Mongolia: investing in renewable energy

(Photo: simulation of the planned windfarm at actual location)

Mongolia's newly discovered wealth of natural resources has been on the minds of many investors with the main focus being on mineral resources such as coal, copper and iron ore. The EBRD is supporting another rich, but as yet unused, natural resource in this Asian democracy by investing in the first wind energy project and the first privately-owned generator in Mongolia, the Salkhit wind farm. 

"Salkhit" means "windy mountain" in Mongolian, and windy it is – according to Philip Lam, one of the operation leaders who deal with Salkhit. "It is a great place to build a wind farm, and overall a very exciting project", he says. The windmills have to go up before the harsh Mongolian winter makes construction works impossible: the project is targeted to become operational in autumn of this year.

Mongolia, whose giant coal and mineral deposits have become known around the world in recent years, has adopted a progressive Renewable Energy Law which will give producers preferential rights to sell their output. However, while the National Renewable Energy programme mandates a quarter of energy coming from renewable sources by 2020, the Salkhit wind farm is to become the first significant renewable energy generator in the country.

The EBRD is extending a loan of US$ 42.4 million to Clean Energy LLC – this part of the financing has been signed on March 21 in Ulaanbaatar by Nandita Parshad, EBRD director for power and energy.  As part of the project financing, the EBRD will also take a further US$ 4.4 million equity stake in Clean Energy LLC.  This company has been created to build the wind farm and is currently 25 per cent owned by the EBRD and 75 per cent owned by Newcom LLC – a Mongolian incorporated company that acts as a holding company for investments ranging from technology to aviation (and the company that first brought mobile phones to Mongolia).  The EBRD will eventually have  an equity stake  of  about 14 per cent   in Clean Energy LLC. The total investment, including the original equity, will exceed US$ 47 million. 

FMO, the Dutch development finance company, is also planning to invest in Salkhit. Other participants in the project include the US-based General Electric which will supply thirty-one 1.6 MW wind turbines to the site.  As the first private owner of a generator, Clean Energy LLC will facilitate the transition to a more liberalised energy market.

"Mongolia is rich not only under the ground but also above the ground: its strong winds can provide a lot of electricity for the growing needs of the country which is hoping to diversify its sources of power supply. We hope this transaction paves the way for increased private interest in the renewable power sector which can reduce Mongolia’s dependence on coal and its carbon footprint and will contribute to Mongolia’s sustainable development," said Nandita Parshad, EBRD's director for power and energy. 

“The EBRD and FMO (the Netherlands Development Finance Company) have been relentless in developing this project together with Newcom. The Salkhit wind farm is a flagship project for Mongolia’s renewable energy. It marks the dawn for Mongolia’s aspiration to becoming Asia’s renewable energy champion,” said Bayanjargal Byambasaikhan, chief executive of Newcom.

The 50 MW Salkhit wind farm will be built about 70 km away from the capital Ulaanbaatar. Apart from being a landmark project and an innovation in the Mongolian power sector, it will provide about five per cent of the country's electricity needs currently served mainly by coal-fired power plants. 

Clean energy is also badly needed to improve the dire environmental situation in the country whose capital is one of the most polluted cities on Earth. The wind farm is expected to reduce CO2 emissions in the country by approximately 164,000 tonnes annually, enabling the company to sell carbon credits.

In relation to this project, the EBRD has facilitated technical assistance to the Mongolian government funded by the government of Japan to develop the regulatory framework for renewable energy. In addition, EBRD received funding from the government of Luxembourg for the environmental and social impact assessment for the Salkhit wind farm. 

The EBRD is playing an active role in Mongolia, developing both traditional natural resources such as copper and investing in non-mining sectors. The Salkhit project has been very well received in Mongolia. 

Last updated 22 March 2012