Strategies for Development of Green Energy Systems in Mongolia Final Report Mongolia Country Program March 2014 i Table of Contents Executive Summary 11 PART I. INTRODUCTION TO MONGOLIA ENERGY SCENARIOS 1 Background 21 2 Mongolia’s Energy System: Overview and Challenges 21 3 Report goals and Objectives 25 PART II. SCENARIO DETAILS AND RESULTS, BY SECTOR 4 Overview of Scenarios and Methodology 26 4.1 Scenarios analyzed 26 4.2 Methodological approach 29 4.3 Energy scenario analysis in the context of green growth 31 5 Power and Heat Supply 32 5.1 Sector Overview 32 5.2 Reference scenario 32 5.3 Recent plans scenario 36 5.4 Expanded green energy scenario 38 5.5 Shift in energy export scenario 43 5.6 Discussion and possible initiatives 47 6 Buildings 50 6.1 Sector Overview 50 6.2 Reference scenario 51 6.3 Recent plans scenario 53 6.4 Expanded green energy scenario 53 6.5 Discussion and possible initiatives 57 7 Transport 58 7.1 Sector Overview 58 7.2 Reference scenario 59 7.3 Recent plans scenario 60 7.4 Expanded green energy scenario 60 7.5 Discussion and possible initiatives 63 ii 8 Industry: Mining and Manufacturing 66 8.1 Sector overview 66 8.2 Reference scenario 67 8.3 Recent plans scenario 71 8.4 Expanded green energy scenario 71 8.5 Shifts in energy export scenario 73 8.6 Discussion and possible initiatives 74 9 Agriculture 75 9.1 Sector overview 75 9.2 Reference scenario 76 9.3 Expanded green energy scenario 78 9.4 Discussion and possible initiatives 78 PART III. OVERALL RESULTS, CONCLUSIONS, AND NEXT STEPS 10 Overall Scenario Results 80 10.1 Electricity generation 81 10.2 Energy demand 81 10.3 Greenhouse gas emissions 85 10.4 Other pollutant emissions 90 10.5 Cost-effectiveness analysis 92 11 Conclusions and Next Steps 95 11.1 Summary of overall findings 95 11.2 Policies for consideration 97 11.3 Potential “next steps” for green energy development: projects, pilots, and further research 98 Data gathering 98 Capacity building 99 Pilot programs 100 Research 100 12 References Cited 104 Appendix A: Listing of the Members of the Project Advisory Committee 110 Appendix B: Approaches to accounting for GHG emissions 111 Appendix C: Possible Green Growth Indicators for Mongolia 118 iii Appendix D. Ministries and Agencies Responsible for Renewable Energy in Mongolia 122 Appendix E: Listing of LEAP Scenarios in Mongolia Data Set 123 Appendix F: Summary Description of LEAP Software Tool 129 iv List of Tables Table 2-2. Primary Energy Production in Mongolia, 1990-2010, TJ2 ...................................... 24 Table 4-1. Overview of Four Scenarios .................................................................................. 28 Table 8-1. Key Drivers, Industry Sector ................................................................................... 67 Table 10-2. Electricity output in the reference recent plans, and expanded green energy scenarios, TWh ................................................................................................................ 81 v List of Figures Figure 2-1. Historical electricity generation, by fuel .............................................................. 22 Figure 5-2. Electricity generation in the reference scenario .................................................. 35 Figure 5-3. District heat demand in the reference scenario .................................................. 35 Figure 5-4. Electricity generation capacity in the recent plans scenario ............................... 37 Figure 5-5. Electricity generation in the recent plans scenario ............................................. 38 Figure 5-6. Electricity capacity in the expanded green energy scenario ............................... 42 Figure 5-7. Electricity generation in the expanded green energy scenario ........................... 42 Figure 5-8. District heat demand in the expanded green energy scenario............................ 43 Figure 5-9. Electricity capacity in the shift in energy export scenario .................................... 46 Figure 5-10. Electricity generation in the shift in energy export scenario .............................. 47 Figure 6-1. Energy demand in the buildings sector in the reference scenario ....................... 52 Figure 6-2. Energy demand in the buildings sector in the recent plans scenario ................... 53 Figure 6-3. Energy demand in the buildings sector in the expanded green energy scenario 55 Figure 7-1. Energy demand in the transport sector in the reference scenario ...................... 60 Figure 7-2. Energy demand by vehicle type in the transport sector in the expanded green energy scenario ............................................................................................................... 62 Figure 8-1. Energy demand by subsector type in the industrial sector, reference scenario . 70 Figure 8-2. Energy demand by fuel in the Industrial sector, reference scenario .................... 70 Figure 8-3. Energy demand by subsector type in the industrial sector, expanded green energy scenario ............................................................................................................... 72 Figure 8-4. Energy demand by fuel in the industrial sector, expanded green energy scenario ......................................................................................................................................... 73 Figure 9-2. Energy demand by fuel type in the agriculture sector, reference scenario ........ 77 Figure 10-2. Overall energy demand by fuel group, recent plans scenario ............................ 82 Figure 10-3. Overall energy demand by fuel group, expanded green energy scenario ......... 83 Figure 10-4. Electricity demand by sector, reference scenario .............................................. 84 Figure 10-5. Electricity demand by sector, recent plans scenario .......................................... 84 Figure 10-6. Electricity demand by sector, expanded green energy scenario ....................... 85 vi Figure 10-7. GHG emissions by sector, reference scenario .................................................... 86 Figure 10-8. GHG emissions by fuel, reference scenario ....................................................... 86 Figure 10-9. GHG emissions by sector, recent plans scenario ................................................ 87 Figure 10-10. GHG emissions by fuel, recent plans scenario ................................................. 87 Figure 10-11. GHG emissions by sector, expanded green energy scenario ........................... 88 Figure 10-12. GHG emissions by fuel, expanded green energy scenario ............................... 88 Figure 10-13. Extraction-based emissions under the shift in energy exports scenario, relative to the reference scenario ................................................................................................ 90 Figure 10-14. Sulfur Oxide Emissions under Three Scenarios ............................................... 91 Figure 10-15. Nitrogen Oxide Emissions under Three Scenarios ........................................... 91 Figure 10-16. “Cost Curve” showing GHG savings and cost per tonne of CO2e reduced in 2035................................................................................................................................. 94 vii List of Abbreviations ADB – Asian Development Bank CCS – Carbon Capture and Storage CES – Central Energy System CHP – Combined Heat and Power CH4 – Methane CNG – Compressed Natural Gas CO2 – Carbon Dioxide GDP – Gross Domestic Product GEF – Global Environmental Facility Gg – Gigagram GGGI - The Global Green Growth Institute GHG – Greenhouse Gas Gcal – Gigacalories (109 calories) GJ – Gigajoules (109 Joules) GSHP – Ground-source Heat Pumps GTI – Greater Tumen Initiative GW – Kilowatts (billion Watts) GWh – Gigawatt-hours (109 Watt-hours) GWP – Global Warming Potential HOB – Heat-only Boilers IEA – International Energy Agency IMF – International Monetary Fund IPCC – Intergovernmental Panel on Climate Change kcal – Kilocalories kg – Kilograms kW – Kilowatts (thousand Watts) kWh – Kilowatt-hours (103 Watt-hours) LPG – Liquefied Petroleum Gas LEAP – Long Range Energy Alternatives Planning software tool MEGD – Mongolian Ministry of Environment and Green Development viii MOE – Mongolian Ministry of Energy MW – Megawatts (million Watts) MWh – Megawatt-hours (106 Watt-hours) NGO – non-government organization NOx – Nitrogen Oxides O&M – Operating and Maintenance OECD – Organization for Economic Cooperation and Development PJ – Petajoules (1015 Joules) pkm – Passenger-kilometers PM – Particulate Matter PM2.5 – Particulate Matter under 2.5 micrometers in diameter PV – Photovoltaic (solar) SEI-US – Stockholm Environment Institute—US SOx – Sulfur Oxides SWH – Solar Water Heating T&D – Transmission and Distribution TCE – Tonnes of Coal Equivalent TCO2e – Tonnes of CO2 Equivalent TJ – Terajoules (1012 Joules) tkm – Tonne-kilometers TWh – Terawatt-hours (1012 Watt-hours) TOE – Tonnes of Oil Equivalent UB – Ulaan Baatar UN – United Nations UNDP – United Nations Development Programme UNEP – United Nations Environment Programme UNESCAP – United Nations Economic and Social Commission for Asia and the Pacific UNFCCC – United Nations Framework Convention on Climate Change USGS – US Geological Survey ix Acknowledgments Special thanks are due to all the members of the project’s guidance team: Mr. Tovuudorj Purevjav, Mr. Bekhbat Sodnom, Mr. Angarag Myagmar, Ms. Tsendsuren Batsuuri, Mr. Enebish Namjil, and especially to Mr. Chimeddorj Demchigjav,