The World Bank announced that its board of executive directors has approved a $54.4 million financing for the Second Energy Sector Project, an initiative aimed at improving Mongolia’s power system and expanding generation capacity through the construction of a 10 MW solar facility.
The World Bank will provide a $42 million loan for the grid project, while the Scaling-Up Renewable Energy Program under the Strategic Climate Fund will add another $12.4 million for the construction of the PV plant.
The facility will be built in the country’s Western Region outside the Central Energy System. The facility, which is expected to provide with electricity rural areas with limited access to power, will considerably lower the region’s power imports, which currently cover around 70% of its demand.
As for the grid improvement, the World Bank said the project is addressing key bottlenecks in select electricity distribution companies by upgrading aging assets and expanding distribution capacity.
Mongolia has seen limited development of solar and renewable energies to date. Over the past years, the country tried to implement a FIT scheme for solar and wind project, which resulted in the allocation of around 200 MW of solar and 450 MW of wind power capacity.
According to the World Bank, however, these arrangements “were made without proper consideration of the ability of the power grid to absorb this much variable power and without regard to the ability and willingness of electricity consumers to accept the necessary tariff increases.” As a consequence, the World Bank explains, the licensed developers have run into difficulties in establishing their plants, leaving most licenses in limbo. The FIT granted for solar was $0.18/kWh.
The government of Mongolia is currently considering the introduction of an auction mechanism to incentivize more effectively renewable energy projects.
Mongolia’s total generation capacity currently stands at 1.06 GW. The U.S. National Renewable Energy Laboratory estimates that Mongolia has 2.6 terawatts of total renewable energy potential.