Mongolia: Renewable energy in the Asia Pacific: a legal overview (3rd edition) - Mongolia

Carbon Markets and Renewable Energy Update (Australia)
Last Updated: 11 September 2013
Article by Stephen Webb



Civil law Mongolian


  • Ease of Doing Business Report 2013: 76 out of 185 (up 12 rankings)
  • Global Competitiveness Index 2013: 93 out of 144 (up 3 rankings)
  • Index of Economic Freedom 2013: 75 out of 177 (up 6 rankings)
  • Corruption Perceptions Index 2012: 94 out of 176 (up 26 rankings)
2.8 million Lower middle $4,290


Mongolia is the second largest landlocked and the most sparsely populated country in the world. Perhaps Mongolia's most famous historical figure is Genghis Khan who founded the Mongol Empire in 1206. Mongolia was later invaded and occupied by the Chinese during the Qing Dynasty, and did not gain international recognition as a sovereign state until 1945. Unsurprisingly, both the Chinese and Soviet Union heavily influenced the country's culture, economy and institutions. Following the collapse of the Soviet Union, Mongolia became a democratic republic in 1990, however more ethnic Mongols live in present-day Inner Mongolia, which is a neighbouring province of China. The capital, UlanBator, is currently home to about 45% of the population, while approximately 30% of Mongols are still nomadic or semi-nomadic. Continued improvements in the country's business environment (see above) have resulted in increased foreign investment and an increased presence of foreign companies in the country.


  • Much of the foreign interest in Mongolia centres around its current mining boom which has seen large fossil fuel and metal-based mines open. The boom has caused an annual growth rate in electricity demand above 8%.
  • The energy sector is struggling to meet the growing demand for electricity. The Government has commissioned large coal mines and hydropower projects in an attempt to meet present and future demand.
  • Mongolia has seven coal-fired power plants, two hydropower plants and some small diesel and renewable energy generators. The seven coal-fired power plants have an installed capacity of 856MW, however due to the age and condition of these plants, actual available capacity is closer to 615MW.
  • Mongolia has seasonal variations in electricity demand, with winter requiring additional energy to be imported from Russia for heating.
  • The financial viability of Mongolia's electricity providers is being threatened by the increasing price of Russian electricity, inefficient infrastructure and the low cost of electricity for consumers.
  • The World Bank and USAid estimate that the price of electricity will need to increase by at least 60% for the energy industry to cover the costs of providing electricity
  • The electrification rate in 2008 was 87.5%, however vast discrepancies in access to electricity exist between urban and rural or nomadic people.
  • There are three separate electricity systems in Mongolia:
    • the Central Energy System, which serves Ulan Bator and surrounding areas, represents the vast majority of all Mongolian electricity supply and is comprised of five coal powered plants and an interconnection with Russia;
    • the Eastern Energy System, which has one combined heat and power plant; and
    • the Western Energy System, which relies on the importation of electricity from Russia.

Generation, distribution and transmission

  • Electricity generation in Mongolia is dominated by coal-fired combined heat and power plants. In 2009, these sources accounted for over 95% of total generation capacity. In the same year, renewables contributed 4.52% and were comprised largely of hydropower-sourced electricity.
  • The national transmission and distribution grid, as well as seven power plants, make up the electricity supply system.
  • Mongolia deregulated and privatised the power sector in 2001 upon the passing of the Energy Law of Mongolia. The law sought to vertically separate the sector by separating the generation, transmission and distribution companies. Despite this separation, all energy enterprises remain government-owned.
  • In 2002, a single buyer market model was introduced. This model stipulates that the five power-generating companies sell electricity at a regulated tariff to the Central Regional Distribution Company, which is the sole buyer of electricity and which then on-sells to 10 distribution companies.
  • In addition to the single-buyer market model, a spot market has been operating since 2006 and an auction market since 2007.


  • Mongolia is teeming with renewable energy resources, however the main barrier the industry faces is how to develop viable renewable energy projects across a sparse country that presently has out-dated, Soviet-era infrastructure.
  • A recent study by the US National Renewable Energy Laboratory and the Mongolian National Renewable Energy Centre, estimated that Mongolia has potential to generate 2,600GW of wind, solar, geothermal and hydropower-based energy. This figure represents approximately 25% of total global electricity demand and encapsulates the vast potential of Mongolia for renewables development.
  • Mongolian President Tsakhiagiin Elbegdorj has been lauded internationally for his eco-friendly policies and for his promotion of renewable energy. At the Northeast Asia Renewable Energy Cooperation Forum in November 2012, the President outlined Mongolia's long term goal of exporting renewable energy to China and Russia. He is expected to be re-elected for a second presidential term in June 2013.
  • Government rhetoric on renewable energy has been strong with authorities claiming that Mongolia can become "the Saudi Arabia of the East, not for coal but for renewable energy".
  • Mongolia's National Renewable Energy Plan (see below) stipulates a goal of 20 – 25% electricity generation to come from renewable sources by 2020.
  • The European Bank for Reconstruction and Development (EBRD) and the Energy Regulatory Authority (ERA) of Mongolia developed a Renewable Energy Regulatory Development Road Map. The roadmap seeks to establish stronger regulation of the renewables industry to encourage private investment.
  • To coincide with Mongolia hosting the UN's World Environment Day in June 2013, the UK is sending a renewable energy trade mission to further promote the use of British technology.


  • The Mongolian Government plays an active part in the renewables industry through a number of ministries and authorities, including the:
    • Ministry for Mineral Resources and Energy, which formulates energy policies and also approves foreign investment;
    • Energy Authority, which conducts broader research and technical monitoring of the energy sector. One of the divisions within the Authority is the Renewable Energy Division;
    • Energy Regulatory Authority, which sets energy prices, issues licenses and tariffs and also regulates the sector;
    • Unfair Competition Regulating Authority, which addresses anti-competitive behaviour;
    • National Committee, which is charged with reducing the high pollution levels in Ulan Bator;
    • National Renewable Energy Centre (NREC); and
    • Ministry of Nature and Environment.

2005 National Renewable Energy Program

  • The objective of this program is to "enhance ecological balance, to improve economic efficiency, to reduce poverty and unemployment and to create favourable conditions of sustainable social development through increasing the share of renewable energy in the electricity supply of Mongolia".
  • The program is currently in its second phase (2010 to 2020).
  • Phase one of the project (2005 to 2010) saw the construction of 12MW and 11MW hydropower plants in Durgun and Taishir. Additionally, 12 renewable energy systems for Soum centres (districts) with a capacity of 60-150kW were constructed.
  • The long-term goal of the program is to have total installed capacity generated from renewable sources to be 20-25% by 2020. The target of 3-5% of renewablessourced capacity was achieved for phase one.
  • The program is administered by the NREC.


  • Mongolia's 3,800 streams and rivers, which are located primarily in the northern and western areas of the country, have the potential for the generation of up to 6.4GW of hydropower.
  • Currently, Mongolia has approximately 12MW of hydropower capacity, with an additional 12MW under construction.

Wind energy

  • About 10% of Mongolia's total territory has been deemed as suitable for wind projects, which amounts to a vast potential of 160GW of wind power. However the highest winds are located in the south of the country, far from major population centres.
  • The Salkhit wind farm, currently under construction, is the largest renewable energy project in the country (see below).
  • Mongolia has two operational wind farms at present. They are the 3MW wind farm at Naran and the 5MW wind farm at Tsagaanchuluut.

Solar energy

  • "The land of the blue sky" has, in an average year, 270 to 300 'sunny' days. Accordingly, solar potential in the country is quite high, estimated to be 11GW.
  • There are three solar PV installations in operation:
    • the Naran Plant (5kW);
    • the Noyon plant (200kW); and
    • the Tsagaanchuluut plant (1kW).
  • One of Mongolia's most successful renewable energy initiatives has been the Solar Gers Project. Under the project, 100,146 herder families have been provided with portable solar energy systems since 1999. The project is jointly funded by the World Bank and Dutch Government and provides a 50% subsidy on the cost of solar systems.
  • The Gobi Desert has been earmarked as a possible location for a large solar PV or concentrated solar plant.

Geothermal energy

  • 40 possible geothermal sites have been identified, with projects at Tsenkher, Khujirt and Shargaljuut in the Khangai region deemed the most feasible.
  • There is potential for 45MW to 900MW of geothermal power in Mongolia, however Mongolia has not generated power from geothermal resources.
  • The Shivert area has measured surface temperatures of 55 degrees Celsius.

Biomass energy

  • The biomass potential of the country has not been extensively researched, however production from animal manures, particularly in rural areas, is deemed to have potential.
  • There are currently no biofuels or biomass facilities in Mongolia.


  • There are several challenges in establishing a viable renewables industry in Mongolia, such as the:
    • high degree of subsidisation of electricity prices;
    • small market;
    • lack and inadequacy of infrastructure; and
    • distance between population centres and renewable sources.
    • Despite its vast potential, the Government may choose to reduce renewables investment given the urgency of power shortfalls and the affordability of coal-generated electricity.
    • Operators have experienced some problems with renewable energy infrastructure. For instance, screw connections on large wind turbines have failed, causing them to blow over while poor quality wind turbines have led to delays in energy production.


  • The Energy Law of Mongolia 2001 regulates matters of energy generation, transmission, distribution and dispatching, opens the industry to private sector investment and coordinates supply activities, as well as infrastructure matters.
  • The Program on Integrated Power Energy System of Mongolia 2002 sets the long-term strategic plan to form the integrated power system. It is to be implemented over three stages between 2007 and 2040.
  • The Renewable Energy Law 2007 establishes a feed-in tariff range for renewable energy, which varies among different types of renewables. The law also introduced the first long-term Power Purchase Agreement between the Central Energy System Transmission Network, a state-owned stock company, and Newcom Holdings.


  • The Government offers a variety of incentives for renewable investments, particularly from the feed-in tariff rates. The most generous tariffs are provided in solar energy, with tariffs also for wind and hydropower energy


  • The EBRD invested US$47 million to help Mongolia build its first wind energy project. The 50MW Salkhit wind farm is also Mongolia's first-ever private energy enterprise. The project is being constructed 70km south of the capital by the Newcom Group. Once fully operational, it is expected to provide about 5% of the country's electricity needs. The 10th wind turbine was installed in November 2012, while earlier in 2013 the project was named the 'Project Finance Asia Pacific Renewable Deal of the Year 2012' by the Project Finance Magazine.
  • The Newcom Group is regarded as Mongolia's leading renewable energy company.
  • Softbank Corp and the Newcom Group are working to develop a 300MW wind farm in the Gobi Desert.
  • The 100MW Orkhon hydropower plant in the Central Region has been identified as a priority project by the NREC. However, the project is only at the feasibility stage.


  • The Mongolian Government has set up the Foreign Investment and Foreign Trade Agency to help bolster international interest and investment in Mongolia.
  • In June 2012, the Government moved to regulate foreign investment. The new law classifies foreign investment into two categories:
    • foreign investment in strategic sectors; and
    • foreign investment by state-owned entities.
  • Foreign investment restrictions were marginally relaxed in April 2013 with Mongolia's Parliament easing restrictions on private foreign companies investing in 'strategic sectors' (mining, media and banking). The amendments remove the need for Parliament to review investments from non-state owned companies, however stateowned companies or companies with government equity investing in over 49% of a company operating within a 'strategic sector' still require parliamentary approval. Any investment in a 'strategic sector', whether by a private or public company, must obtain government, prime ministerial and/or cabinet approval. Effectively therefore, the amendments merely transfer some foreign investment approvals from Parliament to the Government. The amendments were introduced after a 17% drop in foreign direct investment in Mongolia in 2012.


  • Mongolia ratified the United Nations Framework Convention on Climate Change in 1993 and the Kyoto Protocol in 1999. However as a non-annex one country, it does not have any binding emissions targets.

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