereon. MOFCOM also published a document explaining its legislative intent and key provisions. Once the draft law becomes effective through legislative process, the EJV Law, the CJV Law and the WFOE Law will be abolished. The Foreign Investment Law is expected to have standardizing effect on foreign investment and ease investor anxiety on approval and registration. Under the 2015 Draft Foreign Investment Law (FIL), the national security review system implemented through administrative regulations in 2011 will be replaced with a new codified national security review system (NSR) as provided in Section Four of the FIL. The new NSR system would widen the scope of the review to cover any FIEs that may endanger national security in contrast with the original system implemented under the 2011 NSR system where FIEs were only subject to NSR if they had any connection to the military or national defense or they acquired a controlling interest in an enterprise in a key industry sector. Detailed regulations under the FIL are expected to be issued in the future. The new NSR system would empower the government to block foreign investments that may be contrary to national policy and such a decision would not be subject to appeal or challenge either by administrative or judicial review. While the outlook for foreign investment in China is generally positive, the Chinese Government remains focused on protecting key industries and scrutinizing foreign investments that may affect national security. The main governing body over foreign investment law is the National Development and Reform CommТssТon (“NDRC”) and tСe MТnТstry of Commerce ("MOFCOM"). In AprТl 2015, tСe new Foreign Investment Industries Guidance Catalogue took effect. The Foreign Investment Industries Guidance Catalogue (the "FDI Catalogue") is one of the key mechanisms for regulating foreign direct investment in China. The 2015 Version is the sixth edition since the catalogue was first promulgated in 1995. It categorizes foreign invested projects as "encouraged", "restricted" and "prohibited" industrial sectors, and includes restrictions on investment forms and/or shareholding proportion. Foreign investment in industries not covered by the FDI Catalogue will be regarded as "permitted". According to NDRC, while formulating the 2015 Version, the authorities took into consideration the further reforms expected to impact the foreign investment regulatory regime and hence significantly narrowed down the restricted category. CСТna announced Тt would Тntroduce two natТonal “neРatТve lТsts” – one covering both domestic and foreign investors and another list with additional limits on foreign investment. The negative lists delineate sectors of the economy where certain Chinese agencies would continue to require investors to secure approval from those agencies for investment projects. Investments in unlisted sectors would no longer require approval by those agencies; however, China would maintain separate approval, licensing, and screening processes conducted by other agencies. China is now piloting the foreign investment negative list in the Shanghai, Tianjin, Guangdong, and Fujian Free Trade Zones (FTZs). The National Security Law, enacted in July 2015, which expanded the scope of economic actТvТtТes tСat can be screened on natТonal securТty Рrounds to Тnclude an Тnvestment’s Тmpact on cultural security, information security, industrial security, military security, technological security, and territorial security, among others.

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 Exchange control policies The State Administration of Foreign Exchange (SAFE) recently issued the Notice on Further Simplifying and Improving Direct Investment-Related Foreign Exchange Administration Policies (Notice), which takes effect on 1 June 2015. The three key reforms introduced by the Notice are: - Inbound Direct Investments Exempted from SAFE Approval Direct investment into China will no longer require separate SAFE approval. Instead, investors may transfer funds by filing a foreign exchange registration with qualifying Chinese banks. - Filing Requirement Removed for Overseas Re-Investments The SAFE will no longer require overseas enterprises established or controlled by domestic investors to complete foreign exchange registration procedures when re- investing abroad. - Use of Foreign Exchange in Domestic Equity Purchases Simplified Where a foreign-invested enterprise (FIE) is created by a foreign investor purchasing equity in a Chinese company with hard currency, the FIE must employ an accounting firm to perform capital verification and registration procedures. Failure to do so prohibits (a) the seller from converting the foreign currency into Renminbi, or otherwise using the funds in China; and (b) the buyer from using income generated by the company in China, or converting it into foreign currency for repatriation. The Notice removes the above capital verification requirement, and allows FIEs to register foreign currency investments with the SAFE directly. This will simplify the creation of FIEs, the conversТon of foreТРn excСanРe, and overseas Тnvestors’ repatrТatТon of profТts. By simplifying certain uses of foreign exchange, the Notice facilitates access to, and the application of, capital in cross-border transactТons. TСТs Тs consТstent wТtС CСТna’s overall polТcy of supportТnР CСТnese companТes to “Рo abroad”, as well as tСe Рradual relaxatТon of Тnbound investment rules. The Notice also makes it easier for Chinese and foreign parties to collaborate on multi-directional ventures such as the establishment of a joint venture in China to sell goods into the overseas market.

 Tax environment Corporate income tax ("CIT") - standard tax rate is 25%, but the tax rate could be reduced to 15% for qualified enterprises which are engaged in industries encouraged by the China government (e.g. New/high Tech Enterprises and certain integrated circuits production enterprises). Tax holiday is also offered to enterprises engaged in encouraged industries. Other CIT incentives are also available for tax resident enterprises in China. Withholding income tax on payments to non-residents - a concessionary rate of 10% is currently applicable to interest, rental, royalty and other passive income. The Environment Tax Law was approved at the end of the National People's Congress (NPC) Standing Committee. The law, to enter into force on Jan 1, 2018, will be key to fighting pollution. China has collected a "pollutant discharge fee," since 1979. In 2015, it collected 17.3 billion yuan ($2.5 billion) from some 280,000 businesses. Under the new law, companies will pay taxes ranging from 350 yuan to 11,200 yuan per month for noise, according to their decibel level. It also set rates of 1.2 yuan on stipulated quantities of air pollutants, 1.4 yuan on water pollutants and a range of five to 1,000 yuan for each ton of solid waste.

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 Conclusion Considering Mongolia has an open market, restriction of foreign direct investment is quite minimal. Despite its economic difficulties, the government maintains an open and positive attitude towards private companies and investments. This has been especially observed during the recent approval of reforms concerning tax and customs law. During these reforms corporate income tax and investment laws have not been altered. With the recent reforms in China investors remain anxious. However, the draft Investment Law and further simplification of the registration of business will further allow efficient flow of investment. The effect of the National Security Law on investments in China remains to be further studied and observed. АТtС MonРolТa’s lТmТted reРulatТons and Тts overall Рovernment attТtude towards foreТРn investment, Mongolia rank 64 on the World Bank easy of doing business pole. Module 3 will furtСer researcС tСe remaТnТnР NAPSI country’s Тnvestment envТronments and Тts foreign investment policies and foreign investment in the energy sector. Deeper research will also be done on Mongolia and China concerning investment in the energy sector. d) Regulatory environment to the power sector i. Mongolia

Mongolian energy legislation comprises of the State policies for energy and nuclear energy, and specific statutes for conventional energy, renewable energy and nuclear energy sectors.

On 19 June 2015, the Parliament approved the State Policy on Energy which replaces the National Program for Renewable Energy of 2005 and the National Program for Integrated Energy System of 2007. The Government approved a medium term program for the implementation the State Policy on Energy in 2015 and to evaluated the implementation of the State Policy on Energy biennially and reported to the Parliament.

The Mongolian government is also keen to promote regional cooperation in the energy sector as government leaders press for integration of the energy system of countries in the region, using Mongolia's renewable resources. On June 9, 2017 the president of Mongolia, Mr. Elbegdorj, attended the Shanghai Cooperation Organization (SCO) summit in Astana, Kazakhstan. During his speech at the summit, he highlighted the abundant energy resources in Mongolia and it's government policy to promote international cooperation, development: and interconnection of the energy infrastructure sector. The President urged the SCO to cooperate further in developing electricity interconnection projects throughout Asia and the Asia Pacific region, using Mongolia's vast renewable energy resources.

The St. Petersburg International Economic Forum (SPIEF) was attended by the prime minister of Mongolia, J. Erdenebat, between June 1-3 2017. During the prime minister's visit, a memorandum of understanding was signed between the governments of Mongolia and Russia detailing cooperation in energy sector which highlighted the concept of 500 KV transmission line through Mongolia as part of the Asia super grid concept. Also, the speaker of the Mongolian parliament, M. Enkhbold visited Japanese Prime Minister S. Abe on March 29, 2017 during which M. Enkhbold highlighted the country's abundant mineral and renewable resources and the desire to work with Japan in making the Northeast Asia Power System Interconnection a reality.

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The current Energy Law was adopted in 2001 and has been amended several times since its adoption. The Energy Law is the principal legislation for the energy sector and regulates matters relating to energy generation, transmission, distribution, dispatching and supply, energy consumption and licenses for energy related activities. The last amendment took place in June 2015 which sought to enhance coordination between power sector institutions to prepare the sector's transition to free market, enhance legal environment for foreign investment and added methane gas regulation matters.

The Renewable Energy Law was introduced in 2007 and it regulates the generation and supply of renewable energy.

The Nuclear Energy Law was adopted in 2009 and sets forth the rules for the exploration and mining of radioactive minerals, construction and use of nuclear reactors, safety of nuclear substances and radioactive minerals, and licensed activities.

In addition, there are various regulations, procedures, codes and rules approved by the Government, the Ministry of Energy and the Energy Regulatory Commission. Key regulations are the Grid Code, the Business Relations Code and the Central Heat Supply Code which all license holders must comply with.

The energy policy of Mongolia sets forth a vision to become a country with reliable and secure energy supply by assessing the current situation and challenges of the energy sector and identifying the actionable strategic goals and objectives. Mongolia aims to fulfill the following strategic goals: - ensure the security and reliable supply of energy; - develop mutually beneficial relationship in respect of energy with the regional countries; - develop and improve the human resources capacity in the energy sector; - transition the energy sector to a private sector based, regulated and competitive market; - introduce innovation and advanced technology in the energy sector as well as energy efficiency and saving policy; - increase renewable energy generation and reduce adverse environmental impacts of conventional energy sources and greenhouse gas.

The State Policy on Energy is expected to be implemented in two phases. Phase 1 will be implemented from 2015 until 2023. In this first phase, the State targets to double the current total installed power capacity, to increase the installed renewable energy capacity to 20% of the total installed capacity, to increase the power reserve to 10% of the installed capacity, to establish a realistic tariff and rate structure and to create a robust environment for the major growth of renewable energy. Multiple concrete actions will be taken during this period. For example, CHP5, Tavan Tolgoi Power Plant and Baganuur Power Plant are expected to be completed, State owned power generation, distribution and supply companies (with the exception of transmission) are planned to be privatized in phases and energy tariff is to be indexed and the energy market is to become financially independent.

Phase 2 will be implemented during the period of 2024 and 2030. In the second phase, Mongolia sets a goal to increase its installed renewable energy capacity to 30% and the power reserve 20% of the total installed capacity, and to export energy to its neighboring countries.

The State Policy on Energy encourages public private partnership and domestic and foreign investment in the energy sector. 87

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TСe EnerРy ReРulatory CommТssТon of MonРolТa (“ERC”) Тs tСe maТn reРulatory body in the energy sector. ERC consists of five regulators who are appointed by the Government. ERC has the authority to issue, suspend and terminate licenses, approve energy tariff, resolve certain types of disputes between license holders and disputes between consumers and license holders.

The National Dispatch Center has the authority to enter into a PPA with an independent power producer upon obtaining approval of the Ministry of Energy. ERC must endorse the starting price of energy sold by an independent power producer and supplied to the main or unified grid under a PPA. PPAs must be in the form approved by ERC and be registered with ERC. We expect that ERC will approve a form of PPA in the near future.

ERC sets tariff for energy generation, transmission and distribution respectively based on the following key principles, among others: Renewable energy tariff and feed-in tariff scheme

ERC sets the renewable energy tariff taking account of the investment payback period within the range specified in the Renewable Energy Law. The table below sets forth the tariff levels. ERC has the authority to resolve disputes relating to matters within its authority between (i) license holders, and (ii) consumers and license holders. ERC determines whether a dispute is within its jurisdiction. If a disputing party does not accept the decision of ERC, it may appeal to a Mongolian court of competent jurisdiction.

Mongolia ratified the Energy Charter and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects in 1999.

ii. China

In China, the legal environment for energy projects has rapidly progressed. The legal framework is a sophisticated system with distinctive hierarchies.

National Development & Reform Commission (NDRC) Energy Commission

Network Generation

& Supply

StateGrid of

China Power China China Power China

Investment

Southern

Huaneng

Huadian

Datang

Power Power Power

China

China China

Grid

IPPs Co

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There are national laws, ministerial regulations, guiding opinions, measures and procedures, local rules and regulations, self-regulation rules of the industry and internal governance rules for each of the state-owned power companies and grid companies. Interestingly, use is also made of the concept of 'trial' rules and procedures, whereby new concepts are introduced for stakeholder comment, before becoming fully effective.

The national laws provide broad guidance and are procedurally more difficult to amend. Accordingly, it is the secondary regulations and rules that truly drive the reforms in the industry. The NDRC regulates pricing. The SERC focuses on administration and market regulations. The SASAC, in turn, supervises power corporations. Other specific regulations, such as environment issues and land use rights, are developed by the corresponding governmental bodies.

The main laws and regulations in the power sector are listed below, including some of the proposed rules and procedures, but it should be noted that this list is subject to change due to ongoing reforms.

NatТonal Laws (Approved by tСe NatТonal People’s ConРress)

- Laws on Electricity: The Electric Power Law of the People's Republic of China - Laws on Energy Policy: The Renewable Energy Law and The Energy Conservation Law - Laws on Resource and the Environment: The Water Law ; The Land Management Law ; and The Environmental Impact Assessment Law (Law of the People's Republic of China on Evaluation of Environmental Effects) - Laws on Markets: Price Law; The Public Bidding Law and The Government Procurement Law - Other Relevant Laws: The Law on Work Safety In MarcС 2015, CСТna’s State CouncТl Тssued a reform plan, wСТcС sСould propel tСe country to further optimize its energy mix and improve the share of renewable energy in electricity РeneratТon. ‘OpТnТons ReРardТnР tСe DeepenТnР of tСe Power Sector’s Reform’, outlТnes polТcy recommendatТons to encouraРe competТtТon Тn CСТna’s electrТcТty sector and revamp tСe existing pricing system. Once they are made official, the reforms may enable private and foreign entities to enter the sales and distribution business, which is currently dominated by Southern Power Grid Company and the State Grid Corporation of China. Eventually, electricity prices paid by large power users should be determined by market forces rather than by the National Development and Reform Commission. iii. Conclusion BotС countrТes are rampТnР up Тts renewable enerРy efforts. MonРolТa’s efforts wТll be СeavТly dependent on foreign investment and regional cooperation. The recent investment climate has been positive with the energy regulatory commission approving over 60 renewable licenses. Both Mongolia and China are suffering from severe air pollution thus renewable are heavily supported by the governments. During the duration of the project we will study how these government efforts and governmental investment regulations will be developing to accelerate investment in energy. The newly adopted national security law remains a cause for anxiety for investors as energy is an integral part of country security. Since its transition into a multi-party system, Mongolia has been developing its investment

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All in all, in Module 3 concerning the political criteria this report will aim to further study the political and investment environment of the NAPSI countries, specifically in relation to energy. Due to severe air pollution and rising population health concerns caused by pollution, the governments have become increasingly aware of the dire need in changing energy consumption and production habits. As seen above, countries like China and Mongolia have been adjusting policies and laws to further accommodate growth in sustainable efficient energy production. With this report we will aim to further study how political, governmental and investment attitudes are changing apart from in China and Mongolia, but also in Japan, Korea and Russia. Also subject for further study will be energy regulation of these countries and their adjustment to recent social and environmental needs and NAPSI countries, as well as future developmental plans to better accommodate the growing need for renewable energy and collaboration between these countries. Specificities that may impact the development of renewable energies will be also added. Trans-boundary benefits will be also assess there as poverty reduction, balancing benefits between rural and urban populations, level of services, mechanisms for benefits sharing

5.2.4 Socio-environmental criteria

Elements of comparison Mongolia is a country with abundant natural resources, not only coal and other metals and minerals, but also of renewables, including solar, wind and hydropower resources. For the past decades, coal has been the primary source of energy in the country. Even though the abundance in coal gives the country opportunities to fuel up the economy at a low cost, however it has also been bringing environmental problems, particularly in Ulaanbaatar, the capital city of Mongolia. Since 1990, when the country transited from socialist system to democracy, a large number of people around tСe country moved to Ulaanbaatar and resettled Тn tСeТr tradТtТonal “Рer”. People who live in ger generally burn raw coal in their stoves for the purpose of getting heat and for cooking. This causes significant air pollution in the city during the winter. As a result, the World Health Organization (WHO) listed Ulaanbaatar as one of the five most polluted cities in the World. The ger districts are home to 60% (World Bank, 2009) of city population. According to World Bank (2015), the urban population of Mongolia is 72% which corresponds to around 2.1 million people, and more than half of the urban population lives in the capital city. Therefore, even though the capital city is listed as one of the most polluted cities in the world, the most part of the rural areas in Mongolia are still kept well as natural.

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Figure 20: CO2 emissions per capital 1960 - 2013, World Bank

From the figure above, Mongolia is the top emitter of CO2 comparing to Japan, Republic of Korea, Russia and China in terms of CO2 emission per capita. However, as Mongolia is one of the least densely populated country in the world, Mongolia generates the lowest emission comparing to the countries mentioned above in terms of CO2 emission per square.km. See figure 3 below.

7 519 6 5 348 4 3 146 2

1.9 1 8.8 0

Mongolia China Japan South Korea Russia Mongolia China Japan Korea Russia

Figure 21: Population density, World Bank Figure 22: CO2 emission metric ton per square 2015 km, World Bank 2015

AccordТnР to tСe IRENA study, MonРolТa’s total renewable energy potential has been estimated at 2.6 terawatts (TW), and combined electricity output from wind and solar resources could reach 15 000 terawatt-hours (TWh) per year that consists of 2 550 TWh of excellent wind 91

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Conclusion

With respect to its land availability and resources of renewables, Mongolia stands strong to develop large-scale renewable energy projects to feed the electricity demands of Northeast Asian countries. In module 3, the elements of comparison shall be studied in more details by NAPSI countries. b) Environmental impact of the existing energy sources

According to the Statistics book by Energy Regulatory Commission of Mongolia, in 2016, MonРolТa’s electrТcТty productТon reacСed 5,802.4 mТllТon kАС, an Тncrease of 2.98% compared to previous year. 95.8% of the total power energy was produced by thermal power plants, 1.5% by hydro power sources, 2.7% by solar and wind, and 0.1% by diesel generators. The total consumption of coal by the thermal power plants reached 6.5 million tons in 2016.

The main power generating stations, CHP3 and CHP4, of the power system and heat- РeneratТnР “AmРalan” power statТon are located wТtСТn Ulaanbaatar cТty, and 60% of tСe cТty population who live in ger burns raw coal during the winter, thus make Ulaanbaatar city one of the most polluted cities in the world. The Government of Mongolia has been carrying out different initiatives to reduce air pollution of the capital city, including distribution of full-burning stove with Government subsidies to famТlТes tСat lТve Тn Рer, makТnР tСe nТРСt rate of tСe electrТcТty prТce “zero” for tСose wСo uses electrical heat system in ger, and ger district re-development project. However, air pollution of the city is still significantly high as the energy system (distribution, transmission, generation) itself is overloaded, full-burning stoves also produce air pollution, and conventional PV system is not suitable for Mongolian residential use due to mismatch between load and generation time (Bayasgalan. D et al, 2016).

In tСe last 30 year perТod, CСТna’s prТmary enerРy mТxture dТd not cСanРe significantly and the dependence of coal is still very high. As coal is abundant in China, this is most likely to be a key energy resource during the foreseeable future.

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Figure 23: Installed power generating capacity of China, China Electricity Council 2016

In China, fossil energy resources still account for more than 90 % of the primary energy consumption with coal as still the dominant energy resource. Nuclear energy plays a minor role in the Chinese energy mix and hydro energy is so far the dominant renewable energy resource. The renewable energy resources including hydro have significant potential and are growing. Nuclear energy does not harm the environment in the way coal does. But the final disposal of the radioactive waste is not solved and the risk for severe accidents is still a major potential environmental problem which cannot be forgotten. The Japanese accident in Fukushima has recently reminded the world about that (Mats Nilsson, 2013).

For Japan, sТnce 1970’s to 2015, the energy production has been dominated by nuclear energy and fossil fuels. The 2011 Japan earthquake and the subsequent Fukushima Daiichi nuclear accident changed the situation dramatically. According to IEA, in 2015, fossil fuels accounted for 93.7% of total primary energy supply, the highest among IEA member countries.

UNFCCC data sСow tСat Japan’s enerРy sector accounted for 89.1% of total GHG emТssТons, followed by industrial processes (6.6%), agriculture (2.8%) and the waste sector (1.6%).

Japan’s CO2 emТssТons from fuel combustТon are estТmated at 1 189 mТllТon tons (Mt) Тn 2014, 14.2% more than in 1990. Emissions increased steadily for decades to reach 1 221 Mt in 2007, before a 12.5% decline during 2008-09. Following the 2011 Great East Japan earthquake and the subsequent nuclear shutdown, increased use of fossil fuels in power generation pushed CO2 emissions up by 11.8% from 2010 to 2014. The largest CO2 emitting sector is power generation, accounting for 48.6% of the total in 2014. (IEA, 2015)

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Figure 24: Japan Energy production by source 1973 - 2015, IEA 2016

An OECD report found that up to 9m people worldwide could die prematurely by 2060 as a result of current levels of air pollution. According to some news channels, such as New York TТmes, burnТnР of coal caused at least 366’000 premature deatСs Тn 2013. In Japan, coal-fired power stations could cause at least 10,000 premature deaths (Lauri Myllyvirta, 2016, Greenpeace international). In Korea, coal accounts for 39.1% of its total energy sources. Approximately 50,000 lives a year could be saved by 2030 if no new coal-fired power plants are built in Southeast Asia, Republic of Korea, Japan and Taiwan, according to a study from researchers at Harvard University and Greenpeace International. Conclusion

In module 3, we’ll be Тn a posТtТon to demonstrate Тn furtСer details about the environmental impacts from the use of existing energy sources in NAPSI countries. On this side, we will assess the potential development areas where Renewable Energy Infrastructures could be deployed and the potential environment risks that could be directly and indirectly associated. c) Opportunities for renewables and governmental objective in the different countries

The Parliament of Mongolia (the State Great Khural) approved the Green Development Policy for Mongolia in 2014, approved the State Policy on the Energy sector in 2015, and ratified Paris Agreement against global climate change in 2016. The State policy of the energy sector, determined short and mid-term development scenarios and set an ambitious goal of increasing the contrТbutТon of renewable enerРy to tСe country’s total Тnstalled power-generation capacity to 20% in 2023 and 30% in 2030. To achieve these goals, the existing laws on energy and renewables have been amended, while parliament has recently approved the new Law of Mongolia on Energy Conservation and Efficiency. This new legislation enables Mongolia to provide energy security and reliability, improve energy efficiency, pursue public-private partnerships and create a market-oriented framework for the sector.

If Mongolia is connected by energy lines with Northeast Asian countries, more large-scale energy projects shall be implemented and the installed capacity will exceed beyond the capped number of 30% of the system, it could even overshoot the total capacity of the energy system 94

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Given the small domestic market (around 1100 MW), abundant renewable energy resources and well-built legal environment, Mongolia could be well positioned to enjoy renewable energy exports subject to a connectivity with China and other northeast Asian countries.

TСere Тs now an exТstТnР 50MА wТnd farm, “SalkСТt” by Clean Energy LLC, which was commenced into use in 2013. It was the first renewable project with capacity over MW size to be connected to the energy system in Mongolia. Following the Salkhit wind farm, there are several solar and wind renewable projects being developed, some of them are under construction while some are still at early stage.

Conclusion

In module 3, we’ll Сave studТed tСe objectТves and opportunТtТes of renewables of NAPSI countries in further details. For Mongolia, we would highlight how the government plans to adjust the 30% renewable mix target. d) Coal based energies

AccordТnР to CСТna’s NatТonal Development and Reform CommТssТon, CСТna sets plan to increase non-fossil energy to 15% of the primary energy consumption by 2020, and at the same time, carries out a number of restriction policies on coal-fired power plant projects, including to cancel new projects, shut down old power plants, etc. Mongolia, as mentioned above, has targets to increase its installed capacity of renewable energy to 30% by 2030. However, on the other hand, there is no limits or restrictions to the use of coal for today, and for the future. Hence, Mongolia could be a country where a large- scale coal fired power plants built to export stable supply of power to China and other countries in the region.

Regarding the coal resources in Mongolia, according to the Ministry of Mining and Heavy Industry, the total resources of coal are estimated at 173.5 billion tons, and proven resources are 31.7 billion tons. Conclusion

In module 3, we’ll Сave studТed about coal based energies in NAPSI countries in details to demonstrate how coal could perform in those countries, and the issues in controlling the carbon emissions. Furthermore, we will assess the strategy of the Government of Mongolia regarding the energy mix in the perspective of the coal resources in Mongolia. e) Lobby groups

In Mongolia, there are some NGOs and associations which support and promote renewable energy developments in Mongolia. For instance, there are two associations, Mongolian Wind Energy Association and Mongolian Renewables Industries Association, which jointly organize an annual forum called “NatТonal Renewable EnerРy Forum”. TСe 8th forum has been organized in early May 2017. With respect to more lobby groups that supports the projects and initiatives in the renewable energy sector in Mongolia, there is an organization called “MonРolТan SocТety of AsТan Super GrТd”. 95

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As of today, there are no apparent lobby groups that work against renewable energy development in Mongolia, however, it is not possible to say there will not be any groups or individuals who could go against renewables in Mongolia.

Conclusion During the realization of module 3 we will have dedicated interviews with the appropriate stakeholders we will identify with the Ministry of Energy. This will help to approach and anticipate the potential difficulties to implement the project. f) Conclusion

Our understanding of the current situation is as follows: 1. Mongolia could have advantages as below to support NAPSI project if interconnected: - Abundant renewable energy resources - Key policies and legislations in place to support renewables - As one of the least densely populated countries, Mongolia have enough land to develop large-scale renewable energy generation projects - Rich in coal resources - No legal restrictions and limits for coal use 2. Being interconnected by power lines to Northeast Asian countries, Mongolia could enjoy benefits as below: - The installed capacity of renewable energy in Mongolia is capped at 23% by 2020 and 30% by 2030 according to the State policy on Energy. Thus, the potentials of renewable energy resources in Mongolia cannot be well exploited due to the system constraints locally. However, if the connection is there with China, and furthermore to Japan, Korea, etc., Mongolia could be home to large-scale renewable energy projects. - Mongolia could become independent in energy sector as it could become a net exporter of energy, as it is now a net importer of energy. - Mongolian economy is now mainly driven by mining sector. Being connected by NAPSI, Mongolia could enjoy a new source of cash flow through energy export. Mongolia could attract more FDIs not only in the energy sector, but also in other economic sectors by direct and indirect effects from energy interconnectivity with Northeast Asian countries. In our analysis we will also take into account more specifically: - Greenhouse gas reductions, Upstream impact, Downstream impact, Ratio Reservoir area / Energy output), - we will take into account the social dimension as resettlement, and multipurpose benefit

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5.2.5 Proposed scenarios

At the end of this module, we will bring in the perspective a cost benefit analysis of the different scenarios to be analyzed we consider today as two separate cases:

 The interconnection of the Mongolian 3 grids

The first scenario we will assess will consist in the development a national grid connecting the Central Energy System already connected to the Southern Energy System to the Eastern Energy System and the Western Energy System. We will as a synthesis provide the following analyses of such development:

(1) The hypotheses of the business plan; (2) The Output of the business plan; (3) The profitability analysis; (4) A recommendation for the unified grid development in line with the governmental policy in terms of ownership and management of the network.

 The NAPSI interconnection Based on the analysis supported by discussions with stakeholders of the region we will provide an analysis of the best scenarios for the development of the interconnection within the region which will include:

(1) The hypotheses of the business plan; (2) The Output of the business plan; (3) The profitability analysis; (4) A recommendation for the regional grid bring the political factors, the ownership structure the management of the network and the next steps.

5.2.6 Deliverables of Modules 3

 Draft Planning and Evaluation Criteria report  5-countries Workshop N°3 (This Workshop will be organised in China, Japan or Republic of Korea according to organisation decisions)  Presentation to the Steering Committee  The Draft Planning and Evaluation Criteria report will include the remarks of the workshop and become Final after approval by the EA/ADB. The Planning and Evaluation Criteria report will be part for the interim report for outputs 1&3: 5 months after commencement of Services.

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5-3 Module 4: MONGOLIA ENERGY SECTOR PROFILE AND PROJECTIONS (Conventional Generation, Renewable Energy Capacity Expansion Plan)

5.3.1. Demand forecast The Mongolian National Dispatch Center projection tends to be conservative as it does not usually account for new and large consumers to be connected to the grid as they are largely based on economic and political factors. Below projection was based on average growth rate of power consumption of recent years. Maximum capacity has been calculated with 4.6-7.3% growth rate.

6000 1500

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0 0 2015 2016 2017 2018 2019 2020

E, mln kWh Р, МW

Figure 25: Demand forecast of Mongolia, NDC

АТtС tСe assТstance of tСe AsТan Development Bank, Тn 2013 MonРolТa developed Тts enerРy sector master plan wСТcС presents tСree demand scenarТos.

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Figure 26: Demand forecast by the ADB, low or organic growth scenario, UESDP

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The above forecast includes growth associated with existing domestic, commercial and industrial consumers. The growth has been modeled using an end-use model applied on individual Aimag and Energy Region basis. Current actual data trend resembles this scenario most closely.

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Figure 27: Demand forecast by the ADB, medium or bear growth scenario, UESDP

TСe forecast Тncludes an ТndustrТal РrowtС forecast added to tСe orРanТc forecast; Тt Тs assumed tСat ТndustrТal development takes place over a 30 year perТod (from 2013) centered Тn tСree ТndustrТal zones – NortСern zone (Erdenet / DarkСan), Central zone (CСoТr / SaТnsСand) and SoutСern zone (DalanzadРad / TT / OT area).

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30000 6000

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Figure 28: Demand forecast by the ADB, high or bull growth scenario, UESDP

TСe forecast above assumes tСat tСe ТndustrТal development descrТbed above takes place over a 20 year perТod Тn accordance wТtС mТneral and mТnerals processТnР expectatТons.

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Figure 29: Comparison of demand forecast in million kWh, ADB and NDC

As seen in above figure, the projection developed by the National Dispatch Center shows the most pessimistic demand projection as it doesn't take into account large projects as potential users.

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5.3.2. Potential trade opportunities

The power sector in Mongolia was under a vertical organization structure where until 2001, the sector was consolidated under the Energy Authority which had under its management 25 energy companies directly responsible for production, transmission, distribution and supply of electricity and heat. This consolidation under the Energy Authority over time resulted in cash flow shortage, underinvestment in maintenance and refurbishment, as well as expanding generation capacity, leading to significant accumulation of receivables and payables in the sector which badly needed reform.

In 2001, the new Law on Energy was adopted, paving the way for unbundling of the energy sector in Mongolia, starting with the establishment of an Energy Regulatory Authority (became Energy Regulatory Commission in 2012) which as part of its mandate to regulate energy production, transmission, distribution and dispatch regulation, oversaw the license issuance to operational companies in the sector. Also during that year, 18 state owned companies were created all of which secured licenses by the year end. As part of the effort to reflect real costs in tariffs, between 2000 and 2005, electricity tariff was gradually increased, resulting in 45% increase and heating tariff was increased by 246% during that period. As a testament to this reform effort, only two companies of the system operated profitably in 2000 whereas in 2004, eleven companies operated profitably. Mongolia's power sector currently employs a single buyer model where generation companies sell to the transmission company which then sells electricity to the distribution companies who do the collection from end users. The National Dispatch Center in Mongolia provides control and monitoring functions as well as holding the single buyer account from which producers receive their share of revenue for generation in accordance with predefined formula and coefficients set by the regulator. Before reaching the single buyer account at the National Dispatch Center, cash collections from end users are settled through "zero balance" account of distribution companies and further settled through "zero balance" account of the transmission companies. With the introduction of this model, revenue collection increased to 97% in 2004, compared to 75% in 2002. With the emergence of private producers and eventual privatization of state owned energy companies, there is chance the single buyer model may not be widely accepted as they are likely to require a contract model. Therefore, a new set of rules and regulations need to developed to transition to a new power market structure. To open up the market and make it more competitive, there are options to encourage a wholesale electricity market as well as a liberalized market. In a wholesale electricity market, the option is to have the distribution companies make direct contracts with generators for power purchases with the transmission company assuming the traditional role of providing transmission. The single buyer account method would be replaced with a method by which the distribution companies collect revenues and make settlements with the generators. The contract between the distribution company and the generator could be based on territorial proximity, allowing the regulator to set the security and quality of service standards for generators and enforcing them on the generators. The challenges related to moving to a wholesale electricity market are as follows:  In the event of distribution loss associated with technical and non-technical issues, there will be instances where the distribution company is unable to collect all 101

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payments, putting negative cash flow pressure on the generators  Due to different generation costs, the contract prices with distribution companies will vary, meaning some generators will have a hard time finding a willing distributor to sign a power purchasing agreement  Due to the central heating structure in Mongolia, all combined heat and power (CHP) plants must operate to supply heat even as they cost outweighs revenue which is an area the regulator could exercise its power to assign certain contracts

With the need to introduce alternative sources of supply into the energy supply mix and the emergence of large mining projects in Mongolia that are off grid, may come another opportunity to gradually implement a liberalized market where the generator and the end user directly make a contract. Once more conventional and alternative energy supplies are integrated into the existing system and the transmission networks are connected, spot trading involving generators and their supply contracts is likely to develop in accordance with market principles. However, affordability of electricity is a key issue in Mongolia which makes the decision a very hard one, politically. Therefore, a cheaper alternative source must be integrated into the existing supply mix while maintaining safety and quality of service.

5.3.3. Review of existing Generation Expansion Plan

The state policy program has been approved and is being implemented to settle issues related to the shortage of energy capacity in the energy sector by building new additional power plants, and expanding the capacities of the existing Combined Heat Power Plants (CHPP) in operation. In the action and strategic plan of Government of Mongolia from 2016-2020, the expansion projects in the power plants have been planned as follows: 1) Expanding the CHPP #3 in Ulaanbaatar by a new block which has 2125 MW capacity; 2) Expanding Choibalsan CHPP by 50MW; 3) Erdenet CHPP by 35MW capacity.

1) Expanding the CHPP #3 in Ulaanbaatar by a new block which has 2125 MW capacity Within the policies of expanding CHPP #3 in stages, feasibility studies and research work have been developed, and dТscussed by tСe sector’s ScТence and TecСnТcal CouncТl and Тt Тs approved. The purpose of this expansion and renovation work is: • CHPP’s MТddle Pressure Plant has been put into operation in 1968, the main equipment has been working for 40-48 years and coming into the end of its operating hours. • If a new Power Generation does not come into operation, the central power system will face major capacity shortage starting from 2018. • “CHPP #3” state owned joТnt stock company Тs one of tСe maТn sources of Сeat 102

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РeneratТon Тn Ulaanbaatar and Тt Сas tСe most suТtable locatТon for cТty’s Сeat pТpe network’s СydraulТc balance, but tСere Тs no extra capacТty now so that the capacity has to be expanded by the expansion and renovation work of the plant and it is necessary to keep the operation in the future.

Study for CHPP’s Heat supply in Ulaanbaatar. Source: Ulaanbaatar Transmission Network Company SOE The total investment cost us USD 350 million with expected payoff period of 11.7 years. Investment cost per 1 MW installed capacity us USD 1.4 million.

Table 17: Performance of Central Heat Plant 3, CHP3

№ PERFORMANCE Unit Amount 1 Annually electricity production Million. kW 1204.8 2 Annually heat production Thousand.Gkal 984.8 3 Annual working hours hours 5700 4 Coal Consumption Thousand. tons 1,046.8 5 Water Consumption Million. Cubic. meter 4.7 6 Electricity for own use % 10.3 7 Electricity unit cost MNT 63.1 8 Heat unit cost MNT 11500 9 Initial investment Million USD 350 10 Payback Period Years 11.7 11 Period for construction work Years 3.5

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As this project which has feasibility study done, and has high rate of return and infrastructure supply Тn place, starts wТtСТn 2017, Тt wТll supply fully Тn a sСort tТme Ulaanbaatar’s Сeat demand which is increasing continuously and the capacity shortage of Central Power System.

2) Expanding Choibalsan CHPP by 50MW

In the Dornod region Power system, Choibalsan CHPP which has 36MW installed capacity, and it was put into operation initially in 1969, an expansion work took place in 1980 and it has been working continuously for 36 years. Dornod Region Power system supplies power energy to consumers in Dornod, Sukhbaatar provinces and the total consumption for this system in 2012 was 137.5 million kWh and its consumption increased by 35% in 2015 and reached 184.7 million kWh. As the Mongolian Government implemented policies to develop Eastern Region Provinces intensively, and to support operations of mines, mining the rich resource of crude oil and enrichment factory functions, starting from 2004 foreign invested large companies in Dornod and SukСbaatar provТnces sucС as “SСanlun”, “TsaТrt MТnerals”, “UlaanТТ Ord”, “Emeelt MТnes”, “M L TsaСТurt Ovoo”, “Petro CСТna DacСТn TamsaР” Сave been workТnР actТvely. In this region, energy consumption is increased dramatically and the power plant is working at full capacity without backup sources, currently it is coming to the stage that it cannot supply anymore the power the increasing energy demand. Although this condition has been predicted previously and expansion work to increase the capacity began in 2008, time has been lost due to indecision among authorities. In 2009 a bid took place within the government and private sector, jointly, to choose a contractor. The agreement was scheduled to be signed with a contractor in 2012, however due to Government restructuring this project has been delayed. In 2014, this issue was raised and presented to the Government, as a result they have received the authority to make an agreement with a contractor directly, and the work is stopped in the process of making an agreement. Based on Dornod ReРТon, Power EnerРy System’s ElectrТcТty advanced orders, a calculatТon was made, the capacity will reach 104.5 MW by 2020.

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104.5 97.9 98.9 89.0

52.8 38.3

32.5 33 33 33 33 33

см ачааа М Д ДЦ-ы ава ачааа М System's total load MW Dornod CHPP's load MW

Figure 30: Dornod's load vs Total system load MW, MoE

Eastern ReРТon’s IncreasТnР ElectrТcТty demand was calculated based on tСe advanced orders by tСe larРe consumers, tСe demand Тs becomТnР more tСan tСe Plants’ Тnstalled capacТty, and it is becoming impossible to supply the electricity for these region provinces. Planned project site to build the expansion of CHPP

The feasibility study results for the expansion of 50MW CHPP: The total investment cost is USD 90.0 million with the initial investment to be paid back within 12 years.

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Table 18: Performance of Dornod Region Power System Company, SOE

№ PERFORMANCE Unit Amount 1 Annually electricity production Million. kW 400.0 2 Annual working hours hours 5600 3 Coal Consumption Thousand. tons 300.0 4 Water Consumption Million. Cubic. meter 0.9 5 Electricity for own use % 12 6 Power energy own cost MNT 59.35 7 Initial investment Million USD 90 8 Payback Period Years 12 9 Construction Work Continuing Period Years 2.0

“Dornod ReРТon Power System” state owned JoТnt Stock Company Сas been profТtable Тn tСe years of 2014, 2015, 2016, it has the full financial and operational capacity to implement this project with a long-term loan with a low interest.

3) Expanding Erdenet CHPP by 35MW capacity Erdenet CHPP was put into operation in 1987, designed to operate 150 thousand hours but currently its operating hours are reaching 204 thousand hours, its operating time is up. In OrkСon provТnce, tСere are plans to buТld a metallurРy factory, “Eco”, “Onor”, “Zaluus”, “ElТt” resТdentТal mТcro dТstrТcts and Тn tСТs provТnce’s development master plan tСere are several other micro districts to be built. Because of it, there is a need to expand the generation of power and heat energy. As increasing the installed capacТty of “Erdenet CHPP” state owned JoТnt Stock Company, Erdenet city and Central Region Power Energy System, Altai-Uliastai Power Energy System, BayankСonРor and OvorkСanРaТ ProvТnce’s Power EnerРy Systems wТll be Тmproved and Тt wТll enable to supply electrТcТty to tСese reРТon’s new constructТon and facТlТtТes and otСer infrastructure projects. The total investment cost to expand this CHPP is USD 55 million and the investment cost will be paid off within 10 years and the calculation was made that annual operational profit will be USD 3.1 million.

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Figure 31: Proposed projects under pipeline (coal-hydro-wind-PV)

5.3.4. Identification of generation supply options

High priority projects There are several conventional which means coal power plants and also renewable energy generation projects being discussed, and they are in the beginning process of project implementation. The total capacity of all the conventional and renewable energy generation licenses issued by the Energy Regulatory Commission (ERC) is 14,000 MW and out of which 7.2% is renewable energy projects and remaining projects are coal power plant projects to be built.

MonРolТa’s total Тnstalled capacТty of power Тs 1 GА, and tСe above mentТoned all projects cannot sell their production in the country, because most of the projects which have total capacity of 9.5 GW are oriented to be exported which means their licenses were issued to export power energy to China. The total investment cost to implement all the projects which already have licenses received, is USD 16.5 billion.

Some of the important projects which have licenses mentioned above and are included in the State Policy on Energy Sector are highlighted as follows:

- Building a Power Plant which has 450 MW capacity relied upon on Tavan Tolgoi Coal Mine; - BuТldТnР CHPP’s wСТcС Сave 60 MА capacТty relТed upon Аestern ReРТon Coal MТnes; - Starting the construction work of Eg River Hydro Power Plant which has 315 MW capacity; - Building a Hydro Power Plant relied upon Khovd River; - Cooperating with private sector investors to develop Hydro Power Plant projects; 107

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- Implementing research work to adapt high capacity energy storage batteries for system’s enerРy balance, and supportТnР consumers to use tСe tarТff dТfference and make energy conservation.

The most important Power plant projects in the Energy sector for Economical and Technical aspects, which need to be built in the first place are:

1. Building a Power Plant which has 450 MW capacity relied upon Tavan Tolgoi Coal Mine Mega projects such as Tavantolgoi (TT), Oyutolgoi (OT), their mine utilization and processing factories have a wide range of operations and have a very high consumption of power energy, and because of this reason they must have a reliable electricity and power energy supply. The Gobi Region provinces do not have a large energy generation source and they are isolated from the Central Region Power System (CRPS), and they are unable to receive full demand of power energy supply through currently connected Mandalgobi-TT-OT Power Transmission Grid (PTG). Even as we see the current energy balance of CRPS, in the year of 2013 the Integrated Grid itself is coming to the power energy generation shortage stage and it is unable to supply constant and reliable power energy to these large sized mines and factory complex.

Therefore the Mongolian Government came to the conclusion that because it is necessary to build new energy generation and to expand current power plant capacities, they decided to build a Power Plant which has 450 MW capacity relied upon TT Coal Mine.

The Gobi region has a rich resource of coal which can be used to produce power energy. Based upon these rich resource, building a Power Plant which has large capacity, is one of the best options to supply reliable energy to these region provinces.

TTPP’s wСТcС Сas 450 MА capacТty, ТnТtТal Тnvestment cost Тs 1 bТllТon USD. TСТs investment will have its positive effects directly and indirectly on Mongolian Economy since the start of TTPP’s project work.

The most suitable technologies which can be used for this Power Plant Project are chosen as follows:

- Boiler which has high efficiency, low emission, and boiling cycle stage technology (BCS) - Steam Turbine of Condensation - Air Cooling Condensation which does not require water usage - AТr coolТnР equТpment wСТcС does not requТre water usaРe to be used for Plant’s additional facilities - Chemical water cleaning equipment, ash removing equipment and remaining facilities are chosen based on low water usage.

TСe project’s current sТtuatТon Тs tСat Tavan TolРoТ Power Plant’s Investment Contract Тs entered between Mongolian Government and Tavan Tolgoi Power Plant Co.,LTD on the date of June 24th, 2016. Currently parties are working on the other additional contract drafts to be made.

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2. Starting the Construction Work of Eg River Hydro Power Plant which has 315 MW capacity

In the current era where the power energy consumption is increasing continuously, coal power plants operate on base energy balance in the technology aspects, they are inflexible, and have limited technical possibilities to operate under configuration balance. If Eg River Hydro Power Plant is built and comes into operation, we will have a reliable power energy generation source which has installed capacity of 315 MW and is capable of having a backup plan.

The investment source for this project is that the Mongolian Government has allocated 703.4 mТllТon USD tСrouРС tСe Government ResolutТon #458 Тn 2015 from tСe CСТnese Government’s USD 1 billion loans which have low interest.

The latest situation for this Project implementation is that in the Government meeting it is decТded to establТsС state owned “EР RТver Hydro Power Plant” Co.,LTD on AprТl 12tС, 2017.

The following studies and research work were conducted such as the feasibility studies, detailed evaluation of environmental effects, energy sector market studies, earth quake, shake studТes, arcСeoloРy, emerРency and protectТon operatТons, fТsС and marТne anТmal’s studТes, and the first stage detailed infrastructure mapping studies, and also as the investment source is decided to finance this project from Chinese Government Loan, Eg River Hydro Power Plant project’s unТt wСТcС Сad prepared all tСe preparatТon work to Тmplement tСe project was dismissed and instead it became a state owned limited liability company.

3. Building a Hydro Power Plant relied upon Khovd River /Erdeneburen Hydro Power Plant

Erdeneburen Hydro Power Plant’s Тs located Тn tСe KСovd provТnce and 90 km nortСwest dТrectТon from tСe center of KСovd cТty. “MCS” company from MonРolТa, “KusСu ElectrТc Power” company from Japan, “Best Japan EnРТneerТnР ConsultТnР”, and “IndustrТal DecТsТons” companies have developed the feasibility studies to build this Hydro Power Plant which has 64.2 MW capacities. In this feasibility study, at that time the initial investment cost was calculated 286 million USD to build this Hydro Power Plant.

Erdeneburen Hydro Power Plant’s maТn ТndТcators were calculated. IncludТnР: 1. Installed capacity, MW 642 2. The electricity to produce annually, million kWh 230 3. Dam length/ height, meters 395/90 4. The Volume of the Water Reservoir, Million m3 1200 5. Investment cost, USD million 286.1

It was calculated that out of total USD 286.1 million, USD 198.3 million will be used for construction and facilities, USD 37.1 million for equipment, and consultant service, temporary facilities and other cost will be USD 50.7 million, to be this Erdeneburen Hydro Power Plant.

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The Mongolian Government issued a resolution #86 dated on March 9th, 2015 and has given an assignment to the Minister of Energy in order to supply Power energy to three provinces including Uvs, Bayan-Olgii, Khovd from using the internal sources and to resolve the finance within the frames of Government and private sector investment jointly, to build Erdeneburen Hydro Power Plant, to develop a new feasibility study and evaluation of Environmental effects.

Based on the Minister of EnerРy’s order #72, project ТmplementТnР unТt, based on tСe State Secretary’s order #144, tСe Project ManaРer was appoТnted and Тs currently workТnР. TСe Government resolution #133 was issued to include Erdenebulgan Hydro Power Plant into the Concession List. As the resolution was issued, the project implementing unit is organizing meetings with investors and legal entities to make a concession agreement and proposals are being studied.

5.3.5. Renewable Energy Resources Energy resources that have the potential to play an important role for energy balances of the country are solar, wind, hydro, geothermal and biomass energy. These resources are not yet included to the fullest extent in the energy production.

Solar Energy Resource

National Renewable Energy Center carried out in 1990 an estimation of solar ground mounted PV generation (4,774 TWh – 1,500 GW) based on National Renewable Energy Laboratory (NREL) solar resource assessment. An average 66MW/km2 solar PV panel density was applied on suitable areas. The total solar energy resources evaluated as annual solar radiation on the entire national territory has been calculated to potentially achieve 2.2*1012 kWh. The table below shows the potential solar energy (from Low (1200 kWh/m²/y) to High (1600 kWh/m²/y) in four regions in MonРolТa. ApproxТmately 42% of tСe country lТes wТtСТn tСe ‘Moderate-HТРС’ or ‘HТРС’ solar energy regions.

Table 19: Solar energy resource of Mongolia, NREC 2006

Region Solar energy amount kWh/m²/year Area

km² % of territory Western Up to 1200 109.9 7 Khangai 1200-1400 800.7 51 Central 1400-1600 392.5 25 Eastern 1600 and more 266.9 17

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Figure 32: Annual global solar radiation, kWh/m2/year, Energy Authority of Mongolia 2009

Table 20: Intensity of solar energy Annual Daily average annual based

More than 1600 kWh/m2/year More than 4.38 kWh/m2/day 1600 kWh/m2/year 4.38 kWh/m2/day 1500 kWh/m2/year 4.10 kWh/m2/day 1400 kWh/m2/year 3.83 kWh/m2/day 1300 kWh/m2/year 3.56 kWh/m2/day 1200 kWh/m2/year 3.28 kWh/m2/day 1100 kWh/m2/year 3.01 kWh/m2/day

The intensity of solar energy declines from the southern to the northern part of the country with around a year more than 300 sunny days and sunlight hours are about 2600-3300 hours annually. As tСe country’s РeoРrapСТcal locatТon Тs beyond NortСern latТtude 41, tСe advТsable tilt angle for PV is latitude angle +15 degrees and fixed panels should face towards to south. Annual average ambient temperature is about 4.4oC with lowest in the winter and highest in summer season. An example of solar radТatТon data on СorТzontal surface obtaТned from RETScreen (NASA’s website) is shown in Table 4.

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Table 21: Solar radiation data of Sainshand in Dornogovi Aimag, Mongolia (Retscreen, 2011)

Sainshand Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

kWh/m2/day 2.21 3.27 4.69 5.87 6.56 6.70 6.11 5.29 4.62 3.41 2.37 1.84 Ambient - - -3.5 6.7 15.0 20.8 23.5 21.5 14.5 5.3 -6.7 - ToC 17.7 12.5 15.3 Data in the table shows strong seasonal changes with good resource level in summer and poor level of resource in winter.

More recent solar resource (GHI) assessment carried out by Solargis (1995 to 2015 data), gives a GHI range 1168 – 1900 kWh/m2 which confirms the good potential for solar PV. Moreover, the significant increase in solar PV panel efficiency should provide a better potential, including trackers and also bifacial PV cells.

Wind energy resource Mongolia has a highly variable wind regime affected primarily by the mid-latitude westerly wind flow, which influences weather systems throughout the country. This westerly jet stream which runs several kilometres above sea level along with complex terrain, especially in western and central Mongolia, has major impacts on the distribution of wind resources in the country. The Aimags with the best resources include Umnugovi and Sukhbaatar Aimags. The resource is directly related to topographical features making rolling plains typically good wind resource areas while more mountainous areas have significant wind resource variation. Exposed ridge- tops can have more than 600 W/m², influenced by the westerly jet stream, while valleys and plains can have wide variation. (NREL, 2006) In cooperation with the Renewable Energy Corporation and the National Institute of Meteorology of Mongolia, the National Renewable Energy Laboratory of the USA elaborated a wind energy resource map for Mongolia in 2001. This map clusters six categories of potential wind power regions. According to this more general system of wind measurement, an area of more than 160,000 km² is convenient for installing high capacity wind power plants with a potential to connect them to the national electricity network. 10% or 56,500 km² of the Mongolian territory could be considered as areas with good wind energy resources. (National Renewable Energy Corporation, 2006) Adding on the regions with moderate wind energy resources, which are convenient for rural energy consumers or for installation of low capacity wind generators, the area of windy regions sums up to 620,000 km², representing almost 40% of the total country. MonРolТa’s wТnd power electrТcТty РeneratТon potentТal was estimated at 2,550 billion kWh (around 1,100 GА Тnstalled capacТty). TСТs assessment was based on 2001 “state of tСe art”

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500kW wind turbines using a conservative turbine density of 7MW/km2 and wind resource assessment at 30m height. Now, wind turbine size has significantly increased in terms of capacity (from 1MW to 4MW), height (100m and more) and rotor diameter (from 80 to 130m). Turbine manufacturers have also developed machine for low wind speed with a higher rotor diameter and therefore, the MonРolТan’s wТnd power potentТal capacТty and enerРy yТeld sСould be Рreater.

Table 22: Wind energy potential of Mongolia (good to very good wind resource at 30 m height) Source: NREL & NREC

Wind at 30 m height Total area coverage Total Energy to be Category capacity produced power W/m² speed m/s km² % MW GWh/yr 3 300-400 6.4-7.1 130,665 81.3 905,500 1,975,500 4 400-600 7.1-8.1 27,165 16.9 188,300 511,000 5 600-800 8.1-8.9 2,669 1.7 18,500 60,200 6 800-1000 8.9-9.6 142 0.1 1,000 3,400

Total 160,641 100 1,113,300 2,550,100

Figure 33: Wind resource map of Mongolia , NREL & NREC 2004

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Due to improvement in wind resource assessment, data used by NREL in 2001 are likely to be out of date. A new set of wind data at 100m height, including additional 2001-2016 historical data, should provide a better wind resource assessment. See Vortex’s assessment.

Figure 34: Mongolia mean wind speed, Vortex

Hydro energy resource TСe averaРe annual flow of MonРolТan’s 3,800 bТР and small rТvers wТtС a total lenРtС of 65,000km is estimated at 3,46*1010m3, providing a potential energy resource of 6,300MW or 56*107kWh. The majority of the hydro energy resources are located in the mountainous areas in the western and northern regions. Pre- and Feasibility studies have been conducted for the construction of hydro power plants with capacities of 220MW at Egiin river in Khuvsgul Aimag, 100MW at Orkhon river in Bulgan Aimag. Many other sites have been identified for possible construction of small and medium sized hydro power stations to meet the energy needs of nearby soum centres. (Renewable Energy Corporation, 2004). The ADB Energy Supply Master Plan prepared in 2002 includes a summary of large and small hydropower projects, mostly in the western part of the country. The south and eastern Gobi regions do not have viable hydro potential for rural electrification. Many of the smaller hydro projects can operate only partially during the year because very low temperatures freeze rivers. Limitations in the runoff-river small hydropower operation for spring/summer months make these projects expensive and in many cases will require additional support either with diesel or other generation options.

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Figure 35: Hydro Energy Resources of Mongolia, Energy Authority of Mongolia 2009

Geothermal energy resource

Presently, there are 43 hot springs identified, but they have not been studied thoroughly. The hot springs are mostly located in mountainous areas of Altai, Khangai and Khentii mountain ridges, where no infrastructure is developed to make environmental and economic use of their energy potential.

Biomass Since time immemorial, people have lived on Mongolian land and people still use biomass originated from livestock, such as dried dung from cows, horses, sheep and goats as fuel for cooking and heating. As of 2010, Mongolia counted 40.0 million heads of livestock, providing a considerable amount of biomass resources. Straw, wood, and shrubs are also collected and burned as fuel. Especially the saksaul species is preferred as firewood for its heat value and combustion performance. The massive use of saksaul (Mongolian name is Zag) and shrubs in Gobi region is contributing to the destruction of the entire saksaul forests and increasing the desertification.

Saksaul forest in Gobi 115

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Table 23: Saksaul forest resources in selected Aimags, NREC 2006

Aimags Saksaul Forest (1000 ha) Saksaul Forest (1000 m³)

Gobi-Altai 1,925.70 522.3 Onmogovi 1,173.90 541.8 Bayankhongor 477.8 113.1

Therefore, the efficient use of renewable energies like solar and wind could be one way to protect the endangered saksaul forest and shrubs.

Figure 36: Renewable biomass resources, NREC 2005

The heat-producing capacities of the dried cow dung, pellets, horse-dung, hardened dung and urine of sheep and goats differ greatly depending on both seasonal and regional characteristics. The minimum heat emission from dried cow dung is 10,800-13,300 kJ/kg, from horse-dung is 8,800 kJ/kg, from pellets is 16,700 kJ/kg and from the hardened dung and urine of sheep and goats is 12,500-14,600 kJ/kg (Feasibility study for the energy production using biomass, TU Berlin, 1997). Mongolians call the hardened dung and urine of sheep and goats accumulated over lonР perТod as “kСurzun”. KСurzun Тs a kТnd of compressed fuel tСat Тs renowned by nomadic people for its consistent heat emitting capacity.

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5.3.6. Pipeline of renewable energy projects

Table 24: Renewable energy projects in Mongolia, ERC Solar PV Projects Capacity Special Developer Location Sponsor № (MW) License Central Region Khongor Soum, Solar Power Sharp /Japan/ 1 10 Darkhan-Uul Obtained International Shigemitsu Shoji /Japan/ Province 61st Crossing, Everyday Songinohairkhan Bridge Group /Mongolia/ 2 10 Obtained Farm LLC District, Farmdo.,Co.LTD /Japan/ Ulaanbaatar Bayandelger 3 Uni-Solar LLC 30 Soum, Tuv - - Province Khushigt Valley, Idea Bridge Asset Moshia Eco 4 50 Sergelen Soum, Management (Korea) Obtained Energy LLC Tuv Province KEPKO (EPC - Korea)

Tenuungerel Khushigt Valley, Novacontact (Ukrain) & 5 Construction 15 Sergelen Soum, Obtained Ferrostaal ( Germany) LLC Tuv Province Sergelen Solar Bayan Valley, 6 Power Plant 50 Sergelen Soum, N/A - LLC Tuv Province Zuunmod Soum, 7 Luxtium LLC 9 Googol Holdings (Korea) Obtained Tuv Province Choir (Sumber Eren Development Asia Soum), Gobi- (France) 8 Sun Step LLC 50 Obtained Sumber Invest and Development province Corporation Of Germany Sumber Soum, ESB Solar Solar International 9 10 Gobisumber Obtained Energy LLC Unlimited (USA) Province KharKhorin Soum, 10 Taij Group 30 First Gobi Solar /Hungary No Arkhangai Province

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KharKhorin Soldan Energy Soum, Lender - Solar Provider 11 20 No LLC Arkhangai Group /USA/ Province Nariin Teel Mon-Korea Soum, 12 Engineering 8 Shinsung /Korea/ Obtained Uvurkhangai LLC Province

Naranteeg Zamiin-Uud, 13 15 Agricultural Bank of China Obtained LLC Dornogobi

Tucher and Smith Family Desert Solar Sainshand, Office /German/ 14 Power One 30 Obtained Dornogobi United Green Group LLC /England/ Airag Soum, 15 Smart LLC 20 Dornogobi - Obtained Province

Airag Soum, Sky Natural 16 30 Dornogobi - No Energy LLC Province Khuvsgul Power LLC Khuvsgul Sovereign Loan from 17 3 No /State owned Province Austrian Government enterprise/ Southern Region Khanbogd Symbior Solar /Thailand Soum, 18 Solar Ilch LLC 50 Based/ No UmnuGobi Novaterra Province Western Region (including Altai-Uliastai Energy System)

Khuduugiin Taishir Soum, Sovereign Loan from 19 Tsahilgaan 4 Gobi-Altai Obtained Austrian Government LLC Province Yusunbulag Saisan My 20 10 soum, Gobi-Altai - No Climate LLC Province Myangad Soum, World Bank Grant /not 21 MoE 10 No Khovd Province finalized yet/ ADB

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Umnugobi Soum, Uvs No Province

Durgun Solar Myangad Soum, 22 10 Sharp Obtained Plant LLC Khovd Province

Total MW 474

Wind farm Projects, ERC Tariff PPA Develope Capacit Special Location Sponsor ($cents/kW № r y (MW) License h)

Ferrostaal Sainshand, Industrial Ferrostal Obtaine Execute 1 52 Dornogobi 9.5 Projects d d (20) Province (120M$) GmbH Swedish & Chinese Khanbogd, investors Cleantech Obtaine Execute 2 250 Unmogobi (2 9.5 LLC d d (20) Province phases: 102MW + 148MW) Aydiner Choir, Aydiner Obtaine Execute 3 Global 50 Gobisumber 9.5 (95M$) d d (20) LLC Province Sharp Choir, /Japan/ AB Solar Obtaine Execute 4 100 Gobisumber Shigemits 9.5 wind d d (20) Province u Shoji /Japan/ SB Energy Clean Tsogttsetsei Corp. Obtaine Execute 5 Energy 50 i, Umnogobi (Softbank 9.4 d d (20) Asia Province Group), Newcom LLC Total MW 502

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Figure 37: Wind farm projects, Mongolian Wind Energy Association

Perspective of power transmission grid

The power transmission line voltage level is selected to minimize losses and maximize transmТssТon capacТty. In recent years, lТcensee doesn’t follow tСe standard requТrement and prolonging OHL. The following negative consequences may happen in case of over length of overhead power transmission line: - Unable to transmit required power for long distance - Uneconomic. In accordance with forecast, Gobi region power demand is expected to increase to 500MW minimum in near 10 years. Distance 600km is too long for 220kV OHL to transmit normally power by triple times. Therefore, higher voltage level OHL shall be considered. 330kV OHL is able to transmit natural power of 360MW to distance of 700km. 500kV OHL able to deliver 900MW for distance of 1200km, but depending on the property of grid the transmission capacity is limited. It is essential to have correct structure of power generation sources and transmission capacity of grid. Desperate measures are required for technical innovation, application of smart technology and improvement of reliable operation of grid. National Power transmission Grid State Share holding company has planned to following activities to be implemented in 3 years. 120

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- Upgrade OHL No. 207 by construction of double circuit 220kV OHL between Baganuur and Choir - Double circuit 220kV OHL Ulaanbaatar-Mandalgovi, length 260 km, Construction of 220kV Mandalgobi substation with 2 125 MVA power - Double circuit 220kV OHL Choir – Sainshand, length 230 km, Construction of 220kV Sainshand substation with 2 250 MVA power transformer - 220kV OHL Sainshand-Zamiin Uud, length 200 km, Construction of Zamiin Uud 220/110/35 kV-ы 1 63 MVA substation. - Double circuit 220 kV OHL Mandalgobi-Arvaikheer, length 143 km. Construction of 220/110/35 kV Arvaikheer substation with 2 63 MVA power transformer - 220kV OHL Baganuur-Undurkhaan, length 203 km, construction of Baganuur- Undurkhaan substation - Installation of 2 x 125 autotransformer at Oyu Tolgoi substation, to finish construction of 2nd system bus

5.3.7 Identification of interconnection options

In view of master plan, electrical loads of central energy system and Gobi region is the core electrical consumers of Mongolian energy sector and research result shows that its maximum increase will be in 2020. In line with it, you can see the locations of the electrical consumptions, which can be connected with Asian super grid, as below. Mongolia is importing electricity from Russian Federation and China via 19 substations and transmission lines of over 10 licensees. Of these 19 substations, only three are of large scale: 220kV OHL connection to the Russian Federation in the central region and 110kV OHL connection to the Russian Federation in the western energy system and 110kV OHL connection to China mainly for Oyu Tolgoi mine. As each country would be responsible for its transmission line investment as part of the Northeast Asia Power System Interconnection, there is preliminary estimate in Gobitec and Asian Super Grid for Renewable Energies in Northeast Asia report which discusses Mongolia's need to invest USD 235 million for 1000kV HVDC transmission over 430km distance.

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Source: Gobitec and Asian Super Grid for Renewable Energies in Northeast Asia 2014

The following options are presented in Electric power Grid interconnections in Northeast Asia: A quantitative analysis of opportunities and challenges with respect to generation and transmission by year 2030. - The Base scenario assumes no grid expansion from the existing transmission line capacity - NoNewRE scenario, allows for new interconnections based on total system cost optimization, but renewable energy capacity is unchanged from Base scenario - RuHyd scenario assumes additional hydro power development in Russia for export to foreign markets - the Gobitec scenario includes 50GW wind and 50GW solar PV production by 2030 from the Gobi desert, concept proposed by Energy Charter - Gobitec + RuHyd combines both the Gobitec and RuHyd assumptions

There will have to be installation of large scale cross border transmission lines with capacity of 100GW from Mongolia to the neighboring countries in order to match the capacity of the variability of the mostly renewable sources.

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Source: Electric power grid interconnections in Northeast Asia: A quantitative analysis of opportunities and challenges

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Table 25: Electric power grid interconnections in Northeast Asia: A quantitative analysis of opportunities and challenges Of course, most optimal points should be accurately determined by doing the research and reРТme calculatТons Сow MonРolТan and otСer countТes’ enerРy system can be ТnteРrated or interoperable. • Oyu Tolgoi substation • Tsagaan Suvarga substation • Choir substation etc.

5.4 MODULE 5: MONGOLIA AND NORTH EAST ASIA POWER GRID DEVELOPMENT

Analysis will be carried out using transmission system model with details that satisfy the purpose of this study including Mongolian transmission systems, equivalent/simplified transmission system models for Russia, China, Republic of Korea and Japan. This will allow detailed assessment to ensure that investment plans meet security, stability, load flow, and operational requirements. See Appendix 4: Description of Power System Analysis Software Package

This includes the following steps:

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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 2037 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 Northeast Asia grid integration.

Figure below shows the process of developing NAPSI interconnection plan.

NAPSI Interconnection Expansion Planning Process

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5.4.1. Review of Current Planning Criteria

Planning criteria are the basis for transmission and interconnection expansion planning, and they differ one country to another. Planning criteria includes: a) Generation planning criteria: reliability criteria including loss of load probability (LOLP), loss of load duration, expected energy not supplied (EENS), and adequacy criteria, such as reserve margin, etc. b) Network Expansion planning criteria: N-1, N-2, use of short term rating, etc. c) Planning period: whether the expansion plan is for short, medium and long term planning d) Economical/financial rate: Discount rate, etc.

Purpose The objective of reviewing planning criteria for Northeast Asia countries are two folds: 1) to understand the planning criteria used by individual countries and 2) to identify planning standards that should be used in NAPSI studies.

Output The output of this review includes summary of planning standards in Northeast Asia countries, and identification of potential proposals to harmonize planning criteria that are conducive to NAPSI interconnection planning.

5.4.2 Determination of NAPSI Interconnection Plan

Once the future generation expansion has been developed and become available, a least cost method will be used to identify optimal interconnection schemes and their costs, including new substations, overhead lines, losses, operating costs.

Key Mongolia System Assumptions The peak load of Mongolia system is currently less than 1GW and is expected to increase to 2GW by 2030, which is quite small compared with likely level of renewable generation development that is likely to reach tens of gigawatt. These renewable generation bases are likely to cover a wide geographical area and would develop a large collection systems involving several voltage step-up stages. Therefore, there are two possible cases to consider for the interaction between renewable system and local Mongolia transmission network:

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1) Integrated approach: this assumes that there will be some physical interconnection between renewable generation system and existing/future Mongolia transmission network, possibly through a back-to-back HVDC interconnection. Under this assumption, studies would consider how to export renewable generation from Mongolia and also their impact and reinforcement of local systems. 2) Quarantined approach: This assumes that renewable export base would be developed independent of and physically separated from local Mongolia power network development. In this case, studies would only consider how to export renewable generation

These two assumptions require quite different network models and study approaches. It is therefore, important to seek advice and agreement from the Client, EA and Steering committee.

Network Modelling Approaches

Significant divergence in transmission system characteristics exists between different countries in Northeast Asia countries. Therefore, it is reasonable to adopt different approaches to network models for different countries. Specifically:

1) Mongolia: a detailed model would be developed for Mongolia transmission system at 110kV or above, no distribution networks (less than 110kV) will be included. These Includes transmission lines, substations, directly connected generation, and nodal demand. 2) China: a simplified network model for Northeast China grid will be developed to identification interconnection points and assess the impact on the local system, 3) Republic of Korea: a simplified/equivalent model will be used to identify interconnection points. The impact on local system will not be studied in details. 4) Japan: the same approach as Republic of Korea will be adopted 5) Russia: the same approach as Republic of Korea will be adopted

Outputs The outputs include optimized expansion plan for NAPSI scheme, report and presentation to workshops and Steering Committee.

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5.4.3 Selection of technology (AC or DC)

At present, the technologies that could be used for NAPSI interconnection are HVAC, LCC- HVDC and VSC-HVDC. These technologies are undergoing rapid changes and for VSC-HVDC at the cusp of major breakthroughs. This section will examine the current and future development of these technologies and their application ranges.

Assumptions It is assumed that technologies for renewable generation and energy storage will not be covered in this section and are discussed in other modules

Approaches A thorough review of current and future transmission technology development will be carried out, including HVAC, ultra high voltage AC (UHV AC), LCC-HVDC and VSC-HVDC. Analysis will be carried out to assess suitable transmission technologies for NAPSI interconnection and also for renewable base collection system design. For example, for renewable base collection system design, one of the key questions is that the collection system should a DC or AC network.

Output The output of this analysis will be technologies suitable for NAPSI interconnection scheme.

5.4.4 Cost estimate of each options

Costs of NAPSI interconnections include transmission line cost, substations, upgrade of existing lines, converter stations, losses, operating costs, etc.

Approaches For each interconnection scheme under generation expansion scenarios, the cost of the scheme will be calculated and determined considering geographic conditions travailed, technologies used, losses, operating costs, and environmental costs (e.g. CO2 reductions) The cost of different interconnection schemes will be compared to determine the best NAPSI interconnection schemes taking into account of uncertainties in generation output, trading and policies, renewable generation and demand forecast.

Output The output of this analysis will be the costs of each NAPSI interconnection schemes and preferred option. 128

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5.4.5 Deliverables of Module 5

The key deliverables of this module includes • Draft Generation and interconnection Investment Planning Report • 5-countries Workshop N°5 (This Workshop will be organized in China, Japan or Republic of Korea according to organization decisions) • Presentation to the Steering Committee

5.5 MODULE 6: POWER TRADE AND REGULATION 5.5.1 Objectives

Two objectives: • Creating an enabling environment to effect power trade, • Promoting coordinated regional planning and development (generation and transmission).

5.5.2 Issues / proposed solutions:

• Interconnection operating modes • Existing and future management structures • Regional problems and institutional reforms • Other needed coordination structures management • Functional features & characteristics required

5.5.3 Deliverables of Module 6

• Draft Power Trade Strategy Report to be validated by the EA/ADB • 5-countries Workshop N°6. This last Workshop will be organised in Ulaanbaatar • Presentation to the Steering Committee

The Draft Power Trade Strategy report will include the remarks of the workshop and become Final after approval by the EA/AD

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The TA team will draft the Power Trade Strategy Report. The TA team will include the remarks from the Workshop and the presentation to the Steering Committee, and after approval by the EA & ADB will issue the Final version. The Power Trade and Regulation report will be part of the outputs 1, 2 & 3.

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6. WORKSHOPS Workshops tentative dates and locations are listed below.

Workshop Location Date Workshop 1 Ulaanbaatar July 2017 Workshop 2 Gwangju September / November 2017 Workshop 3 Tokyo Spring 2018 Workshop 4 Beijing Fall 2018 Workshop 5 Ulaanbaatar February 2019 Workshop Final Fall 2019

6.1 ULAANBAATAR The Inception Workshop was held at Shangri-La Hotel in Ulaanbaatar on 20 June 2017. The workshop was opened by the Honorable Minister of Energy and attended by 60 delegates. The summary of the workshop is available upon request. Workshop Agendas and Participants Lists:

Strategy for Northeast Asia Power System Interconnection, Technical Assistance to Mongolia, Inception Report Workshop Draft agenda Day 1: Tuesday, 20 June 2017 time agenda 08:30 Check-in 09:00 – Welcoming address: Electricité de France (EDF) 09:05 09:05 – Asian Development Bank remarks 09:10 09:10 – Ministry of Energy remarks 09:15 09:15 – Presentation of the Inception Report by EDF: Context, Data 11:15 collection, Work Plan and Assessment of current state and opportunities, Q&A 11:15 – Coffee break 11:30 11:30 – Formal position: Mongolia: Ministry of Energy, Energy Regulatory

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12:30 Commission, TRANSCO, NDC, REC 12:30 – Lunch 13:30 13:30 – Formal position: China 14:00 14:00 – Formal position: Japan 14:30 14:30 – Formal position: Republic of Korea 15:00 15:00 – Formal position: Russia 15:30 15:30 – Formal position: Other organization 16:00 16:00 – Closed Meeting: Steering Committee 16:30 18.00 – Dinner reception hosted by the Ministry of Energy for all 21.00 participants

Day 2: Wednesday, 21 June 2017 Comment 10.00 Sight visit to Salkhit Wind Farm Transportation organized by Departure NT, 13.00 Return to place of departure Included in cost estimates “TransportatТon”

Workshop Participants List (20 June 2017) (draft)

Participats List № Nae Orgaizatio Positio Mr. P. Gakhuu Moй Miister for йerg Mr. D. Chieddorj Moй Departet рead Mr. M. Baaragai Moй Departet рead Mr. B. Nasatogtokh Moй Departet рead Mr. B. Saduija Moй Departet рead Mr. N. Boldhuu Moй Departet рead M. Agarag Moй Departet рead Mr. S. Tserejats Moй Diisio рead Mr. B. Sugar Moй Diisio рead

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Mr. G. йkhtaia Moй Seior Speialist Mr. B. Yere-Ulzii Moй Seior Offier Mr. Yo. йkhtua Moй Seior Speialist Mr. N. Uugahieg Moй Seior Speialist Mr. G. Ueaa Moй Speialist Mr. A. Tleikha йRC Chaira Mr. C.Bassaikha йRC Coissioer Mr. й.Tushihuluu йRC Coissioer Mr. U. Magarsure йRC Coissioer Mr. L.Jaaa йRC Diisio рead Mr. D. Baldorj NDC CйO Mr. L. Bukhold NDC Chief Dispather Ts. Uuraa NDC Diisio рead Mr. M. Tuejargal йerg йoo Istitute Diretor Mr. Ch. Ula-Orgil йerg йoo Istitute Departet рead Ts.Tsere Reeale йerg Ceter Diretor Mr. Puredorj Reeale йerg Ceter Chief йgieer Mr. D. Sododorj Mogolia Uiersit of Siee Aadei ad Teholog, Shool of йletriit ad йgieerig Mr. B. Bat-йrdee Mogolia Uiersit of Siee Vie Priiple ad Teholog, Shool of йletriit ad йgieerig

Mr. O. Bauudorj Mr. B. Nasauu Traso CйO

Mr. D. Chiat Traso Chief йgieer Traso Regulatio ad Tehial Diisio рead

Traso Projet Maageet Diisio рead Mr. B. Jigjid Asia Super Grid Soiet Presidet Mr. D. Baasgala Asia Super Grid Soiet CйO Ts. Sukhaatar йletriit Assoiatio Presidet Mr. G. Puredorj йletriit Assoiatio CйO Mr. P. Gajuur йletriit йgieer's Assoiatio Chaira

Mr. J. рad-Ish йletriit йgieer's Assoiatio

Mr. йkhold Neo Group Mr. Gahuag Neo Group Mr. T. рishigt Neo Group Projet aager Mr. Magardorj Wid Assoiatio CйO

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Mr. B. Zaaaatar Wid Assoiatio Maager Mr. J. Osgoaatar Reeale йerg Produer's Presidet assoiatio

Mr. C. Saraja йletriit Deelopet Ceter Diretor

Mr. Ashok Bhargaa ADB Diretor йerg Diisio, йast Asia Departet Mr. Teruhisa Oi ADB Projet Diretor Ms. Geg Da ADB Iteratioal Coutr Coordiator for the People's Repuli of Chia Mr. Ro Oatsu ADB Iteratioal Coutr Coordiator for Japa, RйI Mr. Jug рa Ki ADB Iteratioal Coutr Coordiator for the Repuli of Korea Ms. Mika Ohaashi Reeale йerg Istitute Diretor Dr. Masai Nakata йerg Charter Assistat Seretar Geeral Mr. Vladiir Sofi Rosseti Diretor, Departet of Teholog ad Ioatio Ms.Aa Bessaraoa Rosseti Chief йpert Dr. Dogil Lee CIGRй Korea Seretar Geeral Mr. Philippe Liehart йDн Projet Tea Leader Mr. Ato Roert йDн йpert Mr. Raphaël Goué йDн йpert Mr. Viet De Laleu йDн йpert Mr. Niolas Chaollet йDн йpert Ms. Ariujargal Suria йDн йpert Mr. B. Baasaikha Noa Terra Diretor Mr. Bold Itgel Noa Terra CйO Dr. N.йeish Noa Terra йerg Market Researher Mr. N.Puredaga Noa Terra Reeale йerg Speialist Ms. Z.Misheel Noa Terra Assistat Maager

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7. STEERING COMMITTEE

7.1 PROPOSITION OF THE LIST OF ATTENDEES It is still an early stage of identifying steering committee members. At this point, we are inquiring potential interest to be a member to (i) RE Foundation of Japan, (ii) KEPCO (Republic of Korea), (iii) State Grid of China and GEIDCO, (iv) Rosetti of Russia, and (v) Energy Charter. The Government of Mongolia will send an invitation to the government officials from Japan, Republic of Korea, China, and Russia.

Members of the Steering Committee for the TA (draft)

Organization Name of Participant Position Ministry of Energy (= EA) Mr. CHIMEDDORJ Director General of Demchigjav Strategy and Policy Department National Power Transmission Mr. CHINBAT Davaasambuu Senior Managing Director Grid and Chief Engineer of the National Transmission Grid Mr. Teruhisa Oi Project Manager ADB

Mr. Ashok Bhargava Director Energy Division ADB

Mrs. Mika OHBAYASHI Director of REI REI Dr. Dongil LEE General Secretary of KNC KNC Valdimyr Sofyin, Director of Department for ROSSETI Technological Development and Innovation.

Dr. Masami Nakata, Energy Charter Assistant Secretary General EDF Philippe Lienhart Strategy Innovation New Business Manager, Team

Leader

7.2 ORGANIZATION AND PRINCIPLES Primary roles of members of the Steering Committee could be: (i) review and provide comments on reports from the Consultant engaged under this technical assistance (TA), and (ii) provide guidance to the Ministry of Energy and Consultant on TA.

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The Steering Committee for the TA will guide the TA Team throughout each phase of the TA preparation. Frequent interaction between the EA and the TA Team will also ensure that issue are dealt timely and relevant policy issues are taken into account by the formulation Team. The president of the Steering Committee makes the decisions.

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APPENDIX 1: From ADB "Technical Assistance report on Mongolia Strategy for NAPSI" – November 2015

1. INTRODUCTION During discussions for the Asian Development Bank (ADB) country operations business plan for 2015,1 the Government of Mongolia sought ADB technical assistance (TA) to prepare a strateРy for NortСeast AsТa power system ТnterconnectТon (NAPSI) usТnР MonРolТa’s abundant renewable enerРy.2 TСe TA Тs alТРned wТtС ADB’s EnerРy PolТcy Тn Тts promotion of renewable energy development and regional power sector integration. 3 The TA is also aligned with Strategy for Regional Cooperation in the Energy Sector of Central Asia Regional Economic Cooperation Countries.4

2. ISSUES 2. The power sector is the single largest source of greenhouse gas emissions in Northeast Asia. A low-carbon transformation is needed to lessen reliance on fossil fuels and reduce the carbon footprint. The region as a whole has sufficient renewable sources to meet demand, but the limited connectivity of power systems among countries poses a major challenge. Each jurisdiction has unique power utility ownership, tariff policies, market design and regulations, and other institutional frameworks that are not well coordinated or harmonized, which inhibits interconnection. As a result, despite abundant energy sources many jurisdictions in Northeast Asia suffer from energy shortages or meet their energy needs at a high cost, resulting in high electricity prices for consumers, and burdening economic activities.

3. Power systems that are well interconnected would improve system flexibility and efficiency and allow system optimization, and thereby capture resource complementarities, bring economies of scale into investments, improve fuel security, enable greater renewable energy penetration, and reduce power system carbon emissions. An interconnected system would also provide more reliable and affordable electricity to consumers, enhance economic activities, and improve the competitiveness of economies, thus underpinning regional sustainable growth; this has been demonstrated by a number of other successful interconnected regional power systems (e.g., in the Greater Mekong Sub region). At present there is no such interconnected power market in Northeast Asia, 5 even though it is home to some of the world's largest and most prosperous economies. Mongolia is in a unique position to spur economic growth by developing its vast energy resources to meet the power demands of its more prosperous neighbors through power exports. However, in the absence of an interconnected power system, Mongolia lacks access to large neighboring markets, and thus to investment in its energy resources and power system development. There is a need to undertake a comprehensive analysis and chart out a clear strategy for Mongolia for power system interconnections in Northeast Asia.6

4. Historically, power consumption and gross domestic product have grown in tandem. Development of a cost-effective, sustainable power supply would enable continued growth in Northeast Asia. Advanced and emerging economies in this sub region - e.Р., tСe People’s Republic of China (PRC), Japan, the Republic of Korea—have high gross domestic product and electricity consumption.7 Along with rapid economic growth, the PRC in particular has 137

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5. On the other hand, Mongolia has tremendous renewable energy potential, especially wind and solar. Some 10% of MonРolТa’s land area (over 160,000 square kТlometers) Тs estТmated to have well to excellent wind potential for utility-scale applications (power density of400–600 watts per square meter). According to conservative estimates by the National Renewable Energy Laboratory of Mongolia, at a capacity rate of 7 megawatts per square kilometer, this area of Mongolia has the potential to support more than 1,100 gigawatts of installed capacity. In addition, Mongolia averages 270–300 sunny days per year. The South Gobi region has average annual solar radiation of 1,400 kilowatt-hours per square meter, with a solar intensity of 4.3–4.7 kilowatt-hours per square meter. The wind and solar power potential are estimated to be equivalent to 2,600 gigawatts of installed capacity, or 5,457 terawatt-hours of annual power generation (equivalent to 27% of global electricity consumption in 2014).10 If one-third of this wind and solar potential was exploited, Mongolia could supply about 25% of combined annual electricity demand of the PRC, Japan, and the Republic of Korea. Using abundant and diversified resources, Mongolia could serve as a core power supplier to neighboring countries, while improving power security and driving sustainable prosperity. Power system interconnection would be an ideal and comprehensive solution to reduce power system carbon emissions in Northeast Asia.

6. Three key drivers for an integrated power network in the sub region are the (i) demand– supply imbalance within Northeast Asian countries; (ii) availability of economical, sustainable power generation resources in a resource-rich country such as Mongolia, which justifies export; and (iii) close proximity of Northeast Asian countries, which makes cross-country power interconnection and trade feasible. Power system interconnection by low-loss, high-voltage direct current transmission lines would allow transmission of electricity from Mongolia to demand centers in neighboring countries. However, the existing transmission line infrastructure in Mongolia is decrepit and requires significant investment for high-voltage direct current transmission lines; Mongolia cannot afford this investment on its own, and will have to leverage investments from multilateral development banks emerging climate financing mechanism and private sector participation.

7. There are serious institutional challenges to power market integration, including (i) the need for closer alignment of national and regional investment decisions, which are currently Тndependent; (ТТ) dТfferences Тn countrТes’ reРulatory envТronments; (ТТТ) Тnadequate reРТonal institutions; (iv) the need to maintain long-term commitments in frequently changing political frameworks; (v) national sovereignty and energy independence concerns; and (vi) the need to mobilize private sector investments for highly uncertain sub-regional power market development. A prerequisite to integration is a comprehensive study that can address these challenges, provide plausible cost–benefit scenarios, and demonstrate benefit sharing across countries.11 A thorough assessment would enable a regionally planned investment to be developed and priority projects to be identified. Given the sensitive geopolitical situation in Northeast Asia, a bottom-up approach that engages nongovernmental institutions and the private sector is preferable. 138

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8. The Government of Mongolia hosted the first regional conference on power system interconnection in November 2012, which was attended by nongovernment organizations, research institutes, and private sectors from the sub-region. Following the conference, the government, nongovernment organizations, and research institutes requested ADB support to (i) conduct analytical studies to prepare a road map for power system interconnection in Northeast Asia; and (ii) raise awareness, build consensus and increase engagement among Non-government organizations, research institutes, and the private sector in the sub-region regarding the importance of power interconnection with its extensive sector work throughout the sub-region. ADB is the most suitable institution to foster power system interconnection in the sub-region. The government established a task force in April 2014 under the Ministry of EnerРy on tСe AsТan Super GrТd,12 wСТcС Тs an Тmportant element of MonРolТa’s development agenda. Other sub-region stakeholders expressed strong interest in a future NAPSI, and ADB is exploring potential partnerships with some institutions.13 This TA can help enhance regional cooperation and integration, both in Northeast Asia and through the Central Asia Regional Economic Cooperation regional framework by closely coordinating with its activities.14

1 ADB. 2015. Country Operations Business Plan: Mongolia, 2015. Manila. 2 TСe NortСeast AsТa power system Тncludes tСe People’s RepublТc of CСТna (PRC), Japan, the Republic of Korea, and Mongolia, and potentially includes Kazakhstan and the Russian Federation. The TA first appeared in the busТness opportunТtТes sectТon of ADB’s websТte on 18 AuРust 2015. 3 ADB. 2009. Energy Policy. Manila. 4 ADB. 2008. Strategy for Regional Cooperation in the Energy Sector of CAREC Countries. Manila. 5 The PRC exports a small amount of electricity to neighboring countries (e.g., the Republic of Korea and Mongolia). Mongolia exports a small amount of excess electricity at night to the Russian Federation for the purpose of grid stability. 6 Existing regional energy sector cooperation initiatives are (i) the Greater Tumen Initiative, with participation by the PRC, the Republic of Korea, Mongolia, and the Russian Federation; and (ii) One Belt One Road, linking the PRC with Mongolia and the Russian Federation. However, these initiatives have not conducted a comprehensive analysis that includes all Northeast Asian countries and set out strategies for regional power interconnection. 7 Total electricity consumption in Northeast Asia in 2014 was around 6,675 terawatt-hours (TWh), including 5,200

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TWh in the PRC, 950 TWh in Japan, 520 TWh in the Republic of Korea, and 5 TWh in Mongolia. A majority of the reРТon’s electrТcТty Тs Рenerated usТnР fossТl fuel: 77% Тn tСe PRC, 87% Тn Japan, 66% Тn tСe Republic of Korea, and 95% in Mongolia. 8 International Energy Agency. 2014. World Energy Outlook 2014. Paris. 9 EnerРy Тmports satТsfy about 89% of Japan’s enerРy demand, and 97% of demand Тn tСe Republic of Korea. 10 National Renewable Energy Laboratory. 2009. Mongolia Renewable Energy Resource Assessment. Ulaanbaatar. 11 A detailed and comprehensive study on the regional power trade does not exist, but there are (i) some bilateral power trade studies between the PRC and Mongolia, including ADB. 2002. Technical Assistance Completion Report: Strategic Study on Development Options for Economic Cooperation between Mongolia and the People's Republic of China (PRC) in the Eastern Parts of Inner Mongolia Autonomous Region, PRC and Mongolia. Manila; and ADB. 2009. Development of Regional Cooperation Programs for Mongolia and the People's Republic of China. Consultant's report. Manila (TA 6370-PRC); and (ii) a literature review—Energy Charter. 2014. Gobitec and Asian Super Grid for Renewable Energies in Northeast Asia. http://www.energycharter.org/fileadmin/DocumentsMedia/Th ematic/Gobitec_and_the_Asian_Supergrid_2014_en.pdf. 12 Potential regional interconnections of electrical grids and related infrastructure to allow the trading of power, in particular, but not exclusively, electricity generated from renewable resources across Northeast Asia. 13 ADB is having initial discussions with the Korea Electric Power Corporation, Soft Bank, and Hanns Seidel Foundation. 14 The ongoing Central Asia and South Asia regional electricity market can be further linked to the Northeast Asia market (ECASAREM).

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APPENDIX 2: "Regional Cooperation where NAPSI countries are active members" by Nova Terra:

 The Central Asia Regional Economic Cooperation (CAREC) Program is a partnership of 11 countries and six multilateral development partners working to promote development through cooperation, leading to accelerated economic growth and poverty reduction. By promoting and facilitating regional cooperation in the priority areas of transport, trade facilitation, trade policy, and energy, CAREC helps Central Asian and neighboring countries realize their immense potential in an increasingly integrated Eurasia. The program is a proactive facilitator of practical, results-based regional projects, and policy initiatives critical to trade expansion and sustainable development. Since 2001, the program has mobilized almost USD 27.7 billion in transport, trade, and energy infrastructure investments.

 In October 2013, the PRC announced the launch of its One Belt, One Road (OBOR) initiative, an ambitious scheme to build or rehabilitate infrastructure in over 60 countries, based on a comprehensive framework comprising a land belt from the PRC through Central and South Asia to Europe and a maritime road via Southeast and South Asia, the Middle East and North Africa to European markets. In four years on, over 100 countries and international organizations have supported and got involved in this initiative. Total trade between China and other Belt and Road countries in 2014-2016 Сas exceeded $3 trТllТon, and CСТna’s Тnvestment Тn tСese countrТes Сas surpassed $50 billion. OBOR is being supported by projects from a wide range of central and local government agencies in the PRC, and by the international lending of its large policy banks. The following month, Korea announced its Eurasia Initiative, a broad infrastructure-based program with close links to OBOR. China is spending roughly $150bn a year in the 68 countries that have signed up to the scheme. Since 2013, CСТna’s businessmen have built 56 economic and trade cooperation zones in belt-road countries, generating nearly US$1.1bil (RM4.7bil) in tax revenue and creating 180,000 jobs, according to Xinhua. The plan could funnel investments worth $313 billion to $502 billion into 62 Belt-Road countries over the next five years, Hong Kong-based analyst SСen Hu wrote Тn a report. БТnСua reported tСat CСТnese companТes’ merРer and acquisition activities in the Belt and Road region have grown rapidly in the past three years. Globally speaking, the finance, energy and telecom service sectors are the top three sectors attracting M&A activities in the Belt and Road region. Moreover, China Сosted Belt & Road Forum Тn BeТjТnР Тn mТd of May tСat brouРСt toРetСer 29 countrТes’ leaders and over 80 leaders from international organizations, 100 ministerial-level officials, as well as 1,200 delegates from various countries. Large-scale infrastructure projects – along with funding – have led to a boom of economic activity in countries like Kazakhstan, Azerbaijan, Georgia, Belarus, and Poland.

 In 2015, the PRC led the establishment of the Asian Infrastructure Investment Bank (AIIB) with an authorized capital base of $100 billion. The bank has provided $1.7 billion of loans for 9 projects in Belt and Road participating countries. The AIIB is intended to help meet the enormous need for infrastructure financing in Asia, and attracted 57 founding members, from Africa, Asia, Europe and Latin America. The NDB and the AIIB both started lending operations in mid-2016.

 In late 2014, the PRC announced the establishment of the Silk Road Fund (SRF), with an ТnТtТal pledРe of $40 bТllТon. TСe SRF Тs Тntended toРetСer wТtС tСe PRC’s polТcy 141

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banks, to finance infrastructure under OBOR. In May 2015, the Japanese government announced the launch of a Quality Infrastructure Initiative, under which it committed to provide $110 billion over the next five years to finance infrastructure in Asia. The SRF has made $4 billion of investment, and the 16+1 financial holding company between China and Central and Eastern European countries has been inaugurated.

 In May 2014, Belarus, Kazakhstan and the Russian Federation signed a treaty establishing the Eurasian Economic Union (EEU). Armenia and the Kyrgyz Republic joined the EEU in 2015, and it is currently expanding its role as a regional trading bloc and customs union.

 TСe UnТted States’ New SТlk Road (NSR) ТnТtТatТve dates back to 2011. It was established as a means for Afghanistan to integrate more closely with Central and South Asia by reviving traditional trading routes and rehabilitating key infrastructure links. The NSR focuses on four key areas: regional energy markets, trade and transport, customs and border operations, and business and people-to-people contacts.

 The BRICS countries, Brazil, Russia, India, the PRC and South Africa, established the New Development Bank (NDB) in 2014 with an authorized capital base of $50 billion. The NDB is intended to complement the financing provided by the existing multilateral institutions.

 At the same time, regional trade agreements have made significant progress. The Trans-Pacific Partnership trade pact led by the US was signed by twelve Pacific Rim countries in February 2016 and will lower trade barriers among participating countries. Negotiations are also ongoing for the Regional Comprehensive Economic Partnership free trade agreement, which includes Australia, India, Japan, Korea, New Zealand, the PRC and the countries of the Association of Southeast Asian Nations (ASEAN). The growing role of these new trade agreements has shifted much of the focus in Asian and Pacific trade negotiations from the World Trade Organization (WTO) to the regional level.

 Established in 1989, the Asia-Pacific Economic Cooperation (APEC) is a forum for 21 Pacific Rim member economies that promote free trade throughout the Asia-Pacific region. It was established in 1989 in response to the growing interdependence of Asia- Pacific economies and the advent of regional trade blocs in other parts of the world and to establish new markets for agricultural products and raw materials beyond Europe.

 The Greater Tumen Initiative (GTI) is an intergovernmental cooperation mechanism among four countries: China, Mongolia, Republic of Korea and Russian Federation, supported by the United Nations Development Programme (UNDP). In 1995, GTI member governments signed agreements to establish this mechanism, aimed at strengthening economic and technical cooperation, and attaining greater growth and sustainable development in NEA and specially the Greater Tumen Region. In particular, the GTI focuses on the priority areas of transport, trade and investment, tourism, agriculture, energy, with environment as a cross-cutting sector.

 The Shanghai Cooperation Organization (SCO) is a permanent intergovernmental international organization, the creation of which was announced on 15 June 2001. The SCO's main goals are as follows: strengthening mutual trust and neighborliness among 142

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the member states; promoting their effective cooperation in politics, trade, the economy, research, technology and culture, as well as in education, energy, transport, tourism, environmental protection, and other areas; making joint efforts to maintain and ensure peace, security and stability in the region; and moving towards the establishment of a democratic, fair and rational new international political and economic order.

APPENDIX 3: REFERENCES

Government of Mongolia (2015), Scaling-up Renewable Energy Program (SREP): Investment Plan for Mongolia;

ADB (2013), Updating the Energy Sector Development Plan;

IRENA (2016), Mongolia: Renewables Readiness Assessment;

APERC (2015), Electric Power Grid Interconnections in Northeast Asia;

ECS/KEEI/ESI/MoE/JREF/Fraunhofer (2014), Gobitec and Asian Super Grid for RE in Northeast Asia;

Yeren-Ulzii, MoE (2016), Energy Sector of Mongolia, Sustainable Development Policy http://www.switch-asia.eu/fileadmin/user_upload/RPSC/event/23-25May16- Mongolia/23May/5_Yeren_Energy_English.pdf ;

IEA (2016), Quarterly statistics: Energy Prices and Taxes;

OCCTO (2016), Report on the Quality of Electricity Supply;

OCCTO (2016), Aggregation of Electricity Supply Plan;

METI, Japan's Energy Plan;

NERA (2016), Auctions and Procurement in a Liberalized Market;

OCCTO (2016), Outlook of Electricity Supply-Demand and Cross-regional Interconnection Lines;

ANRE, METI (2015), Japan's Electricity Market Deregulation;

EMSC, METI (2016), Electricity Market Reform in Japan;

IEA (2016), Energy Policies of IEA Countries Japan;

FEPC (2016), Electricity Review Japan;

JEPIC, Operating and Financial Data;

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JREF (2014), Asia Super Grid Opportunities and Risks;

REI (2016), Recommendations for Reform of the Electricity System;

The Economist (2012), Japan's Distribution Challenge;

Son, Softbank (2011), Paradigm Shift in Energy;

Renewable Energy Institute (2016), Recommendations for Reform of the Electricity System for Establishing an Electricity System with a significant share of Renewable Energy;

IEA (2012), Energy Policies of IEA Countries: The Republic of Korea;

Korea Energy Economics Institute (2016), Yearbook of Regional Energy Statistics;

Smart KPX (2013), Korean Power Exchange;

MOTIE (2014), Korea Energy: Master plan, outlook & policies to 2035;

MOTIE (2015), The 7th Basic Plan for Long-term Electricity Supply and Demand 2015-2029;

KEPCO Report (2016)

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APPENDIX 4: Description of “Power System Analysis Software Package”

A4.1. Introduction Power System Analysis Software Package (PSASP) is a powerful power system analysis tool developed by the China Electric Power Research Institute (CEPRI) with independent intellectual property rights. It was first developed in 1973 as a mainframe application, and since has been consistently updated and maintained with the latest development in computing technology and also power systems.

PSASP earns widely recognition among the users because of its characteristics. At present, PSASP has thousands of clients extended all over China and some other nations and areas. PSASP is the very basic analysis software used in national dispatch center of State Grid Corporation of China (SGCC), and also provincial and area dispatch centers. It is also popular among planning & design institutions, universities, scientific research institutions, large-scale industries systems and railway systems.

A4.2 PSASP Functionalities

PSASP consists of flexible and integrated applications with open structure and resource sharing features. It has a user friendly and graphical interface. It can perform all types of analysis for large scale power system with over 50,000 nodes, such as load flow, dynamic and transient stability, fault level calculation, hybrid Ac/DC analysis, electro-magnetic and electro-mechanical analysis, etc. It contains conventional as well renewable generation models, which allow simulation of power systems with large scale and high penetration of renewable generation.

A4.3 Main Modules of PSASP

Figure A3.1 below shows the main modules of PSASP

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Fig A3.1 Illustration of Main PSASP Modules Unified Graphic and Data Support Platform has Multi Document Interface. It can easily establish different power system analysis data and draw different graphics, such as single line diagram, geographic position wiring diagram, plant &substation main wiring diagram and so on. Different calculation modules of PSASP run on the platform, finish the analysis and output the calculation result.

Fig A4.2 Graphic and Data Platform of PSASP

PSASP contains standard models for SVC, wind turbines, HVDC, PSS, generators, etc. It has direct interface with many applications such as Matlab, AutoCAD, etc. This is shown in Figure 3.

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Fig A5.3 PSASP Models and Interfaces

A4.4 PSASP Analysis

Load Flow

Load Flow is the basic calculation of a power system, and it is also the bases of network loss calculation, static security analysis, transient stability calculation, small signal stability, short- circuit and so on.

Fig A5.4 Load Flow calculations 147

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Transient Stability Studies

The transient stability calculation module can be used in post fault analysis of complex fault and severe fault. By representing the dynamic response of the post fault, the reasons of stability disruption can be analyzed.

Fig A5.5 Transient Stability Studies

Short Circuit Current Calculations

Short circuit current calculation has the following main functions • AC/DC hybrid system short-circuit calculation • Load flow based and scheme based short-circuit • User specified fault location • Execute line fault scanning calculation by interval • Complex fault calculation • Short-circuit current and short-circuit capacity of fault point • Positive, negative and zero sequence Thevenin Equivalent Impedance • Various output of calculation result

Fig A4.6 Short Circuit Current Calculation 148

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Small Signal Stability Analysis

Power system small signal stability studies consider non-periodic instability (so-called “statТc stabТlТty”)and perТodТc ТnstabТlТty(so-called dynamic stability).

Fig A4.7 Small Signal Stability Studies

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MINISTRY OF ENERGY, GOVERNMENT OF MONGOLIA

Government Building 14, Khan-Uul District Chinggis Avenue, 3-r Khoroo

Ulaanbaatar, 17060 Mongolia

Contact: Mr. Chimeddorj Demchigjav

General Director of Energy Policy Department

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

Contact: Mr. Teruhisha Oi 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 EDF CIST Strategy for NAPSI Technical Assistance to Mongolia Team Leader [email protected]

Deliverable: Inception Report Date: 20 June 2017

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