On a path towards an energy efficiency policy framework the case of Mongolia

Transcription

1 On a path towards an energy efficiency policy framework the case of Mongolia Mr. Sven Ernedal Programme Director German Development Cooperation (GIZ) Authority, Room 301, Chinggis Avenue Khan-Uul District, Ulanbaatar - 36, Mongolia sven.ernedal@giz.de Ms. Enkhtuya Gombosuren Senior Project Officer German Development Cooperation (GIZ) gombosuren.enkhtuya@giz.de Keywords demand-side conservation, energy savings potential, policy measures, power sector, capacity building, technology transfer, Mongolian energy sector, Russian technology Abstract Mongolia has extreme climatic conditions, with short summers and long, very cold winters. A secure energy supply is vital to ensure their survival and help bring about economic growth. The country currently has seven coal-fired power stations, between 30 and 50 years old and of Russian design. The level of operating efficiency is very low and around 40 percent of the electricity generated is lost during delivery and distribution. During the last two decades, the priority has primarily been on securing stability of energy supplies. Due to economic growth and a boom in the mining sector, energy demand has risen markedly and it might exceed energy supply as early as The electrical load demand cannot be covered by the Mongolian power plants during peak hours during evening time and electricity needs to be imported at high cost from Russia. The GIZ Efficiency project is being implemented together with the Authorities in Mongolia since November Activities include: (1) Identification of measures to boost energy efficiency and development of bankable investment proposals; (2) Practice-based guidance on plant optimization; (3) Development of a normative framework and incentive structures for power plant management; (4) Supporting authorities in drafting a framework for energy efficiency; (5) Transfer of know-how in partnership with European technology providers, professional associations and vocational schools. In late 2010 demand side management was also added to the original project concept. The main consumer group is the industrial sector. But a recent study shows that lighting in households and other institutions mainly contributes to the peak load in the evening hours. The ongoing technical analyses and the identification of various measures will contribute to the development of an energy efficiency policy framework and guide the Mongolian government in preparing a Mongolian energy conservation law. Introduction Background Mongolia is a landlocked country in the North-East of Asia between Russia and China. With some 2.6 million people and a population density of 1.6 inhabitants per square kilometre, it is one of the most sparsely inhabited countries in the world. Mongolia is characterised by harsh natural conditions. During the eight-month winter season temperatures range between minus 20 C and minus 40 C. Nowadays 60 % of the population live in urban areas. Cities and settlements have expanded. The population of Ulaanbaatar has nearly doubled since 1995, and the city is now home to more than one million inhabitants (about 40 % of the country population). Among transition economies, and more broadly among lower gross domestic product (GDP) per capita countries, Mongolia has achieved remarkable progress in setting the foundations for a democratic, open market economy. Since 1990, the country has implemented broad economic and political reforms with a programme of privatisation, trade and investment liberalisation. Today, Mongolia s private sector produces more than 70 percent of the country s total output. GDP growth averaged nearly 5 % per year in the period ECEEE 2011 SUMMER STUDY efficiency first: The foundation of a low-carbon society 393

2 2-229 Ernedal, GomboSUREn PANEL 2: CURRENT ENERGY EffiCIENCY PoliCIES Figure 1: System of Mongolia (2010). and has increased up to 9.2 % annually during In 2009 the sustained period of rapid economic growth gave way to an abrupt and steep downturn in Mongolia s economy but in 2010 the growth levels are back at the levels of 2009 and the mining sector is booming. The potential cupper and coal mines of southern Mongolia could be generating annual revenues of US$ 5.2 billion within a few years. The Resources LLC coal coking plant in Ukhaa Hudag ( and the Oyo Tolgoi copper mine (en.ot.mn) are expected to start production in 2012 and 2013 respectively. supply The transition period from 1990 to 1995 is characterised by significant decrease of energy supply and final consumption in the country, followed by a period of modest increase of the supply and demand levels till 2005 (ranging % annually) with a more accelerated rise reaching 8.9 % annual increase of final consumption for the period Some estimation show that by the end of 2010 the levels of final energy consumption from 1990 will be reached and government expectations are that they will continue to increase by 4 % per annum. The energy system of Mongolia (Figure 1) is designed around an integrated system of coal production for the generation, transmission and distribution of power and heat. The concept is technically efficient, with coal-fired Combined Heat and Power (CHP) plants producing steam for electricity, space heating, domestic hot water and industrial processes. The energy system consists of four independent electric power grids with a total installed capacity of 823 MW, 4 % from 46 MW diesel plants, some small hydro, solar and wind plants. The urbanisation and the boom in the mining sector have lead to an increasing energy demand. The existing Russian power plants will soon not be able to cover the demand, which could lead to supply shortages ( heat and electricity blackouts ). The central energy grid of Mongolia has an interconnection to Russia and five coal burning generating plants (Table 1). It is important to reduce the internal consumption of these power plants and thereby increase the load availability. Electricity demand Most of the generated electricity is consumed in the capital Ulaanbaatar as well as in the major industrial region Erdenet and Darkhan. Figure 2 shows the balance of the electricity generation and consumption in In GWh were imported from Russia, mainly during peak hours and 18 GWh were exported to Russia mainly during nighttimes. The industrial sector (including the construction industry) consumes the highest share of the available electricity followed by households and communal housing. This energy consumption of the industrial sector will increase dramatically during the next few years primarily due to the boom in the mining sector but also due to the urbanisation and an increased living standard. The sector other might include the public and commercial sector. Electricity consumption in the transport, communication and agricultural sector is low. 394 ECEEE 2011 SUMMER STUDY efficiency first: The foundation of a low-carbon society

3 PANEL 2: CURRENT ENERGY EffiCIENCY PoliCIES Ernedal, GomboSUREn Table 1: Existing Combined Heat and Power plants in CES (2008). Installed Internal Available District Industrial Capacity Consumption Capacity Heating Steam (MWe) (MWe) (MWth) (MWth) Thermal Power Plant % Thermal Power Plant % Thermal Power Plant % Thermal Power Plant Darkhan 48 19% Thermal Power Plant Erdenet % The concept of energy efficiency, in particularly demand side management, is fairly new to Mongolia. The sample data (Source: National Dispatching Centre) for one typical winter day presented in Figure 3 suggests that peak demand in winter occurs during 6 and 7 p.m. with sudden rise in load demand by 60 MW which results in a peak demand of almost 700 MW. As it is getting dark during that time it is assumed that this peak is mainly caused by electrical lighting in households, industry and the commercial sector as well as electric cooking appliances and other electric equipment in households. A relative high load demand also occurs between 10 and 12 a.m. This peak might be caused by cooking in low-income areas or a late starting time for business and commercial enterprises. The peak load in the evening hours is mainly caused by the demand in the capital Ulaanbaatar. The industrial sector in Erdenet-Bulgan, Darkhan-Selenge and Baganuur-South East must still be targeted in an energy efficiency action plan. Today the biggest consumer of electricity in the whole country is the Erdenet copper mine (30 % of total). The second largest electricity consumer is the metallurgical plant in Darkhan (2 %) followed by the gold-mine in Darkhan-Selenge, the metal producing company and the open cast mining in Baganuur. This situation will change when new industrial enterprises, such as mining companies, go into production. Other sectors that might be targeted are street lighting, transport and public buildings. The household sector in Ulaanbaatar shows a good potential for Efficiency measures. The electricity consumption per household and per capita in Ulaanbaatar is listed in Table 3 and compared to the German consumption levels. The electricity consumption in German household is almost three times higher than in Ulaanbaatar and five times higher when looking at the per capita consumption. and energy efficiency policy The Law of Mongolia came into force on 1 February 2001 and provided the legal framework to allow the energy sector to be restructured from being centrally planned to market-based. This law authorized the creation of an independent energy regulator and gives powers and responsibilities to key institutions involved in managing and operating the energy sector. The Regulatory Agency is responsible for issuing energy tariffs. The tariffs have been increased 5 times since 2001, but they are still heavily subsidised with current level of subsidies for the end use price 72 % on average for residential users and 58 % for industrial consumers. The current tariff structure encourages energy savings, please refer to Table 3 for the electricity retail tariffs in Ulaanbaatar. The household class is divided into households in apartments and households in the low income areas, so called Ger-areas, where a high proportion of the residents live in so called Gers (Mongolian traditional tents). The Parliament decided in December 2010 to improve the financial situation of the energy sector. The end-user price for electricity should reach a cost covering level, current estimates suggests 8 US cents/kwh, in State fund subsidies will be provided for debt repayment or as support for energy companies, typically in regions with weak economy. After reaching cost-recovery tariffs, cross subsidies currently existing between industry and residential tariffs are planned to be removed. conservation and environmental sustainability are among the main principles of the Mongolian Strategy for Sus- Figure 2: Electricity balance of Mongolia ECEEE 2011 SUMMER STUDY efficiency first: The foundation of a low-carbon society 395

4 2-229 Ernedal, GomboSUREn PANEL 2: CURRENT ENERGY EffiCIENCY PoliCIES Figure 3: Load demand during peak load day (Jan. 5, 2010) in the different EDN. Table 2: Electricity consumption in households in Ulaanbaatar and Germany. Ulaanbaatar Germany Forecast for year 2010 Data for 2009 Apartments Ger area Average Electricity Consumption per household kwh/year kwh/year kwh/year Electricity Consumption per inhabitant 435 kwh/year 358 kwh/year kwh/year Table 3: Overview of the Electricity Retail Tariffs in Ulaanbaatar. Apartments Ger areas Unit Enterprises Tariff classes Ulaanbaatar Ulaanbaatar Flat tariff (6.4) (6.4) (6.2) Day /06:00-17:00/ MNT/kWh (6.4) (6.4) (6.2) (US$ cent/kwh) Evening /17:00-22:00/ (10.8) n/a n/a Night /22:00-06:00/ (3.7) (3.2) (3.2) <150 kwh per month n/a (5.6) (5.4) MNT/kWh kwh per month n/a (6.0) (5.8) (US$ cent/kwh) >251 kwh per month n/a (6.4) (6.2) MNT = Mongolian Tugruk, exchange rate 1 USD = MNT ( ) Table 4: Ranking of energy efficiency measures in TPP4. KfW GIZ Rank Efficiency Measure EE II Programme Mapping study 1 Online Condenser Cleaning System ( ) 2 Variable Speed Drives for Feed Water Pumps ( ) 3 Water Chemistry System ( ) 4 Combustion Optimizations on Boilers 5 IT-based Process Management System ( ) 396 ECEEE 2011 SUMMER STUDY efficiency first: The foundation of a low-carbon society

5 PANEL 2: CURRENT ENERGY EffiCIENCY PoliCIES Ernedal, GomboSUREn tainable Development of the Sector However, no progress was made on energy efficiency legislation from 2003 until 2010 when the Building Thermal Performance standard was adopted and the government initiated the development of an Conservation Law and a Medium and Long Term Action Plan. No specific Ministry or Agency in Mongolia is mandated to develop and implement the national and sectoral energy efficiency policies. The Ministry for Mineral Resources and and its Policy Department is the main government body involved in energy efficiency and renewable energy policy. The Government Implementing Agency, the Authority, could very well be mandated with energy efficiency policy implementation. GIZ energy efficiency project GIZ is implementing the project efficiency in the grid-connected energy supply in Mongolia since November In partnership with the Authority (EA), the energy competence centre of the Ministry of Mineral Resources and, the project conducts model technical-economic analyses for power plant and grid operations, thus helping to improve the framework for energy efficiency measures. On the producer side, the project is supporting a comprehensive review of existing power plants, identifying weak spots and developing recommendations to improve energy efficiency in cooperation with Mongolian partners. Provision of advanced training is designed to develop existing technical expertise among decision-makers at power plants, employees of the Authority and the ministry, as well as other relevant actors. At the same time the project promotes access to German and European technology providers and professional associations. Activities include: (1) Identification of measures to boost energy efficiency and development of bankable investment proposals; (2) Practice-based guidance on plant optimization; (3) Development of a normative framework and incentive structures for power plant management; (4) Supporting authorities in drafting a framework for energy efficiency; (5) Transfer of know-how in partnership with European technology providers, professional associations and vocational schools. During the second project phase (11/ /2013) GIZ will support the drafting of a national Conservation Law, the development of a Medium and Long Term Action Plan as well as the subsequent implementation. Demand side management was also added to the GIZ project original concept. The main target group will be the industrial sector, including power plants, but other consumers contributing to the peak load in the evening hours will also be targeted. The ongoing technical analyses and the identification of various measures will provide necessary input for energy efficiency policy framework and guidance to the authorities when setting the targets in the action plan. efficiency in power plants Feasibility studies At the start of the project GIZ selected two Mongolian thermal power plants, Power Plant 4 and Power Plant Darkhan, as partners for studies to identify energy efficiency measures. GIZ conducted preliminary technical and economical studies that were approved by the government and selected for financing by financial institutions. As a result a German medium sized company was awarded a GIZ Public Private Partnership project on Boiler Brick Lining in Power Plant Darkhan. The savings in a boiler have been estimated to around 5 %. The Authority will use the experiences gained for other rehabilitation projects; there are 30 boiler of the same type in Mongolia. Based on the GIZ studies KfW launched a feasibility study for its Efficiency II programme and the external consultant together with GIZ and Power Plant 4 staff assessed five identified measures based on the following four criteria groups: (1) Efficiency-, power- and energy-related criteria; (2) Environmental criteria; (3) Economical criteria; and (4) Other. Based on the ranking (See Table 4) the German and the Mongolian government approved the KfW Efficiency II programme, covering measure 1 3, with a total investment of Euro 10.5 Mio. GIZ will continue these efforts with a static Mapping study to assess the energy efficiency potential in all CHPs. Capacity building The German development cooperation agencies (GIZ, KfW, and CIM etc.) have during the last decade established training facilities for power companies in Mongolia, such as the EA Training Centre, and links to institutions in Europe for engineers and technical personnel from the Mongolian energy sector. During the last years the focus has gradually shifted to introduce the concept of technical and economical efficiency to managers at different levels in power companies. The Authority is a member of the VGB PowerTech, the association for power companies in Europe, and regularly sends Mongolian engineers to the VGB Power Plant Training Centre. Through the EA membership in VGB, Mongolian energy companies also have access to the VGB knowledge management system, including standards and guidelines, databanks and a large network of experts. An overview of the capacity building network for the GIZ project is outlined in Figure 4. This GIZ project will continue to systematically improve energy efficiency in power plants by focussing on three core elements: Technology - Identification of new technology and adaptation to the local conditions in Mongolia. Knowledge and training Training on specific topics as well as external support for EA working groups on priority topics to improve the operation of Mongolian power plants. Management Processes Support for decision makers to optimise administrative or operational problems, to introduce monitoring systems and to assess the potential for saving energy and/or reducing costs. Conservation of electricity in transmission and distribution The transmission of electricity in Mongolia is characterized by long distance transmission lines. The power grid consists of 4,000 km of transmission (above 110 kv) and 22,400 km of distribution lines. The length of the transmission and distribution lines causes physical losses and high reactive power ECEEE 2011 SUMMER STUDY efficiency first: The foundation of a low-carbon society 397

6 2-229 Ernedal, GomboSUREn PANEL 2: CURRENT ENERGY EffiCIENCY PoliCIES GIZ Private sector in Europe: companies, Suppliers and Experts VGB Power Tech Power Plant Training Center Technology Knowledge and Training Management Processes Authority Training Center Mongolian Sector: Power Plants, Power Grid companies and Industry Figure 4: Institutional framework for capacity building network. demand due to the reactance in the overhead line. GIZ has conducted measurement campaigns in the high voltage transmission grid to verify the estimated losses and the related costs. The GIZ consultants estimated the overall transmission and distribution power losses in 2009 to 24 % of the generation. It can be assumed that the indicated losses include technical and non-technical losses. These numbers are high compared to 7 % in Germany. Another central theme has been to develop standards, norms and guidelines to improve the quality and reliability of equipment and work safety. The GIZ project will develop of a calculation method to quantify technical static and dynamic losses as well as estimate commercial losses in the electricity transmission and distribution grid, also considering the actual costs, in the central energy grid, which includes the three largest cities of Mongolia: Ulaanbaatar, Darkhan and Erdenet. National energy conservation law and a medium and long term action plan GIZ assists in the drafting development of a national Conservation Law and a Medium and Long Term Action Plan for Mongolia. The work will focus on the essential five elements of a national EE strategy: 1. Improve framework conditions through EC Acts, directives, rules and regulations 2. Capacity development of officers of entities mandated to design and implement national EE strategies 3. Force energy efficiency services provider market through Government intervention 4. Intensive and continuous public relations, education activities and lobbying at all levels of an society including parliament, institutes of higher learning, private sector players, and media 5. A well established, cost effective and institutionalized impact monitoring at the national level. GIZ is contributing to these elements by conducting following activities: (i) Establishment of an institutional structure in combination with capacity development; (ii) Identification of energy efficiency projects in power plants with the goal to increase load availability; (iii) Analysis of the end use energy consumption patterns and the energy saving potential for different user groups; (iv) Development of energy efficiency measures among end users to reduce peak load demand; (v) Development of a Training Programmes for Managers/Auditors in industries to ensure that energy efficient technologies will be introduced for existing industries and new investments. Overall project impact as of December 2010 With support from the project, the EA has been able to improve its provision of advisory services and training for power plant and grid operators on specific operational problems, efficiency improvements in power plants, and loss reduction in the electricity grids. Managers and engineers employed by power plants and grid operators are able to identify potential for improving energy efficiency independently and develop proposals for sustainable operational measures. With a view to boosting energy efficiency and cutting carbon dioxide emissions, preliminary technical and economic studies have been undertaken with the support of medium-sized enterprises from Europe. Specific projects have lead to energy savings and to improved cost effectiveness of power plants. GIZ has been instrumental in promoting the theme energy efficiency in Mongolia and played an important role in initiating the preparation of the Conservation Law and a Medium and Long Term Action Plan. Conclusions Mongolia is facing many challenges: modernising a Soviet-legacy infrastructure, many characteristics of developing countries including scarce financial resources, poverty, internal migration, a large agricultural sector, a harsh climate as well as a land-locked and remote location. At the same time, it is blessed with abundant energy (coal) and mineral resources; it succeeded in establishing a stable democracy and consensual political culture, a favourable climate for foreign direct investments (FDI) and indigenous private entrepreneurs, and can boast well-educated professionals in Government and private business. GDP and energy demand have displayed robust growth rates for many years. Adequate energy supplies in existing consuming centres such as Ulaanbaatar and other towns, but also for new mining projects is a constant preoccupation 398 ECEEE 2011 SUMMER STUDY efficiency first: The foundation of a low-carbon society

7 PANEL 2: CURRENT ENERGY EffiCIENCY PoliCIES Ernedal, GomboSUREn for the Government. In this context, it is not surprising and no exclusive attribute of Mongolian planners that the Government tends to favour new power plants, largely based on domestic coal over further energy efficiency projects. But on the short term (3-5 years) until new generation capacity is in place, efforts to promote energy efficiency, e.g. through building regulation or through an Conservation Law, will be essential in meeting the increasing energy demand. Existing facilities (power and heat plants and networks) have been rehabilitated over the last two decades mostly with donor funding. There still remains a large potential for additional efficiency gains in the infrastructure. The Government has reformed the energy markets and prices through successive increases in tariffs, which appear to have been accepted by the population after extensive information campaigns. With a steadily increasing inflow of foreign direct investments to Mongolia the government role as a regulator will become increasingly important. During this development process it will be important to continuously introduce green and energy efficient technology, best practice and management tools to ensure a sustainable energy supply. References [1] GIZ efficiency in the grid connected energy supply, Project reports [2] GIZ efficiency in the grid connected energy supply, Project fact sheet [3] The Charter Secretariat, In-depth Efficiency Review of Mongolia, October 2010 [4] Brightconsult, Feasibility Study for the KfW Efficiency II Programme, November 2010 [5] Siemens, Demonstration of concepts and possibilities for a sustainable reduction of electricity consumption in the central grid of Mongolia, KfW Development Bank, July 2010 [6] Regulatory Authority: Statistical data of the energy sector [7] Southern Mongolia Infrastructure Strategy. Discussion draft, World Bank, April 2009 [8] National Dispatch Center: Data from NDC. May 2010 [9] Statistical Office Mongolia (2010): Statistical Yearbook 2009 [10] Bowman, Proposed retail tariff reform plan for Mongolia s Central Electricity System, USAID, May 2008 [11] Statistical Department of Ulaanbaatar City, Statistical data on households and population, 2010 [12] German Ministry for economy and technology, Data on electricity consumption in Germany, Data download May 2010, [13] Statistical office of Germany, Number of households and inhabitants in Germany. Data download, May 2010, www. destatis.de [14] Regulatory Authority, Annual Report 2009 [15] Regulatory Authority, Electricity Tariffs valid from Jun 2010 [16] Mongolian Parliament (Ikh Khural), Decision 72 on actions for the fuel and energy sector, December 2010 [17] BNbD , Building norms and regulations of Mongolia Thermal performance of buildings, Endnotes The German International Cooperation (GIZ - Deutsche Gesellschaft für Internationale Zusammenarbeit) is a federally owned enterprise. GIZ supports the German Government in achieving its objectives in the field of international cooperation for sustainable development. GIZ bundles, since 01 January 2011, the competences and experiences of the former German development cooperation organisations GIZ, CIM, DED and Inwent. The German Development Bank (KfW Entwicklungsbank and DEG) promotes sustainable progress in developing and transition countries. KfW Entwicklungsbank promotes the partner countries projects and programmes, while DEG supports the private sector as a driver of development. Acknowledgements The GIZ Efficiency project would not have been successful without the daily support and guidance from the Authority. Valuable guidance has also been provided by the Ministry for Mineral Resources and. High quality technical expertise has been provided by Thermal Power Plant 4 and Power Plant Darkhan for the technical studies in these power plants conducted by the project. The cooperation with the operators of the main transmission and distribution grid companies in Mongolia Central Transmission Company and the Western System as well as the Ulaanbaatar Transmission Company was essential during the assessments of the power grid in Mongolia. ECEEE 2011 SUMMER STUDY efficiency first: The foundation of a low-carbon society 399