Support for Competitive Procurement of Renewables in Mongolia

Transcription

1 TERMS OF REFERENCE Support for Competitive Procurement of Renewables in Mongolia 1. Background The European Bank for Reconstruction and Development ( EBRD or the Bank ) and the Mongolian Ministry of Energy (MoEn) have agreed to cooperate to develop the regulatory framework for renewable energy (RE). The Mongolian energy sector has the typical characteristics of the energy sector in many of the Bank's countries of operation: it has a high level of energy inefficiency and carbon intensity and, while the sector is functionally and legally unbundled, almost all assets remain in state hands and there is no competition in either generation or supply. The infrastructure, both generation assets and heat and electricity distribution networks, is old, polluting and inefficient. Mongolia s power sector also has a number of more specific characteristics. First, extreme winter temperatures result in a high level of reliance on district heating, and so electricity production is principally by coal-fired CHP plants (there is no gas available) which account for 96% of total power production. Second, the country's large size but sparse population means that there is no country-wide transmission system, only one main grid centred on UB extending southwards into the Gobi desert plus some smaller independent grids serving other areas of the country. Third, the small number of consumers and Mongolia's geographical isolation mean the power system is small (approx. 1GW of total capacity installed) and inflexible, and has only one cross-border interconnection, to Russia, on which it depends to meet daytime demand during the summer time and peak demand during the winter time. Finally, energy demand is growing rapidly, especially in the South Gobi region where the majority of existing and future mines are likely to be located. The Mongolian economy is in urgent need of investments in its power sector. The country relies on costly electricity imports from Russia since existing domestic capacity cannot currently meet its increasing power demands. Mongolia is estimated to have vast renewable energy resources, which if fully exploited could be pivotal in helping the country to meet rising power demand, bolster energy security, reduce pollution, meet global climate commitments and develop regional electricity exports. New policies promise to rapidly accelerate renewable energy development. In June 2015, the Parliament adopted the State Policy in the Energy Sector which sets as a strategic goal increasing renewable energy as a percentage of Mongolia s overall power capacity to 20% by 2020 and to 30% by The 50 megawatt (MW) Salkhit wind farm that commenced operation in July 2013 was a significant milestone, marking the development of Mongolia s first utility-scale non-hydro renewable energy facility. Growing numbers of wind and solar projects are in the pipeline in response to the renewable energy targets set by the government. However, Mongolia s renewable energy sector faces a number of important barriers to further renewable energy deployment, related to the availability of financing, technical constraints of the grid 1 Mongolia s accession in April 2016 to the COP 21 Paris Agreement under which the country commits to reducing GHG emissions by 14% by 2030 further reinforces its institutional commitment to renewables and climate change mitigation. Page 1 of 5

2 infrastructure, the higher cost of renewable energy technologies and associated affordability concerns, and public awareness of the potential benefits. 2. Objectives Within the above outlined context, the Bank wishes to engage a Consultant to develop a competitive scheme for the award of future support to renewable energy generators in Mongolia. This process should allow the Mongolian authorities to discover the genuine market price for certain RE technologies in Mongolia, use competitive pressure to push down support levels, and award support through a robust, fair and transparent process. The key objectives of this assignment are to: 1) Review the relevant existing legal and regulatory arrangements in Mongolia. 2) Provide an overview of the key design criteria of a competitive process for supporting renewable energy. 3) Recommend the form which a competitive process for supporting renewable energy, should take, accounting for current arrangements, existing plans, and the market context. 4) Provide an analysis of the changes to existing legislation and regulations which would be required to implement the recommended competitive scheme. 3. Scope of Work Reflecting the objectives of the assignment, the Consultant will need to undertake a number of tasks: 1) Review of existing legislation and materials related to ongoing reforms, including: a. Electricity market law b. Renewable energy law (including amendment proposals) c. Secondary legislation relevant to the operation of renewables d. Plans for the development of renewable energy and electricity market reforms e. Outputs of ongoing assistance to Mongolian authorities 2) Analyse of the key design criteria of a competitive process for supporting renewable energy, identifying clearly how changes in each would be expected to affect the outcome of the process e.g. by transferring risks or costs between the state and bidders. 3) Develop detailed recommendations for the design of the RE programme. The proposal should address questions relating to (but not be limited to): a. The role of different institutions within the process e.g. the auctioneer, offtaker etc. b. The size of competitive procurement rounds, the restrictions on project sizes within each round, and an overall schedule for different competitive bidding rounds. c. Whether the process should be site or non-site specific, and if the former, the approach authorities should use for selecting sites for competitions. d. The selection approach in particular, whether simple tenders should continue to be used or whether more complex bidding approaches should be considered. e. The requirements for the Government to ensure a successful bidding process and reduction of the risks to the bidders. Page 2 of 5

3 f. The requirements for bidders to demonstrate the technical capacity to deliver the project. g. The requirements for bidders to demonstrate the financial capacity to deliver the project. h. Other requirements to ensure successful bidders deliver the project with the characteristics requested (including, for example, the sizes of bid bond and development bond). i. The detailed requirements of the technical specifications for the procurement rounds e.g. technology requirements of the power generation facilities, supporting infrastructure such as sub-stations j. The form of the tendered support (i.e. the FiT) k. The allocation of risks to investors and measures that might be used to enhance the bankability of the project (e.g. guarantees). l. Recommendations on the different stages of the process (eg. RFQ, submit EoIs, RFP, interaction with bidders, bid submission windows, financial close, commissioning) and the timeline associated with these stages. The proposal should be made in conjunction with the Steering Group for the Assignment, and should consider, regarding the size of the programme: a. the demand for power and broader plans for the development of the electricity sector, including Mongolia s renewable energy targets b. the capacity of the grid to absorb additional renewable generation c. affordability and the funding that will be available for covering the support provided to projects under the renewables programme (e.g. funding to cover the cost of the a feed-in-tariff scheme, which may be covered directly from public funds or recovered from other market participants) d. the likelihood of attracting private sector developers and investors e. the potential to expand the programme in the future f. feedback from stakeholders through formal consultations regarding the location of the programme: g. resource levels and the extent to which it would be feasible to construct the projects at a site h. administrative capacity of institutions (to among other issues prepare any sites for auctions/concessions) i. permitting and other environmental issues j. public acceptance For this task, the Consultant will be provided access to the outputs of a parallel work-stream ( the Grid Study ). The Grid Study will assess the current capacity of the Mongolian grid to absorb additional RE generation and identify grid investments which would allow further deployment of RE capacity. 4) Recommend changes to existing legislation, regulations, codes and other documents, required to implement the recommended competitive procurement scheme for RE. In all cases, the Consultant should ensure that the recommended amendments will lead to a bankable support framework (e.g. currency indexation, credit-worthiness of offtaker, etc.). The full list of Page 3 of 5

4 documentation for which amendments should be suggested will be based on the assessment undertaken in Task 1, however this will likely include (but not be limited to): a. current primary legal framework (except law on renewable energy) and plans for the development of renewable energy; b. secondary legislation such as: i. network codes ii. contractual agreements including: the model PPA, template agreements for connection to the grid, land use agreement etc. 4. Deliverables and Timeline i. Kick-off meeting (Ulaanbaatar). Team to meet with the MoEn and EBRD to discuss the assignment and agree which pieces of legislation, regulation, contracts, codes, strategy etc. will be reviewed by the Consultant. ii. iii. iv. Inception Report. This will set out what has been agreed with the MoEn at the kickoff meeting, including any revisions to the timeline of the assignment. To be delivered 2 weeks after the kick-off meeting. Final Report. The final report will set out the key design criteria for a competitive tendering process as well as the Consultant s detailed recommendation for the tendering process in Mongolia. Draft legislative / regulatory / contractual amendments. Suggested changes to agreed documentation in track-changes. v. Final Workshop (Ulaanbaatar). Team to meet with the MoEn and EBRD to present the final report. This assignment is expected to run for nine months, although the timeline could be influenced by parallel work streams. The Consultant will be expected to work flexibly. 5. Implementation Arrangements The assignment will be managed and overseen by the Bank s staff headed by the Bank s Operation Leader, whereas MoEn will appoint a focal point who will be the counterparty of the Bank s Operation Leader. MoEn s focal point will be responsible to oversee the process of collecting feedback/comments for the Consultant s deliverables. MoEn s focal point will also be the contact person and interface of the Bank s communication with MoEn on the subject. The Consultant will provide their reports to both the Bank and the MoEn s focal point. In addition, two key structures will be formed to discuss and steer the consultancy assignment: 1. A working group with technical staff from MoEn and the Bank who will meet on a frequent basis with the consultants to discuss deliverables and important issues of the assignment. Page 4 of 5

5 2. A steering committee with high-level, senior staff of MoEn and the Bank who will meet on a less frequent basis to discuss and approve deliverables, as well as take decisions on other important issues of the assignment. The frequency of the working group meetings and steering committee meetings will be decided once the consultant is selected. Page 5 of 5