Mongolia Energy Storage Option for Accelerating Renewable ...

Technical Assistance Consultant’s Report Project Number: 51282-001

August 2020

Mongolia: Energy Storage Option for Accelerating Renewable Energy Penetration (Financed by Republic of Korea e-Asia and Knowledge Partnership Fund)

Prepared by

Integration Environment & Energy GmBH (INTEE), Germany

in Joint Venture with Granlund Oy (GL), Finland, and in association with MON-Energy Consult LLC (MEC), Mongolia

For the Ministry of Energy of Mongolia

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

TA-9569 MON: Energy Storage Option for

Accelerating Renewable Energy

Executive Summary

Final Report

Prepared for

Asian Development Bank

by

INTEGRATION environment & energy GmbH

in association with

Mon-Energy

May 2020

TA-9569 MON: Energy Storage Option for Accelerating Renewable Energy Executive Summary

i

ABBREVIATIONS

ADB – Asian Development Bank

BESS – Battery Energy Storage System

CES – Central Energy System

CHP – Combined Heat & Power CoUE – Cost of Unserved Energy

CO2 – Carbon Dioxide

EA – Executing Agency

EENS – Expected Energy Not Served

EFR – Enhanced Frequency Regulation

EIRR – Economic Internal Rate of Return

ERC – Electricity Regulatory Commission

FIRR – Financial Internal Rate of Return

FiT – Feed-In-Tariff FS – Feasibility Study

GDP – Gross Domestic Product GOM – Government of Mongolia

HLT – High Level Technology

MOE – Ministry of Energy

MOF – Ministry of Finance

NPTG – National Power Transmission Grid Company

TA – Technical Assistance

TOR – Terms of Reference

UB – Ulaanbaatar

WACC – Weighted Average Cost of Capital

NOTE

In this report, “$” refers to US dollars.


ii

CONTENTS

I. EXECUTIVE SUMMARY 3

A. Introduction 3

B. Technical Viability 4

C. Finance & Economics 7

D. Environmental Assessment 11

E. Poverty & Social Analysis 12


3

I. EXECUTIVE SUMMARY

A. Introduction

1. The energy sector in Mongolia is the largest contributor to greenhouse gas (GHG) emissions in the country, accounting for about two-thirds of the country’s GHG emissions. According to Mongolia’s nationally determined contributions, GHG emissions will increase to 51.5 million tons of carbon dioxide (mtCO2) by 2030 in the business-as-usual scenario with the energy sector’s share in total emissions increasing to 81.5%. The nationally determined contributions targets to reduce 7.3 mtCO2 of GHG emission by 2030 as compared with the business-as-usual scenario through emission reduction from power and heat generation (4.9 mtCO2), industry (0.7 mtCO2), and transportation (1.7 mtCO2). The Government of Mongolia aims to increase the share of renewable energy in total installed capacity in the country from 12% in 2018 to 20% by 2023 and 30% by 2030 in the State Policy on Energy, 2015-2030.

2. The Central Energy System (CES) grid of Mongolia, which covers major load demand centres including Ulaanbaatar, accounted for 96.0% of total installed capacity and 91.2% of electricity demand in the country in 2018. Coal-fired combined heat and power (CHP) is major source of power generation in the CES, which accounted for 93.0% of total power generation in the CES, and around 80% of power generation from CHP was shouldered by aging CHP number 3 and 4 plants in 2018. Because of a significant delay in new investment in new CHP capacity addition together with an increasing power demand, a capacity factor of the existing CHP plants during winter peak time has already reached above 90%. It has also resulted in growing dependence on an imported electricity from Siberian grid from Russian Federation and around 70% of transmission capacity for power import has already been utilized by 2018, which is also becoming bottleneck for stable power supply. An increasing demand pressure upon existing energy infrastructure has led to a growing concern over potential black out within a few years.

3. Renewable energy holds great potential to reduce power demand pressure upon the aging CHP plants and transmission capacity for power import, while stabilizing power supply and decarbonizing energy sector in the country. Renewable energy in total installed capacity must grow 274.2 megawatt (MW) by 2023, and 593.5 MW by 2030, of which 260 MW has been commissioned. The growing number of wind and solar photovoltaic power plants connected to the grid has also raised concerns over curtailment in the grid system, which is dominated by coal-fired combined heat and power plants which are less flexible in regulating their own power outputs to balance against the fluctuating renewable energy power output in the grid. The Renewable Energy Investment Plan for Mongolia in 2015 estimated 150 MW in wind power and 225 MW in solar photovoltaic power of maximum grid absorption capacity at a 20% curtailment rate.

Table E-1: Electricity Load Demand Projection and Required Generation Capacity

Year CES

Electricity Demand

(GWh)

CES Required

Generation Capacity

(MW)

CES Required

Renewable Capacity

(MW)

Targeted Renewable Share in Total

Capacity

(%)

2017 5,473 1,174 120.0 10

2023 6,739 1,371 274.2 20

2030 9,238 1,984 595.3 30

CES = Central Energy System, GWh = gigawatt hour, MW = megawatt.

Source: ADB Consultant


4

4. Battery energy storage is the only currently available option in the country to develop peaking power and spinning reserve capacity. The country has no access to natural gas resource, and hydropower was only one available option to supply peaking power and to develop spinning reserve for renewable energy penetration into the grid. Since 2015, the government has been seeking the development of 315 MW Egiin hydropower capacity in the Selenge river basin upstream of Baikal Lake in Siberia, Russia. But it has not moved forward due to the concern of the Russia Federation over the environment impacts and the water level in Baikal lake.

5. The proposed project will install 125 megawatt (MW) in capacity and 160 megawatt-hours (MWh) in energy of battery energy storage system (BESS) in Ulaanbaatar. It aims to (i) fully utilize a fluctuating renewable power, otherwise to be curtailed, to reduce high carbon intensive imported electricity from Siberia grid in Russian Federation and restore reserve margin for transmission capacity (para 2), and (ii) expand the room to connect new renewable energy capacity in the central energy system (CES) grid, and reduce demand pressure upon aging coal-fired CHP plants while decarbonizing heavily coal dependent power generation system, thereby supplying 44 gigawatt hours (GWh) of clean peaking power annually and enabling an additional 350 MW of renewable energy connection into the CES grid without curtailment. The proposed project will also help strengthen capacity of the grid operators and develop regulations in ancillary services, for sustainable operation and maintenance of the BESS system, and for future scaling up.

6. The total project cost is $116.8 million. The project will be financed with ADB loan ($100 million), the ADB High Technology Grant Fund (HLT) grant ($3 million) and contribution of the Government of Mongolia ($13.8 million). The project will be implemented during 2020–2022 and the BESS facilities will operate at full capacity by start of 2022.

7. The Ministry of Energy (MOE) will be the executing agency (EA) of the project, and it will undertake overall responsibility for the project implementation and provides guidance and oversight for the project management unit which is responsible for supervision of day-to-day project activities and assistance to the project implementing agencies to ensure smooth project implementation. The MOE has extensive experience in implementation of projects financed with foreign loans and grants and in managing disbursements from ADB.

8. The National Power Transmission Grid State Owned Company (NPTG), will be the project implementing agency (IA) which will take primary responsibility for the day-to-day project activities, conduct of environmental, social and land acquisition monitoring, procurement and initial payment control. NPTG has experience in projects financed by international donor organizations (World Bank, Japan-EBRD Cooperation Fund).

B. Technical Viability

9. The potential operating modes of large-scale electricity storage facilities in the CES follow

• Enhanced frequency regulation for managing the impact of intermittent large-scale wind, to a lesser extent solar PV farms, on the stability of the CES grid

• Peak shifting to reduce dependency on Russian import and utilize currently-curtailed renewable energy output

• Stand-by reserve capacity in the event of a loss of a critical unit, particularly a CHP-4 unit

10. These modes were analyzed for their technical potential and the optimal size of the BESS identified as 125 MW / 160 MWh.

11. The BESS will be capable of a) Daily energy shifting, absorbing up to 140 MWh of energy produced by wind in the early morning hours, and dis-charging up to 120 MWh during the evening peak hours (~44 GWh p.a.). The average daily MW reduction is ~60MW b) Stand-by reserve capacity – a short-term capacity of 125MW is required to cover the forced outage of a 125 MW unit at the CHP-4 power plant, c) Enhanced Frequency Regulation is estimated to be 25 MW / 10 MWh.


5

12. A 125 MW / 160 MWh BESS comprises the following:

• Energy storage cells rated at 160 MWh and power inverters rated at 125 MW

• A high voltage connection including a short length of 200m of overhead 220 kV

transmission line, one 220 / 35 kV, 125 MVA power transformer and one 220 kV circuit

breaker

• Medium voltage connection assets including a 35 kV indoor switchboard

• A control room facility housing the indoor switchboard, protection control, instrumentation,

ac / dc supplies, communication system, SCADA / EMS RTU facilities

13. An electrical layout has been developed based on a typical Li-ion BESS ‘containerised’ design concept. The final electrical layout of the BESS and medium voltage connection assets will depend on the choice of battery chemistry, and the manufacturer’s design recommendations.

14. The design of the low-tension plant shown above, including the battery field configuration, will depend on the supplier’s design. For the purpose of illustration, it has been envisaged that three (3) outdoor 35 kV circuit breakers and an indoor 35 kV switchboard (seven (7) circuit breakers) will be required. The indoor switchboard will be housed in a BESS control room (with protection, control and instrumentation equipment with associated power supplies covering all HV and MV assets of the BESS).

Figure E-1: High Voltage Single Line Diagram


6

Figure E-2: Low Tension Single Line Diagram

15. A site layout has also been developed based on the typical Li-ion BESS ‘containerised’ design concept shown in the following figure.

Figure E-3: BESS Site Layout

16. As the chemistry / type of the BESS is unknown at this time, cost benchmarks for the Li-ion


7

type have been used to estimate BESS costs1.

Table E-2: Capital Cost Breakdown

All Costs USD

Quantity Unit Price Parameter

Engineering and design 3,118,177

Project Administration 1,359,525

Materials & Equipment 64,705,546

Energy storage equipment 160,000 183 29,346,641

Power conversion equipment cost 125,000 186 23,250,000

Power control system cost 125,000 49 6,088,280

Balance of system

6,020,624

Construction 7,962,283

TOTAL 77,145,530

Source: Consultant

17. BESS O&M costs have been taken to be 1.0% of Capex (supply & construction costs) in accordance with Lazard estimates. Replacement of power converters and battery cells will be required after 15 years of operation. The replacement cost is estimated at $ 200 / kW for the DC equipment and $ 16 / kWh for the AC equipment, for a total of $27.6m (base year 2019). The O&M costs of the connection assets (HV and MV plant and equipment exclusive of the BESS have also been taken to be 1.0% of Capex (supply and construction costs).

18. A defects liability period of 2 years is envisaged for the BESS power cells and inverter equipment. Otherwise a 1-year period for all other plant and equipment. A Start-up Support Services & Technology Transfer concept is envisaged for the BESS facilities as follows

• During the BESS plant construction period, as well as during the first 2 years of operation, the EPC contractor will provide a skilled BESS operator to undertake the operation of the BESS. The EPC contractor will be fully responsible for the operation of the facility. During this period the EPC contractor will train NDC and NPTG personnel in preparation for hand-over (may be a combination of class-room and on-the-job training)

C. Finance & Economics

19. Capital investment in the BESS facilities will be financed mainly with the ADB loan which will also cover associated contingencies, interest during construction and commitment fee costs. The estimated ADB loan amount of 100 MUSD2, and an ADB HLT grant of 3 MUSD, will be used to finance the project base cost. The financial contribution of the Government of Mongolia will cover associated tax costs of 13.82 MUSD for a total project cost is 116.82 MUSD.

20. An assessment of National Power Transmission Grid (NPTG) financial statements for the last 5 years (2014-2018) has been conducted in accordance with relevant ADB's guidelines and methodologies3. The assessment, and the proposed loan and financing terms, has been used as the basis for the development of NPTG corporate financial projections. These have been modelled according to the target objectives of the State Policy on Energy 2015–2030, i.e. a) net profit margin

1 Referenced to recent BESS projects of similar capacity, and to Lazard’s Levelized Cost of Storage Analysis — Version 1.0, November 2015 2 1. The ADB loan will be issued in US dollars and will have a 5-year grace period; the principal payments will be made during 20 years thereafter. The loan disbursement will take place during 2020-2024, the principal repayments will start from 2025 onwards. 3 Financial Management and Analysis of Projects (ADB, 2005), Methodology Note on Financial Due Diligence (ADB, 2009), Technical Guidance Note on Financial Analysis and Evaluation (ADB, 2019)


8

to be at least zero by 2023 and b) net profit margin to be 5% by 2030. No state subsidies or other governmental support to NPTG has been included. Given the relative strength of financial management in NPTG, no financial management loan covenants are proposed.

Table E-3: Corporate Financial Projections for NPTG

EBIDTA = earnings before interest, depreciation, taxes and amortization, MNT = Mongolian Tugrik


21. A full cost-recovery tariff for NPTG has been modelled treating the BESS as a ‘smart’ transmission asset included in the total NPTG’s regulated asset base (RAB). The incremental tariff associated with the BESS has been computed in the BESS project financial analysis and converted to nominal terms according to assumed local inflation. This incremental tariff is included in the modelled NPTG’s tariff for electricity transmission services.

22. Table E-4 provides a comparison of the computed NPTG tariff and an estimate of the total end-user tariff (the average retail tariff). In this comparison, the NPTG tariff has been modelled according to the net profit margin targets, whereas the tariffs of the generation and distribution companies have simply been increased over time by the estimated local inflation rate. During 2022-2030, the average share of the incremental tariff associated with BESS in the total NPTG tariff would be 16.5% (increasing from 14.4% in 2022 to 19.3% in 2030). As it can be seen from the above projections, although the NPTG tariff with BESS is significantly higher than the case without the BESS, its overall influence on the end-user tariff is minor because the retail tariff is dominated by the prices charged by the electricity generation companies. The average difference in end-user tariff, that would be felt by customers over the longer term (2022-2030), is less than 1.55%.

billion MNT

Item 2019 2020 2021 2022 2023 2024 2025 2030

Income Statement

Revenue and gains 52.12 61.82 72.41 98.07 113.11 125.71 139.59 233.58

Expenses and losses 59.36 68.78 85.76 102.55 112.99 126.51 145.43 222.00

Net income -7.24 -6.96 -13.34 -4.48 0.11 -0.81 -5.84 11.59

Cash Flow Statement

From operating activities 7.89 6.20 7.24 27.66 34.39 36.11 40.58 59.58

From investing activities -2.81 -79.63 -174.38 -9.94 -10.80 -6.73 -4.44 -6.52

Equity financing 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Other financing activities -2.56 75.07 173.39 11.03 12.23 8.45 -27.80 -34.21

Ending cash balances 8.58 10.23 16.48 45.22 81.04 118.87 127.21 201.22

Balance Sheet

Total current asset 24.66 24.70 31.12 61.48 98.92 138.49 148.73 233.71

Total fixed assets 369.41 435.24 592.17 582.03 572.44 558.52 542.16 464.05

Total ST debt 0.92 0.92 0.92 0.92 0.92 17.87 18.93 25.37

Other current liabilities 13.10 10.70 10.59 10.43 10.50 11.23 11.04 13.93

Total LT debt 15.11 84.66 263.75 291.12 321.31 332.59 333.95 322.95

Other non-current liabilities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Equities 364.94 363.66 348.03 341.04 338.64 335.32 326.97 335.51

Financial Ratios

EBITDA 0.09 0.12 0.11 0.32 0.34 0.34 0.34 0.31

EBIT -0.16 -0.11 -0.14 0.11 0.16 0.17 0.19 0.21

Net profit margin -0.15 -0.12 -0.19 -0.05 0.00 -0.01 -0.04 0.05

Current ratio 1.76 2.13 2.70 5.42 8.66 4.76 4.96 5.95

Cash operating ratio 1.09 1.13 1.12 1.46 1.51 1.52 1.51 1.44

Long-term loans to Total Capital 0.04 0.19 0.43 0.46 0.49 0.50 0.51 0.49

Long-term loans to Equity 0.04 0.23 0.76 0.85 0.95 0.99 1.02 0.96

Self-financing ratio 2.22 0.05 0.03 2.72 3.15 5.33 7.14 7.78

Debt service coverage ratio 2.55 2.77 4.51 21.53 29.28 33.34 1.63 1.86

Forecast


9

Table E-4: Preliminary Projected Tariff for NPTG / End-User Tariff in CES

Notes: all tariffs are shown free of VAT, kWh = kilowatt hour, MNT = Mongolian tugrik

Source: ADB Consultant’s estimates

23. A financial cost-benefit analysis of the Project has been carried out (with grant financing). The Project has incremental benefits because it will improve stability of the existing national transmission system. Thus, the benefit has been applied to the gross electricity volume purchased and delivered by the national power grid.

Table E-5: Sensitivity Analysis, Financial Feasibility

Case Switching

value Sensitivity to input change

Variation FIRR

A. Base Case 3.65 %

B. Sensitivity Cases

CAPEX change 18.34 % +10% 2.88 %

OPEX change 139.28 % +10% 3.55 %

Transmission volume change -18.11 % -10% 2.92 %

Incremental tariff change -18.11 % -10% 2.92 %

FX change 20.38 % +10% 2.95 %

All combined n/a 0.77 %

WACC 2.30 %


24. The FIRR analysis shows that the Project is relatively stable if a single key input does not change in adverse direction for more than 10%. When all considered factors are changing adversely and simultaneously for 10%, the Project becomes infeasible. However, such scenario is not very likely in the real-life situation. All key factors except OPEX have a rather similar magnitude of influence on the project feasibility (switching values are close to +/- 20%); the Project is most insensitive to the change in OPEX.

25. Economic benefits for the proposed project comprise (i) 44 GWh annual saving of high carbon intensive power import from Siberian grid of Russian Federation, with 39,160 tons of annual carbon dioxide equivalent (CO2e) emission reduction,4 and (ii) 300,703 tons of annual thermal coal

4 Benefit of imported electricity saving is estimated using $0.08 kWh of an import electricity tariff in 2018. A

actual est est est est est est est est

2018 2019 2020 2021 2022 2023 2024 2025 2030

Mongolian CPI (ADB projection) 8.5 % 7.5 % 8.0 % 8.0 % 8.0 % 8.0 % 8.0 % 8.0 %

CPI index 1.085 1.075 1.080 1.080 1.080 1.080 1.080 1.080

NPTG tariff (with BESS) MNT/kWh 8.31 8.59 9.64 10.69 13.72 14.95 15.69 16.44 20.51

NPTG tariff (without BESS) MNT/kWh 8.31 8.59 9.13 9.67 10.21 10.75 11.45 12.15 15.65

Difference (with BESS vs without BESS) % 0.0 % 0.0 % 5.6 % 10.6 % 34.4 % 39.1 % 37.0 % 35.3 % 31.1 %

End-user tariff workings

End-user tariff - with BESS project

Weighted average electricity generation tariff (CES), est MNT/kWh 113.37 123.00 132.23 142.81 154.23 166.57 179.89 194.29 285.47


Average distribution cost in CES MNT/kWh 31.7 34.39 36.97 39.93 43.13 46.58 50.30 54.33 79.82

Total end-user tariff with BESS MNT/kWh 153.38 165.98 178.84 193.43 211.08 228.10 245.88 265.05 385.80

End-user annual tariff increase 8.2 % 7.7 % 8.2 % 9.1 % 8.1 % 7.8 % 7.8 % 7.8 %

End-user tariff - without BESS project




Total end-user tariff without BESS MNT/kWh 153.38 165.98 178.33 192.41 207.57 223.90 241.65 260.76 380.94

End-user annual tariff increase % 8.2 % 7.4 % 7.9 % 7.9 % 7.9 % 7.9 % 7.9 % 7.9 %

Difference (End user with BESS vs without BESS) % 0.00 % 0.00 % 0.29 % 0.53 % 1.69 % 1.88 % 1.75 % 1.64 % 1.28 %


10

consumption saving for power generation and 802,879 tons of annual CO2e emission reduction, which are derived from 859 GWh of annual clean electricity supply from additional 350 MW of renewable energy capacity.5 The cost of carbon has been set at $36.3 per ton in 2016 prices, with an annual increase of 2%. Since a reducing power import directly benefits to restore reserve margin of transmission capacity, the benefit of power import saving was deemed non-incremental. The benefit of additional renewable energy power supply was also deemed non-incremental. Whereas strong private sector investment appetite in renewable energy in Mongolia, no finance has been secured for the planned coal fired thermal power plants and CHP capacity addition in the CES so far.6 Thus, additional renewable energy capacity to be supported by the proposed project will also directly benefit to reduce high capacity factor of the existing CHP plants and create generation reserve margin for power supply stability.

26. The economic internal rate of return (EIRR) with environmental benefit for the project is 17.16%, greater than the economic opportunity cost of capital of 9%. The economic net present value is MNT 755,024.91 million. The EIRR without environmental benefit for the project is 4.65%, below the economic opportunity cost of capital of 9%, and the economic net present value is –301,017.83 million.

27. The sensitivity analysis indicates that the EIRR for the project will decrease to (i) 15.26% if there is a 10% shortfall in economic benefits, (ii) 15.75% if there is a capital cost overrun of 10%, (iii) 16.89% if O&M costs increase by 10%, and the project is economically viable in any adverse condition.

Table E-7: Sensitivity Analysis, Economic Feasibility

Scenarios EIRR (%) ENPV (million MNT)

Base Case 17.16 755,024.91

10% CAPEX Increase 15.69 665,493.03

10% OPEX Increase 16.82 722,381.18

10% Economic Benefit Decline 15.19 557,346.81

10% Cost of Coal Decline 16.30 670,094.97

10% of Additional Renewable Energy Capacity Reduced 16.09 620,869.33

1-Year Delay in Project Completion 17.07 727,193.31

CAPEX = capital expenditures, EIRR = economic internal rate of return, ENPV = economic net present value, MNT

= Mongolian togrog, OPEX = operational expenditures

Source: Asian Development Bank estimates.

carbon emission factor of 0.89 for imported electricity from the Siberian grid was applied. Imported electricity saving is assumed to directly reduce carbon emissions of the Siberian grid since (i) electricity demand in Siberia, as well as in the Russian Federation as a whole, has been constant between 2007 and 2018 and has yet to reach the demand level recorded in 1991; (ii) the capacity factor of coal-fired power plants is declining, reflecting stagnated demand: from 51% in 1998 to 47% in 2018; (iii) oil and natural gas production in the eastern part of the Russian Federation, which is a major electricity demand driver, is forecast to decrease in the long-term projection toward 2040; and (iv) there are no physical grid interconnections to establish new exports to other countries. Thus, avoided imported electricity from the Siberian grid is not assumed to be replaced by domestic demand or exports to other countries. 5 Economic cost of coal was estimated at $148.34 per ton on a basis of gate price in Tavan Tolgoi coal mine which is major source of thermal coal supply in Mongolia, factoring transportation cost including losses to CHP plants in Ulaanbaatar. A carbon emission factor of 1.26 for wind and solar projects in Mongolia (sourced from Guidelines for Estimating Greenhouse Gas Emissions of Asian Development Bank Project in 2017) was applied. 6 The government plans to add 125 MW capacity for CHP number 3 plant, add 90 MW capacity of CHP number 4 plant, and newly construct 700 MW of Baganuur coal-fired thermal plant by 2023. Considering 4-5 years construction lead time for thermal power plant, given finance is secured within 2020, commercial operation of these planned coal-fired plants would be after 2025.


11

28. A Financial Management Assessment (FMA) of NPTG and MOE (PMU) has proved that these agencies have robust financial management practices and qualified management and operational staff which will secure successful implementation of the project.

D. Environmental Assessment

29. An IEE report has been prepared based on an approved domestic FSR; a domestic Baseline Environmental Assessment (BES) and a full Detailed Environmental Impact Assessment (DEIA) report; site visits conducted by domestic and international environmental consultants; a Climate Risk Assessment (CRA); screenings utilizing the Integrated Biodiversity Assessment Tool (IBAT) developed by BirdLife International, Conservation International, IUCN and UN Environment's World Conservation Monitoring Centre; screening utilizing the World Bank managed Global Facility for Disaster Reduction and Recovery (GFDRR) hazard screening tool ThinkHazard; screening utilizing the Mongolia earthquake risk Modified Mercalli (MM) scale map produced by the United Nations OCHA; and, stakeholder and public consultation meetings.

30. Key findings are as follows:

• The Project’s categorization is ADB environment category B.

• Land use within Songino Khairkhan district is predominately pasture and grasslands. The land at the Project site foot print is not currently used or occupied. The site is immediately adjacent to the Songino substation and wraps around it on three sides.

• The Project site is a low noise area. Key sounds sources are the highway 1.3 km to the northeast, and the adjacent substation and fertilizer plant.

• There are no known large wild mammals utilizing the site, though the area is grazed by cattle. Animals that may be found on or near the site are typical for the urban periphery of Ulaanbaatar, including the common raven (Corvus corax – Least Concern IUCN Red List status), house sparrow (Passer domesticus, Least Concern IUCN Red List status), and common unthreatened hares, marmots, mice and moles.

• There are no parks, protected areas, nature reserves or Key Biodiversity Areas (KBAs) within 5 km of the project site.

• There are no schools, clinics or hospitals within the Project area. The nearest residences are more than 1000 m to the northwest over the adjacent range of hills, and the nearest community is 2 km away. There are no known physical cultural resources at the site.

• Pre-construction phase negative impacts are typically associated with any permanent land acquisition and associated loss of land and/or structures. All project works will take place on government owned unoccupied land, and there will be no land acquisition, involuntary resettlement, or loss of shelter, agricultural land or productive assets. Thus, there are no associated impacts or mitigation measures required.

• Overall the scale of construction for the BESS is small and localized, and primarily consists of land preparation; installation of the battery containers, inverters, power transformers and control structure; construction of access roads; and other construction activities. Anticipated Project construction phase negative environmental impacts are low in magnitude, short to medium term in duration, and very localized in scale.

• Operation of the BESS will not produce any air pollution, significant noise, or significant solid or liquid waste. As there are no battery recycling facilities in Mongolia, it will be a contractual requirement that faulty or waste batteries will be collected, transported and recycled in an appropriate facility in the region by the battery suppliers. This will require appropriate approvals and permits from the Special Commission for Hazardous Waste Management of MNET. The borrower shall ensure that bidding documents stipulate that the battery supplier will be responsible for disposal of damaged and used battery cells,


12

including obtaining export permits.

• The BESS lifespan is expected to be 15+ years, at which point it is expected that it may be de-commissioned. It is not possible to develop detailed decommissioning plans for events 15+ years in the future. However, it is recommended that at a minimum of 6 months prior to closure a decommissioning and site reclamation plan be developed that addresses effectively potential impacts, and is in accordance with good international practices and relevant government regulations and standards in force at that time.

31. A Climate Risk Assessment (CRA) was undertaken. According to Mongolia’s Intended Nationally Determined Contribution (INDC) to the UNFCCC, the annual mean air temperature over Mongolia has increased by 2.07 °C from 1940 to 2014, and the ten warmest years in the last 70 years have occurred since 1997. Average precipitation has decreased by 7 % since 1940. Projections call for trends in both maximum and minimum temperatures to continue increasing, especially in scenarios where global greenhouse gas (GHG) emissions are not significantly controlled. Changes in precipitation are less pronounced and show more variability by model. Additional potential changes, though more difficult to determine, include a somewhat higher incidence of more episodic precipitation events, largely in the April to September period, and possibly increased incidence of extreme cold (dzud) conditions, though the latter is based largely on recent trends. Specific climate change risks relevant to the BESS plant include the risk of flooding from increased precipitation and the risk of an unstable foundation from possible melting permafrost. To adapt to these climate change risks, the project shall be designed so that its foundation will be brought to the same level as that of the Songino substation.

E. Poverty & Social Analysis

32. In the household sector, electricity is mainly used for lighting and television. Electricity is rarely used for cooking, particularly in the Ger households where traditional wood- or coal-stoves are used. In the winter months, around 6% of households use electric heaters. The risk of power restriction is highest in the evening hours when household demand is at its peak; conversely, households report that the evening hours are the least preferred time for power loss. In the business sector, electricity is used to power production equipment, office and building facilities. The least preferred time for power supply loss is during the business day. At the present time most businesses rely on electricity supply from the grid and do not use back-up generators. If power restriction increases in frequency and duration, all businesses will be forced to resort to back-up generators with higher operating costs, or to put up with the restrictions and suffer a loss of revenue.

33. The risk of power restriction is increasing rapidly due to the emergence of an imbalance between demand and supply. The power system reserve margin is below the minimum acceptable level of 15% and falling. It is estimated that, without the BESS project, the total hours of power system loss will increase from 0 to ~70 hours per annum by 2022. With the BESS project, the total hours of power system loss will be maintained at the current low level. The willingness to pay for reliability improvement is estimated at $1.31 per kWh comprising $0.96 per kWh for households, and $0.36 per kWh for business (WTP has been assessed based on a peak-hourly income method for households and according to GDP contribution for business).

34. Poor households will benefit most if power restriction is avoided. The BESS will positively impact 80,000 poor households by reducing the cost of coping with power restrictions. All of the 319,000 households in the CES will be spared from the need to cope with power loss, in particular the need to use candles for lighting. It is estimated that the retail electricity tariff will need to increase by 2% for full cost recovery. This increase is small in comparison to the total monthly household expenditure on utilities. It will be offset by the avoidance of the cost of coping with power restriction, notably expenditure on candles for lighting.

35. There are ~120,000 businesses registered in the CES with an average revenue of ~80,000 MNT per month (US$3,000). According to the business survey, the average number of employees per private business is 33 (minimum 4, maximum 130). On average, female employees are equal in number to male employees. Avoidance of power restriction will have beneficial impacts for business owners and employees.


13

36. The BESS offers employment opportunities. It will require an operating staff of 10 full-time employees. The project will require training of staff of the Ministry of Energy and the National Power Grid Transmission company.

Land Impacts

37. Public consultations were carried out with the 32nd khoroo Citizens Representative Khural. The consultations explained the nature of the project and gave reasons why the community can expect minimal impacts. No objections were tabled by the citizens representatives.

38. The project land requirements were discussed with the municipal authority of the 32nd khoroo of Songinokhairkhan district as the responsible authority for land management. Joint site visits were undertaken to identify suitable land plots. The authority worked with the Ministry of Energy and a land decree was issued covering the project site.

39. No involuntary resettlement is required. The 32nd khoroo administration has advised that the project will not affect residents in the area because the allocated land falls in an industrial zone. On the advice of the 32nd khoroo administration, a land decree based on Land Possession Decree Ordinance No. A/949, was issued by the Mayor and Governor of Ulaanbaatar City on 17 September 2019. This decree provides a clear and un-encumbered title for development of the project.

Gender & Development

40. The household survey showed that women are affected by power restriction equally to men in terms of coping actions. Similarly, it was found that the numbers of women business are the same as for men and will be equally affected by power restrictions. In the absence of the project, the worsening power of restrictions will dis-proportionately affect poor households of which 6.6% are headed by women.

41. The project will require additional human resources to carry out operations and maintenance of the BESS. There are no reasons that women should be excluded from consideration for any of the newly created roles. As the National Power Transmission Grid company has a non-discriminatory recruitment policy this issue does not warrant a specific action plan.

Monitoring & Evaluation.

42. Targets and indicators. The targets and indicators for the project are 1. Zero incidents of power system restriction due to forced outage of a Mongolian power plant unit in the years 2022 to 2025, 2. Renewable energy penetration of 20% by 2025. These targets and indicators will be monitored according to the Ministry of Energy’s annual report of the performance of the power system, and by analyzing the operations logs of the BESS at those times when forced outage events occur.

43. A Project Implementation Consultant will be recruited to support the Ministry of Energy’s Project Management Unit and together these organizations will monitor and evaluate project effectiveness. As the local social impacts of the project are minimal, social and environmental assessments will be combined and carried out by a single suitably qualified expert.

TA-9569 MON:

Energy Storage Option for Accelerating Renewable Energy

Technical Viability Final Report

Prepared for


by


in association with

Mon-Energy

May 2020

TA-9569 MON: Energy Storage Option for Accelerating Renewable Energy Technical Viability

i

ABBREVIATIONS

ADB – Asian Development Bank BESS – Battery Energy Storage System CES – Central Energy System CHP – Combined Heat & Power CoUE – Cost of Unserved Energy CO2 – Carbon Dioxide DEIA – Detailed Environmental Impact Assessment EA – Executing Agency EARF – Environmental Assessment Review Framework EENS – Expected Energy Not Served EFR – Enhanced Frequency Regulation EIA – Environmental Impact assessment ERC – Electricity Regulatory Commission FS – Feasibility Study GDP – Gross Domestic Product GEIA – General Environmental Impact Assessment HOB – Heat Only Boiler IEE – Initial Environmental Examination MoE – Ministry of Energy MoF – Ministry of Finance NPTG – National Power Transmission Grid Company NOx – Nitrogen Oxides PM – Particulate Matter SOx – Sulphur Dioxides TA – Technical Assistance TOR – Terms of Reference UB – Ulaanbaatar WACC – Weighted Average Cost of Capital

NOTE



ii

CONTENTS


A. BACKGROUND 3 B. PROJECT SCOPE 3 C. PROJECT COST ESTIMATION 7

II. INTRODUCTION 9 D. CURRENT STATUS OF THE MONGOLIAN POWER SYSTEM 9 E. CURRENT STATUS OF THE CENTRAL REGION ENERGY SYSTEM 10 F. HISTORICAL ELECTRICITY SUPPLY & DEMAND 14 G. DAILY & YEARLY POWER SUPPLY CURVES 15 H. CURRENT CONDITION OF POWER TRANSMISSION SYSTEM 17

III. POWER STORAGE TECHNOLOGIES 22 I. POWER STORAGE TECHNOLOGIES 22 J. STORAGE BATTERY COSTS 27 K. POWER STORAGE APPLICATIONS 29 L. BATTERY APPLICATION & CHEMISTRY 32 M. UTILITY-SCALE BATTERY INSTALLATIONS IN SERVICE 34

IV. NEED FOR BESS IN CES 36 N. INTRODUCTION 36 O. ENERGY TIME-SHIFT 36 P. SPINNING RESERVE 41 Q. ENHANCED FREQUENCY REGULATION 44

V. SITE SURVEYS 48 R. CONNECTION CONSTRAINTS 48 S. SITES CONSIDERED 48

VI. POWER FLOW & CONNECTION STUDY 51 T. INTRODUCTION 51 U. POWER FLOW STUDY 51

VII. BESS DESIGN CONCEPT 55 V. DESIGN CONCEPT 55 W. BILL OF QUANTITY 63 X. BESS CONSTRUCTION PLAN FOR CES 67

VIII. COST ESTIMATE 70 Y. CAPITAL COSTS 70 Z. O&M COSTS 70 AA. TOTAL INVESTMENT 71 BB. COST RECOVERY 71


3


A. BACKGROUND

1. Energy security is a major challenge in Mongolia. Accelerating renewable energy penetration by increasing both the share of renewables in the energy mix and their capacity is vital for Mongolia to accelerate economic growth and protect the environment.

2. The Government of Mongolia is pursuing a series of policies to increase the share of renewables in the energy mix. A State Policy on Energy 2015 - 2030 was approved by the Mongolian Parliament in 2015, intending to achieve energy independence and an increase in the share of renewable energy to 20% of total installed capacity by 2023 and 30% in 2030. A grid-scale Battery Energy Storage System (BESS) is a versatile technology that will support these policy objectives in the near- to medium-term.

3. The project is fully aligned with the Government of Mongolia’s Sustainable Development Vision 2030 and its priority to improve natural resource management and the response to climate change. The project is also fully aligned with ADB’s Country Partnership Strategy (2017 - 2020) and the Country Operation Business Plan (2018 - 2020).

B. PROJECT SCOPE


• Enhanced frequency regulation support to reduce the impact of intermittent large-scale wind, to a lesser extent solar PV farms, on the stability of the CES grid

• Peak shifting to reduce dependency on Russian import and utilize currently-curtailed renewable energy output


5. It is noted that these opportunities are related to different timescales of operation. Enhanced frequency regulation is short-term in nature, peak shifting is a daily and medium term in nature, whereas stand-by reserve capacity need is related to the annual peak demand periods and is medium to long-term in nature. The opportunities were analyzed for their technical potential in order to determine

• The optimal size of the BESS for the CES, in terms of MW of power conversion and MWh or energy storage capacity, required to meet the duties of peak shifting, enhanced frequency regulation and stand-by reserve capacity

• The corresponding CES operating regime that would apply given the supply and demand characteristics of the Mongolian power system

• The benefits of a BESS quantified in terms of the potential reduction in expected energy not served and energy savings

a) BESS Capacity

6. Short duration battery discharge will deliver enhanced frequency regulation guarding against instability that arises due to an increased share of ‘low-inertia’ variable Renewable Energy (RE) generation sources. Longer term discharge, over the course of three to four hours each day will increase energy independence by reducing imported electricity from Russia at the time of peak demand, and at all other times using the remaining capacity as a stand-by reserve duty source.


4

7. The energy and power capacities of the BESS were determined according to the duties mentioned above, with the total capacity requirement established at 125 MW / 160 MWh.

• Energy shifting (daily) - the battery should be capable of absorbing up to 140 MWh of energy produced by wind in the early morning hours, and dis-charging up to 120 MWh during the evening peak hours (~44 GWh p.a.). The average daily MW reduction is ~60MW. These typical winter and summer despatch profiles show the peak shaving impacts of a BESS

August December

• Stand-by reserve capacity – a short-term capacity of 125MW is required to cover the forced outage of a 125 MW unit at the CHP-4 power plant

• The BESS capacity needed for Enhanced Frequency Regulation is estimated to be 25 MW / 10 MWh; adjustment may be necessary according the measured frequency histogram at end 2021.

b) Project Location

8. Three sites adjacent to the Ulaanbaatar, CHP-4 switchyard and Songino 220 kV substations were investigated and determined to be potentially suitable for connection of the BESS. The sites were screened environmentally and socially (land acquisition and impacts) and the Songino site was selected as the most suitable despite that the available land was much restricted due to existing transmission line right-of-way corridors. The proposed location of the BESS is near to the existing Songino 220 kV substation, to the west of Ulaanbaatar shown below in Figure E-1.

Figure E1: Location of the BESS (near Ulaanbaatar)


5

c) Electrical Description

9. The BESS Project comprises the following:

• A battery with energy storage capacity of 160 MWh (storage cells) and power capacity of 125 MW (power inverters)

• A high voltage connection including a short length of 200m of overhead 220 kV transmission line, one 220 / 35 kV, 125 MVA power transformer and one 220 kV circuit breaker

• Medium voltage connection assets including a 35 kV indoor switchboard • A control room facility housing the indoor switchboard, protection control, instrumentation,

ac / dc supplies, communication system, SCADA / EMS RTU facilities

10. An electrical layout has been developed based on a typical Li-ion BESS ‘containerised’ design concept. The final electrical layout of the BESS and medium voltage connection assets will depend on the choice of battery chemistry, and the manufacturer’s design recommendations.

Figure E2: High Voltage Single Line Diagram


6

Figure E3: Low Tension Single Line Diagram

11. The design of the low-tension plant shown above, including the battery field configuration, will depend on the supplier’s design. For the purpose of illustration, it has been envisaged that three (3) outdoor 35 kV circuit breakers and an indoor 35 kV switchboard (seven (7) circuit breakers) will be required. The indoor switchboard will be housed in a BESS control room (with protection, control and instrumentation equipment with associated power supplies covering all HV and MV assets of the BESS).

d) Site Layout

12. A site layout has also been developed based on the typical Li-ion BESS ‘containerised’ design concept shown in the following figure.

Figure E4: BESS Site Layout


7

C. PROJECT COST ESTIMATION

13. As the chemistry / type of the BESS is unknown at this time, cost benchmarks for the Li-ion type were used to estimate BESS costs1. Costs include up-front Capex and O&M costs. Capex cost estimate assume an EPC procurement modality including ‘start-up’ support services. Specific details follow

Table E-5: Capital Cost Breakdown

All Costs USD

Engineering & Design Quantity Unit Price Parameter Engineering and design 1 3,118,177 3,118,177

Project Administration Quantity Unit Price Parameter

PMU 1 1,247,271 1,247,271

Govt standardization fee 1 112,254 112,254

Sub-Total 1,359,525

Materials & Equipment Quantity Unit Price Parameter Energy storage equipment 160,000 183 29,346,641



Balance of system HV Transformer 220 / 35kV 125 MVA 1 2,000,000 2,000,000

MV Transformers 35 / 0.4 kV 1 1,500,000 1,500,000

35 kV Switchgear / Cables 3 150,000 150,000

Storage Containers for Battery 1 1,000,000 1,000,000

Power Converter Containers 1 1,000,000 1,000,000

SCADA 1 370,624 370,624

Sub-Total 64,705,546 Construction Quantity Unit Price Parameter

Energy storage equipment 1 3,584,475 3,584,475

Power conversion equipment cost 1 4,377,808 4,377,808

Sub-Total 7,962,283

TOTAL 77,145,530

Source: Consultant

14. BESS O&M costs have been taken to be 1.0% of Capex (supply & construction costs) in accordance with Lazard estimates. Replacement of power converters and battery cells will be required after 15 years of operation. The replacement cost is estimated at $ 200 / kW for the DC equipment and $ 16 / kWh for the AC equipment, for a total of $27.6m (base year 2019). The O&M costs of the connection assets (HV and MV plant and equipment exclusive of the BESS have also been taken to be 1.0% of Capex (supply and construction costs).

15. A defects liability period of 2 years is envisaged for the BESS power cells and inverter equipment. Otherwise a 1-year period for all other plant and equipment. A Start-up Support Services & Technology Transfer concept is envisaged for the BESS facilities as follows

• During the BESS plant construction period, as well as during the first 2 years of

1 Referenced to recent BESS projects of similar capacity, and to Lazard’s Levelized Cost of Storage Analysis — Version 1.0, November 2015


8

operation, the EPC contractor will provide a skilled BESS operator to undertake the operation of the BESS. The EPC contractor will be fully responsible for the operation of the facility. The EPC contractor will train NDC and NPTG personnel in preparation for hand-over (may be a combination of class-room and on-the-job training).


9

II. INTRODUCTION

D. CURRENT STATUS OF THE MONGOLIAN POWER SYSTEM

16. The Mongolian energy system consists of 5 power grids, the Central Region Energy System, Western Region Energy System, Altai-Uliastai Energy System, Eastern (Dornod) Region Energy System, and the Southern Region Power Supply.

17. The power plant fleet consists of 5 Combined Heat & Power Plants (CHPs) in operation in the CES, 3 small CHPs in operation in Choibalsan (Eastern RES), in Dalanzadgad, and in Ukhaakhudag (Southgovi), Durgun Hydropower Plant (HPP), Taishir HPP, the Altai and Uliastai Diesel Stations, and small Renewable Energy Sources (RES). The Oyu Tolgoi mine is supplied through a grid connection to China. The Ukhaakhudag thermal power plant and diesel station operates as a reserve power source for Oyu Tolgoi mine.

18. These plants generate and supply electricity to consumers through 220/110 kV transmission grids and substations, and 35/10/6/0.4 distribution grids and substations.

Figure II-1: Mongolia’s Energy Systems

Source: Ministry of Energy

19. Mongolia’s electricity generation shares of the different power sources in 2013-2017 are shown in the table below:

Table II-2: Electricity Generation Share by Power Sources (million kWh)

Power sources 2013 2014 2015 2016 2017

Thermal Power Plants 5014.0 5191.3 5415.6 5555.9 5890.6

Hydropower plants 59.9 66.3 59.3 84.7 84.7

Western Region Energy System

Altai-Uliastai Energy System

Central Region Energy System

Southern Region Power Supply

Ulaanbaatar Eastern Region Energy System


10

Power sources 2013 2014 2015 2016 2017

Wind power plants 52.9 125.4 152.5 157.5 157.9

Solar PV plants 0.0 0.6 0.6 0.3 19.6

Total generation 5123.5 5383.6 5628.0 5798.4 6152.8


E. CURRENT STATUS OF THE CENTRAL REGION ENERGY SYSTEM

20. The largest energy system is the Central Region Energy System (CES) representing 76.5% of the total power supply in Mongolia. There are 5 Combined Heat & Power Plants (CHPs) in operation in the CES, and 3 small CHPs in operation in Choibalsan (Eastern RES), in Dalanzadgad, and in Ukhaakhudag (Southgovi). The CES comprises one unified transmission grid and 18 distribution grids, and is connected to the Buriad Energy System in Russia through 220 kV overhead transmission lines.

21. The installed capacities in CES were indicated below.

• Ulaanbaatar CHP #2 - 24 MW



• Darkhan CHP - 48 MW

• Erdenet CHP – 28.8 MW

• Choibalsan CHP - 36 MW

• Dalanzadgad CHP - 9 МW

• Ukhaakhudag - 18 МW

• Erdenet Copper Mining Thermal Power Plant - 53 МW.

Table II-3: Installed Capacities in CES (by Weight - MW, %)

№ Names of Power Sources Installed

capacity, МW

Percentage -

nationwide, %

Capacity in

CES, МW

Percentage

in CES, %

Thermal Power Plants 1 1 CHP-2 24 1.69% 24 1.87%

2 2 CHP-3 186 13.13% 186 14.51%

3 3 CHP-4 703 49.63% 703 54.84%

4 4 Darkhan CHP 48 3.39% 48 3.74%

5 5 Erdenet CHP 28.8 2.03% 29 2.25%

6 6 Erdenet Mine TPP 53 3.74% 53 4.13%

7 7 Ukhaakhudag TPP 18 1.27% 18 1.40%

8 8 Dalanzadgad CHP 9 0.64% 9 0.70%

9 9 Choibalsan CHP 36 2.54%

1,105.8 1,069.8 Wind Power Plants 10 1 Salkhit WPP 50 3.53% 50 3.90%

11 2 Tsetsii WPP 50 3.53% 50 3.90%


11

№ Names of Power Sources Installed

capacity, МW

Percentage -

nationwide, %

Capacity in

CES, МW

Percentage

in CES, %

12 3 Sainshand WPP 52 3.67% 52 4.06%

152 152 Solar PV Plants

13 1 Darkhan Solar PV 10 0.71% 10 0.78%

14 2 Monnar Solar PV 10 0.71% 10 0.78%

15 3 Naranteeg Solar PV 15 1.06% 15 1.17%

16 4 Khushig Solar PV 15 1.06% 15 1.17%

17 5 Sumber Solar PV 10 0.71% 10 0.78%

60 60

Hydropower Plants

18 1 Durgun HPP 12 0.85%

19 2 Taishir HPP 11.2 0.79%

20 3 Bogdin HPP 2 0.14%

21 4 Tosontsengel HPP 0.375 0.03%

22 5 Khungui HPP 0.115 0.01%

23 6 Guulin HPP 0.4 0.03%

24 7 Galuutai HPP 0.12 0.01%

26.21

Diesel Power Plants (DPP) 25 1 Yesunbulag DPP 6.2 0.44%

26 2 Uliastai DPP 8.7 0.61%

27 3 DPPs in Soums of AuS 2.4 0.17%

28 4 Khovd, Uvs & Ulgii 1.6 0.11%

29 5 OyuT Diesel 40 2.82%

30 6 UkhaaH Diesel 10.7 0.76%

31 7 Dalanzadgad DPP 0.5 0.04%

32 8 Choibalsan DPP 2.5 0.18%

72.6 Total 1,416.61 100.00% 1,281.8 100.00%


22. The total capacities of power plants by type are

• Coal-fired thermal power plants - 1,105.9 MW

• Renewable energy sources - 212 MW

• Altai & Uliastai diesel power plants (operating and in reserve) - 21.9 MW

• Ukhaakhudag TPP and Oyu Tolgoi reserve diesel power plants - 50.7 MW


12

23. The total installed capacity in Mongolia is 1,416.6 MW for which 78% is thermal power plants; 15% is renewable energy sources; 2% is hydropower plant and 5% is diesel plants.

Figure II-4: Mongolia’s Generation Mix by Type


24. The total installed capacity of the Central Region Energy System (CES) is 1,281.8 МW of which 83.5% is thermal power plants and 16.5% is renewable energy sources.

Figure II-5: CES Generation Mix by Type (excluding import)


Thermal Power

Plants Дул ы л т ууд

83.5%

Wind power plant

С л л т ууд 11.9%

Solar PV plants

Н ы л т ууд 4.7%


13

Table II-6: Mongolia’s Heat Capacities & % Weight (GCal/h, %)

№ Names of heat sources Heat capacity,

Gcal/h Weight, %

1 CHP-2 45 1.2%

2 CHP-3 821 22.1%

3 CHP-4 1,373 36.9%

4 Darkhan CHP 364 9.8%

5 Erdenet CHP 302.5 8.1%

6 Erdenet Mine TPP 310 8.3%

7 Amgalan HOB 300 8.1%

8 Dalanzadgad CHP 43 1.2%

9 Choibalsan CHP 163 4.4%

Total 3,721.5 100%


25. The total installed heat capacity of the Mongolian energy system is 3,721.5 Gcal/h (the available heat capacity is 3,558.5 Gcal/h).

Figure II-7: Heat Capacity of Heat Sources


CHP#2

ДЦС-2

1%

CHP#3

ДЦС-4

37%

Darkhan CHP

ДДЦС10%

Erdenet CHP

ЭДЦС8%

Erdenet Mine TPP

Э дэ эт ү лд э ДЦС8%

Amgalan HOB

А л ДС8%

Dalanzadgad CHP

Д л д д ДЦС1%

Choibalsan CHP

Чо л ДЦС5%


14

F. HISTORICAL ELECTRICITY SUPPLY & DEMAND

26. The CES electricity supply and growth statistics are given by the following table:

Table II-8: Historical Electricity Production in CES

Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Supply,

million kWh 3,994.2 4,284.4 4,514.4 4,883.3 5,136.7 5,451.4 5,512.3 5,650.5 5,965.4 6,516.4

Growth,

million kWh -12.3 290.2 230.0 370.2 253.4 314.7 60.9 138.2 314.9 550.1

Growth % -0.3% 6.5% 4.5% 8.2% 5.2% 6.1% 1,1% 2,5 % 5,6 % 9,2 %


Figure II-9: CES Electricity Production (Sent Out)


27. The historical peak load in the CES is given by the following table

Table II-10: Historical CES Peak Load

Year: 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Peak load 695 729 782 863 910 969 965 975 1,016 1,117

Difference of

peak loads

(MW)

22 34 53 81 47 59 -4 10 41 101

Growth rate 3.3% 4.9% 7.3% 10.3% 5.4% 6.5% -0.4% 1,0% 4,2% 9,9%


28. The peak CES load growth over the past 10 years was 5.3% in average, 7.9% in average in high growth years and 2.5% in average in low growth years.

0,0

1.000,0

2.000,0

3.000,0

4.000,0

5.000,0

6.000,0

7.000,0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GW

he


15

G. DAILY & YEARLY POWER SUPPLY CURVES

29. The daily difference between evening peak and night lowest loads based on the daily load curves is directly dependent on consumers and their structures.

30. The daily electricity consumption in the winter peak loads in the CES is 18.0 – 23.0 million kWh and the difference between daily minimum and maximum loads in winter reaches 280 – 350 MW.

a. CES Summer Operation

31. The daily supply of summer lower load hours in CES is about 14.0 – 18.0 million kWh. The daily difference between summer low load and evening peak during summer minimum load days is 120 -140 MW and the summer load main feature is that the morning peak load almost is equal to the evening peak. The CHPs operate in condensing mode without heat generation (electric generation mode only) during summer low load days, and the turbine load cut / lowering change / is comparatively low due to the vacuum pressure drops during summer operation. During the low demand night time hours in summer, the small CHPs can reduce production by 1 – 4 MW and CHP#4 by 50-70 MW.

32. The left figure in Figure II-11 shows the summer daily low load in August and when the total daily load was 12.8 kWh, Pmax = 615 MW, Pmin 404 MW and/or daily load difference was 211 MW. Up to 70 MW of electricity was imported during peak hours and up to 32 MW – exported during night low load hours.

b. CES Winter Operation

33. There is higher potential for the CHPs to reduce electricity production in winter during the nightly low load hours compared to the summer operating regime. The small thermal power plants such as CHP#2, CHP#3, Darkhan CHP and Erdenet CHP can cut by 2 – 8 MW. CHP#4 participates in the daily load regime by cutting 80 – 130 MW.

34. As shown in the right figure in Figure II-11, when the total daily supply in the winter peak loads in CES was 20.7 million kWh, Pmax = 1,016 MW, Pmin = 716 MW and difference was 300 MW (during winter peak load in 2017). The local generation was 971 MW and import was up to 45 MW. Electricity is imported during morning and evening peak hours and the electricity is exported in small amount during night low load hours.


16

Figure II-11: CES Power Supply & Demand Daily Profiles

20 August 2017 15 December 2017



17

H. CURRENT CONDITION OF POWER TRANSMISSION SYSTEM

35. According to the Energy Law of Mongolia, the high voltage (110 kV and 220 kV) electricity transmission system is the responsibility of the National Transmission Grid. The responsibility for the medium and low voltage electric systems (0.4 – 35 kV) falls with electricity distribution companies.

36. The 220 kV transmission lines connecting Erdenet, Darkhan and Ulaanbaatar cities, form a ring that is connected via Darkhan to the Russian grid (Selendum). The 220 kV transmission network continues to the east from UB to Baganuur and Choir. The power transmission line between Baganuur and Choir is rated for 220 kV but the line operates at 110 kV.

37. The Mongolian transmission network configuration is given by Figure II-12. The Mongolian transmission network configuration is given by Figure II-13.

38. The Consultant has collected transmission network data from NPTG. Table II-14 and Table II-15 provide the peak loadings on transmission substations and lines for 2014 and 2018.

39. The transmission and distribution capacities are one of the main factors negatively affecting the reliable operation of the power system. The 220 kV loadings are generally less than the rated capacity because the line lengths are very long. Similarly, 110 kV transmission lines transmit only 25 - 50 MW active power because the line lengths are several times longer than design.


18

Figure II-12: Transmission Grid of Mongolia



19

Figure II-13: Ulaanbaatar Transmission Network


20

Table II-14: Transmission Substation Loadings

December 17,2014 December 19,2018 4-Year Increase

No Name of

Substation Installed Capacity Voltage MVA MW % MVA MW % MW p.a. % p.a.

1 Ulaanbaatar 2x125MVA 220/110/35/10kV 250 128.3 51.3% 250 212 84.8% 20.9 16%

2 Amgalan 2x25MVA 110/10kV 50 25.6 51.2% 50 30 60.0% 1.1 4%

3 Ulaankhuaran 2x10MVA 110/10kV 20 12 60.0% 20 15.1 75.5% 0.8 6%

4 Tuul 2x40MVA 110/35/10kV 80 67.9 84.9% 80 66.2 82.8% -0.4 -1%

5 Umnud 2x63MVA 110/10/6kV 126 45.9 36.4% 50 39.8 79.6% -1.5 -3%

6 Uildver 2x25MVA 110/10/6kV 50 12.4 24.8% 50 18.4 36.8% 1.5 12%

7 Yarmag 2x25MVA 110/35/10kV 50 33 66.0% 50 31.5 63.0% -0.4 -1%

8 Tseverleh 2x25MVA 110/35/10kV 50 27.7 55.4% 50 20.7 41.4% -1.8 -6%

9 Geo 2x25MVA 110/35/10kV 50 19.3 38.6% 50 24.6 49.2% 1.3 7%

10 Baruun 2x25MVA 110/10kV 50 38 76.0% 80 15.2 19.0% -5.7 -15%

11 Umard 2x40MVA 110/10kV 80 62.7 78.4% 80 38 47.5% -6.2 -10%

12 Selbe 2x25MVA 110/35/10kV 50 43 86.0% 50 29.6 59.2% -3.4 -8%

13 Dornod-2 2x25MVA 110/35/10kV 50 37.2 74.4% 50 37 74.0% -0.1 0%

14 CHP#3 sw/yard 1x31.5MVA 1x40MVA 110/35kV 71.5 43.9 61.4% 80 64.6 80.8% 5.2 12%

15 CHP#4 sw/yard 2x125MVA 220/110kV 250 198.8 79.5% 250 115 46.0% -21.0 -11%

16 Televiz 2x40MVA 110/35/10kV 80 16 20.0%

17 7-district 2x40MVA 110/35/10kV 80 15.8 19.8%

18 Nairamdal 2x40MVA 110/35/10kV 80 9.3 11.6%

19 District 14 2x40MVA 110/35/10kV 80 0 0.0%

20 Zaisan 2x40MVA 110/35/10kV 80 9.1 11.4%

21 Shine yaarmag 2x40MVA 110/35/10kV 80 3.4 4.3%

22 Buyant Ukhaa 2x40MVA 110/10kV 80 1.4 1.8%

23 Zalaat 2x40MVA 110/35/10kV 50 1.2 2.4%


21

Table II-15: Transmission Line Loadings

2013 2019

No Substation to Substation Voltage No. of

Circuits Year of

Operation

Rated per cct

Load per cct

Utilization (N-1)

Rated per cct

Load per cct

Utilization (N-1)

From To kV MVA MVA MVA MVA 1 Switchyard 4 UB 220 2 1978 255 82 32.0% 255.0 114.3 44.8%

2 UB Baganuur 220 2 1978 255 27 10.5% 255.0 113.9 44.7%

3 Darkhan Switchyard 4 220 1 1982 255 23 9.2% 255.0 26.1 10.2%

4 Switchyard 4 Erdenet 220 2 1990 297 30 10.2% 297.0 45.1 15.2%

5 Switchyard 3 Tuul 110 2 1978 110 41 37.5% 109.7 44.8 40.8%

6 UB Tuul 110 2 1978 110 10 8.7% 109.7 46.4 42.3%

7 Switchyard 4 Dornod-2 110 2 1982 110 57 51.9% 109.7 61.0 55.6%

8 Switchyard 4 Switchyard 3 110 2 1983 110 33 29.7% 109.7 43.0 39.2%

9 Switchyard 4 Bornuur 110 1 1983 70 11 15.6% 70.1 4.7 6.7%

10 Switchyard 4 Tseverleh 110 1 1986 0 0 7.2%

11 Switchyard 3 Geo 110 1 1986 0 0 7.2%

12 Switchyard 4 Yarmag 110 2 1987 70 10 14.6% 70.1 16.0 22.8%

13 UB Nalaikh 110 2 1990 70 9 13.0% 70.1 16.4 23.4%

14 Dornod-2 UB 110 2 1991 110 24 22.1% 109.7 44.5 40.6%

15 Switchyard 3 Switchyard 2 35 2 1964 19 3 15-20% 18.9 7.2 38.1%

16 Switchyard 2 Tseverleh 35 1 1970 19 reserve 18.9 reserve

17 UB 7th khoroolol 110 2 new 109.7 32.6 29.7%

18 7th khoroolol Radioteleviz 110 2 new 109.7 25.3 23.1%

19 Radioteleviz Bayangol 110 2 new 109.7 9.3 8.5%

21 UB Zaisan 110 2 new 109.7 8.9 8.1%

Source Tables II-14 and II-15: NPTG


22

III. POWER STORAGE TECHNOLOGIES

40. The following sections cover power storage technologies, battery costs and performance, current state of commercialization, battery costs, battery performance and typical power storage applications. In addition, fire risk and fire protection are discussed as well as battery recycling.

41. Whilst this information is useful background, it is noted that it is a best practice not to specify the battery chemistry when tendering for a BESS. This allows for greater choice when during the BESS selection process.

I. POWER STORAGE TECHNOLOGIES

1. LITHIUM-ION BATTERIES

42. Lithium-Ion (Li-Ion) batteries utilize the exchange of Lithium ions between electrodes to charge and discharge the battery. Li-Ion is a highly attractive material for batteries because it has high reduction potential, i.e., a tendency to acquire electrons (- 3.04 Volt versus a standard hydrogen electrode), and it is lightweight. Li-Ion batteries are typically characterized as power devices capable of short durations (approximately 15 minutes to 1 hour) or stacked to form longer durations (but increasing costs).

43. Rechargeable Li-Ion batteries are commonly found in consumer electronic products, such as cell phones and laptops, and are the standard battery found in electric vehicles. In recent years this technology has developed and expanded its portfolio of applications considerably into utility-scale applications. Today, Li-Ion batteries have been implemented for applications relating to ancillary services in grid connected storage. Because of its characteristics, Li-Ion technology is well suited for fast-response applications like frequency regulation, frequency response, and short-term (30-minutes or less) spinning reserve applications.

44. Li-Ion batteries do carry some safety and environmental risk. Toxic or reactive gases may be released both during creation of the battery cells, as well as in case of thermal runaway within an operating system. However, this risk is being managed across the industry. During cell manufacture, effluent gases can be scrubbed and captured, to be disposed of safely.

45. Once fully constructed, Li-Ion battery systems come with various methods of cooling, not only to help prevent thermal runaway but also to provide the most beneficial operating temperatures for the battery cells. Care must be taken with ventilation, extinguishing, and cooling requirements for battery fires. Adequate precautions have been taken in the electricity industry.

46. Figure III-1 provides a schematic showing what is entailed in a general Li-Ion battery system. This includes monitoring, control, and management systems, power converter/inverter, and the batteries themselves.

47. Li-ion technology varies between chemistries. This report will focus on three of the most prominent and promising chemistries, Lithium Nickel Manganese Cobalt Oxide (LiNiMnCoO2 or NCM), Lithium Iron Phosphate (LiFePO4), and Lithium Titanate (Li4Ti5O12 or LTO), and compare and contrast their attributes.

48. NCM is one of the most commonly used chemistries in grid-scale energy systems. This technology demonstrates balanced performance characteristics in terms of energy, power, cycle life, and cost. NCM chemistry is very common due to these features – it provides an engineering compromise.

49. LiFePO4, on the other hand, can be purchased at a low cost for a high-power density, and its chemistry is considered one of the safest available within Li-Ion batteries. Further, due to its very constant discharge voltage, the cell can deliver essentially full power to 100% DOD. However, LiFePO4 batteries are typically applicable to a more limited set of applications due to its low energy capacity and elevated self-discharge levels.


23

50. Finally, LTO offers a stable Li-Ion chemistry, one of the highest cycle lifetimes reported, and a high-power density. Further, it is the fastest charging Li-Ion chemistry of those reviewed here. However, in balance, it has a much lower energy density and much higher average cost.

Figure III-1: Cell-Based Battery Energy Storage System

Source: TA Consultant

51. Li-ion battery systems are manufactured widely, but there is relatively high turn-over in manufacturers. Some of the more prominent or market-tested systems are included in the following table:

Table III-2: Li-Ion Battery Manufacturers

Technology Manufacturer Cell or System Product

NCM Enerdel

Hitachi

LeClanche

LG Chem

Panasonic

PBES

Samsung SDI

XALT

Electrovaya

CE175-360, 160-365 Moxie+

Graphite/NMC

JH2

NCR18650A

25R

31,40, 53, 75Ah HE; 31, 40, 63,

75Ah HP; 31, 37Ah UHP

MN-Series

LiFePO4 A123

BYD

K2 Energy

AMP20, AHP14, ANR26650,

APR18650

LFP123A


24


Microvast

Saft

Sony

Thundersky

XO Genesis

VL10Fe, VL25Fe

IJ1001M

WB-LYP, TS-LYP

LTO Altainano

LeClanche

Microvast

Toshiba

XALT

nLTO

LTO

LpTO (Gen 1)

SCiB 2.9, 20, 23Ah

60Ah LTO

Source: TA Consultant

2. SODIUM SULFUR BATTERIES (NAS)

52. Sodium-sulfur (NaS) batteries are a type of molten-salt battery. The systems have high energy density, fast response times, and long cycle lives. They also have some of the longest durations available on the market.

53. The inclusion of the term “molten” alludes to the battery operating temperature. NaS batteries store electricity through a chemical reaction which operates at 300 °C or above. At lower temperatures the chemicals become solid and reactions cannot occur. The high operating temperature makes the NaS batteries suitable for larger applications supporting the electric grid, but not personal electronic devices or vehicles. Further, due to the high temperature and natural reactivity of pure Sodium when exposed to water, the system can present a safety hazard if damaged.

54. Figure III-1 above is a schematic showing what is entailed in a general NaS battery system, which is parallel in its architecture to Li-Ion systems. This includes monitoring, control, and management systems, power converter/inverter, and the batteries themselves.

55. NaS batteries are a mature technology, and the system cost has generally leveled off. Although manufactured by more than one company, the market-share, and thus proven performance, of the company listed in the following table represents the majority of installations.

Table III-3: NaS Battery Manufacturers


Description

NaS NGK NAS

3. VANADIUM REDOX BATTERIES

56. Vanadium Redox batteries (VRB), or Vanadium flow batteries, are based on the redox reaction between the two electrolytes in the system. “Redox” is the abbreviation for “reduction-oxidation” reaction. These reactions include all chemical processes in which atoms have their oxidation number changed. In a redox flow cell, the two electrolytes are separated by a semi-permeable membrane. This membrane permits ion flow but prevents mixing of the liquids. Electrical


25

contact is made through inert conductors in the liquids. As the ions flow across the membrane, an electrical current is induced in the conductors to charge the battery. This process is reversed during the discharge cycle. Figure III-4 below provides a schematic showing what is entailed in a general VRB system. This includes monitoring, control, and management systems, power converter/inverter, and the electrolyte tanks and stack of the batteries themselves.

Figure III-4: Redox Flow Battery Energy Storage System

57. In VRBs, the liquid electrolyte used for charge-discharge reactions is stored externally and pumped through the cell. This allows the energy capacity of the battery to be increased at a low cost. Energy and power are decoupled since energy content depends on the amount of electrolyte stored. VRB systems are unique in that they use one common electrolyte, which provides opportunities for increased cycle life. These large, liquid solution containers do however limit the VRB to stationary storage applications.

58. An important advantage of VRB technology is that it can be “stopped” without any concern about maintaining a minimum operating temperature or state of charge. This is a key point to most flow batteries in that the batteries can actually be “turned off.” This technology can be left uncharged essentially indefinitely without significant capacity degradation.

59. These systems are relatively new to the battery industry but are solidifying their place in the market. Some of the more prominent or market-tested systems are given by Table III-5.


26

Table III-5: VRB Manufacturers


Description

VRB

American Vanadium

Imergy

UET/UniEnergy

Vionx

CellCube

ESP5, 50, 250

UniSystem, ReFlex

Redox Flow Sumitomo

4. ZINC REDOX BATTERIES

60. The Zinc Bromine (ZnBr) battery utilizes similar flow battery technology as the previously discussed VRB. Due to this, it shares many of the same advantages: little to no claimed degradation over time (both in use and in the fully-discharged state), high energy density, 100% DOD, and easily scalable. The ZnBr consists of a zinc-negative electrode and a bromine-positive electrode, separated by a micro-porous separation. Solutions of zinc and a bromine complex compound are circulated through the two compartments. In a ZnBr the electrodes (Zn- and Br+) serve as substrates for the reaction. During charging, the Zinc is electroplated at the anode and bromine is evolved at the cathode. When not cycled, there is a potential for the Zinc to form dendrites that can degrade capacity or damage the battery components. To prevent this, the battery must be regularly and fully discharged.

61. Figure III-4 above provides a schematic showing what is entailed in a general ZnBr system, which is of similar physical structure to VRB, though differing completely in chemistry at the core of energy storage. This includes monitoring, control, and management systems, power converter/inverter, and the electrolyte tanks and stack of the batteries themselves.

62. The response time for this technology is thought to be inadequate for fast-response applications; this should be verified on a case by case basis as new system designs may be able to improve on this limitation. ZnBr is a promising technology for balancing low-frequency power generation and consumption. However, cycle life tends to be less than that of VRBs.

63. These systems are in the early stages of commercialization but are being produced by multiple manufacturers. Some of the more prominent or market-tested systems are given in the following table:

Table III-6: ZnBr Battery Manufacturers


Description

ZnBr

Enphase (Previously ZBB)

Primus Power Flow

RedFlow

Enerstor, Agile

EnergyCell

ZBM2, ZBM3


27

5. MARKET DISCOVERY

64. A study by Navigant Research2 determined that Li-ion batteries are the preferred choice for large scale stationary batteries. Navigant Research examined the strategy and execution of various lithium-ion battery providers in the utility-scale energy storage industry. Navigant selected only vertically-integrated vendors that manufacture their own battery cells and do not outsource them to outside manufacturers, and that have a dedicated business for grid storage with enough scale and partnerships in place to deliver battery cells or modules into more than one national market. It also excluded companies facing bankruptcy proceedings. The top 10 companies are multinational conglomerates that have made Li-ion battery ESSs an integral part of their business, offer a competitive product, have reported dozens of profitable deployed systems, and have the financial resources to offer competitive warranties.

65. Of the following battery providers LG Chem and Samsung SDI were identified as the ‘leaders’ in the market. These companies are multinational conglomerates that have made Li-ion battery ESSs an integral part of their business, offer a competitive product, have reported many profitably deployed systems, and have the financial resources to offer competitive warranties. Companies 3 to 8 are considered as ‘up-and-coming’ contenders; these companies have exhibited “required staying power in the market” as well as having significant financial capabilities to invest in their market presence. The last two companies in the list are considered as challengers.

1. LG Chem 2. Samsung SDI 3. BYD 4. Panasonic 5. Kokam 6. Toshiba 7. Saft 8. Leclanché 9. Electrovaya 10. CATL

66. In addition to the Li-ion battery providers, NGK and Sumitomo are considered as leaders in NaS and Redox Flow batteries respectively. The providers and the Li-ion battery providers are considered as candidates for market testing ahead of a bid tendering process.

J. STORAGE BATTERY COSTS

67. Cost estimates are broken down as follow:

• Energy Storage Equipment

• Power Conversion Equipment

• Power Control System

• Balance of System

• Installation

• Fixed Operation and Maintenance

68. Each of these costs components are provided as a range covering currently observed industry estimates. In addition to current cost estimates, cost trends over 10 years will be provided as graphs demonstrating a breakdown of system costs in the requested components.

69. The capital cost for an installed energy storage system is calculated for a system by adding

2 Navigant Research Leaderboard: Lithium Ion Batteries for Grid Storage Assessment of Strategy and Execution for 10 Li-Ion Battery Manufacturers, Feb 2018


28

the costs of the energy storage equipment, power conversion equipment, power control system, balance of system, and the installation costs. Each of these categories is accounted for separately because they provide different functions or cost components and are priced based on different system ratings. System component costs based on the power capacity ratings are priced in $/kW, while component costs based on the energy capacity ratings, such as the DC energy storage system, are priced in $/kWh.

1. Energy Storage Equipment Costs

70. Energy storage equipment costs are inclusive of the DC battery system which includes the costs of the energy storage medium, such as Li-Ion battery cells or flow battery electrolyte, along with associated costs of assembling these components into a DC battery system. For Li-Ion systems, battery cells are arranged and connected into strings, modules, and packs which are then packaged into a DC system meeting the required power and energy specifications of the project. The DC system will include internal wiring, temperature and voltage monitoring equipment, and an associated battery management system responsible for managing low-level safety and performance of the DC battery system. For flow batteries, the DC system costs include electrolyte storage tanks, membrane power stacks and container costs for the system along with associated cycling pumps and battery management controls. Energy storage equipment costs are provided on a $/kWh basis which is most appropriate for quantifying the cost of an energy capacity constrained resource.

2. Power Conversion System Equipment Costs

71. Power conversion system (PCS) costs are inclusive of the cost of the inverter, packaging, container, and controls. Inverters employed in energy storage systems are more expensive than the grid-tied inverters widely deployed for solar PV generation, and differentiated by their bi-directional, 4-quadrant operational capabilities. The cost of the power conversion equipment is proportional to the power rating of the system and provided in $/kW.

3. Power Control System Costs

72. Unique to energy storage systems are the required high-level controllers being deployed to dispatch and operate the systems. With dispatch becoming an ever more important part of storage system design, controllers have to combine multiple functions – from forecasting the load, to understanding the tariff structure and factoring in the type of charge management required for a specific application and technology. The energy industry is currently seeing a number of software companies emerging which are focused solely on control and management of energy storage systems.

73. System integrators and battery storage vendors themselves are also producing controls to operate their systems. For systems owned or operated by a utility, these controllers must additionally be integrated with utility monitoring and control systems such as Supervisory Control and Data Acquisition Systems (SCADA), Energy Management Systems (EMS), and Distribution Management Systems (DMS), among others.

74. At present, the costs for the power control systems have been observed to vary widely and are provided here based on the power capacity of a plant as $/kW. The trend graphs show conservative reduction in costs over ten years; as controls grow more prevalent and efficiencies are found, the control requirements and designs will likely increase in intricacy.

4. Balance of System

75. The equipment cost of the storage system will further depend on ancillary equipment necessary for the full storage system interconnection. The balance of system cost here includes wiring, interconnecting transformer, and additional ancillary equipment. For some technologies, this may include the cost of centralized HVAC systems which is required for maintaining acceptable environmental equipment. The balance of system cost is proportional to the power rating of the system and provided in $/kW.


29

5. Installation

76. Installation cost accounts for associated Engineer-Procure-Construct (EPC) costs inclusive of installation parts and labor, permitting, site design, and procurement and transportation of all equipment.

6. Fixed O&M Costs

77. Yearly operation and maintenance costs is currently a debated issue for storage projects employing the technologies discussed in this report, as the industry does not yet have longer term operating experience with the technologies. O&M requirements for Li-Ion systems are generally assumed to be light and include maintenance of HVAC system, tightening of mechanical and electrical connections, cabinet touch up painting and cleaning, and landscaping maintenance. Further, the majority of projects being developed for utilities applications include some type of capacity maintenance agreement. This capacity maintenance agreement guarantees some fixed level of available energy capacity in the system over the term of the project. The cost of the capacity maintenance agreement can be accounted for in the Fixed O&M or as part of the upfront capital costs of the system. For flow battery systems, maintenance services include power stack and pump replacements, tightening of plumbing fixtures, tightening of mechanical and electrical connections, as well as semi-annual chemistry refresh and full discharge cycles to refresh capacity. Further, while many technologies are developing third party training and qualification programs for O&M services, at present many of vendors technology companies themselves are providing O&M services.

7. Variable O&M Costs

78. Variable O&M costs, while typical to conventional generation sources, are generally assumed negligible for most energy storage systems. It is noted that systems operators can use a variable O&M cost as one means of including the capacity degradation within an energy storage dispatch model. However, there is not currently a uniform or industry acceptable methodology for quantifying variable O&M in this manner. For the purposes of this report, energy storage variable O&M is considered to be negligible.

K. POWER STORAGE APPLICATIONS

79. A power storage facility can operate in a range of modes

1. Electric Energy Time Shift

2. Electric Supply Capacity

3. Regulation

4. Spinning, Non-Spinning, and Supplemental Reserves

5. Voltage Support

6. Load Following/Ramping Support for Renewables

7. Frequency Response

8. T&D Congestion Relief

1. Electric Energy Time Shift

80. Energy storage systems operating within an electrical energy time-shift application are charged with inexpensive electrical energy and discharged when prices for electricity are high. On a shorter timescale, energy storage systems can provide a similar time-shift duty by storing excess energy production from, for example, renewable energy sources with a variable energy production, as this might otherwise be curtailed. If the difference in energy prices is the main driver and energy is stored to compensate for (for example) diurnal energy consumption patterns, this application is often referred to as arbitrage.


30

81. Storing energy (i.e. in charge mode) at moments of peak power to prevent curtailment or overload is a form of peak shaving. Peak shaving can be applied for peak generation and also – in discharge mode – for peak demand (e.g. in cases of imminent overload). Peak shaving implicates that the energy charged or discharged is discharged or recharged, respectively, at a later stage. Therefore, peak shaving is a form of the energy time-shift application.

82. An energy storage system used for energy time-shift could be located at or near the energy generation site or in other parts of the grid, including at or near loads. When the energy storage system used for time-shift is located at or near loads, the low-value charging power is transmitted during off-peak times.

83. Important for an energy storage system operating in this application are the variable operating costs (non-energy related), the storage round-trip efficiency and the storage performance decline as it is being used (i.e. ageing effects).

2. Electric Supply Capacity

84. An energy storage system could be used to defer or reduce the need to buy new central station generation capacity and/or purchase capacity in the wholesale electricity market. In this application, the energy storage system supplies part of the peak capacity when the demand is high, thus relieving the generator by limiting the required capacity peak. Following a (partial) discharge, the energy storage system is recharged when the demand is lower. The power supply capacity application is a form of generation peak shaving, therefore a form of electrical energy time-shift. An energy storage system participating in the electrical capacity market may be subject to restrictions/requirements of this market, for example required availability during some periods.

3. Regulation

85. Regulation is used to reconcile momentary differences between demand and generation inside a control area or momentary deviations in interchange flows between control areas, caused by fluctuations in generation and loads. In other words, this is a power balancing application. Conventional power plants are often less suited for this application, where rapid changes in power output could incur significant wear and tear. Energy storage systems with a rapid-response characteristic are suitable for operation in a regulation application.

86. Energy storage used in regulation applications should have access to and be able to respond to the area control error (ACE) signal (where applicable), which may require a response time of fewer than five seconds. Furthermore, energy storage used in regulation applications should be reliable with a high quality, stable (power) output characteristics.

4. Spinning, Non-Spinning Reserves

87. A certain reserve capacity is usually available when operating an electrical power system. This reserve capacity is called upon in case some generation capacity becomes unavailable unexpectedly thus ensuring system operation and availability. A subdivision can be made based on how quickly a reserve capacity is available:

• Spinning reserve is reserve capacity connected and synchronized with the grid and can respond to compensate for generation or transmission outages. In remote grids spinning reserve is mainly present to cover for volatile consumption. In case a reserve is used to maintain system frequency, the reserve should be able to respond quickly. Spinning reserves are the first type of backup that is used when a power shortage occurs.

• Non-spinning reserve is connected but not synchronized with the grid and usually available within 10 minutes. Examples are offline generation capacity or a block of interruptible loads.

• Supplemental reserve is available within one hour and is usually a backup for spinning and non-spinning reserves. Supplemental reserves are used after all spinning reserves are online.


31

88. Stored energy reserves are usually charged energy backups that have to be available for discharge when required to ensure grid stability. An example of a spinning reserve is an uninterruptible power supply (UPS) system, which can provide nearly instantaneous power in the event of a power interruption or a protection from a sudden power surge. Large UPS systems can sometimes maintain a whole local grid in case of a power outage; this application is called island operation.

5. Voltage Support

89. Grid operators are required to maintain the grid voltage within specified limits. This usually requires management of reactive power (but also active power, e.g. in the LV grid), therefore also referred to as Volt/VAr support. Voltage support is especially valuable during peak load hours when distribution lines and transformers are the most stressed. An application of an energy storage system could be to serve as a source or sink of the reactive power. These energy storage systems could be placed strategically at central or distributed locations.

90. Voltage support typically is a local issue at low voltage (LV), medium voltage (MV) or high voltage (HV) level. The distributed placement of energy storage systems allows for voltage support near large loads within the grid. Voltage support can also be provided by operation of generators, loads, and other devices. A possible advantage of energy storage systems over these other systems is that energy storage systems are available to the grid even when not generating or demanding power.

91. Note that no (or low) real power is required from an energy storage system operating within a voltage/VAr support application, so cycles per year are not applicable for this application and storage system size is indicated in MVAr rather than MW. The converter needs to be capable of operating at a non-unity power factor in order to source or sink reactive power. The nominal duration needed for voltage support is estimated to be 30 minutes, which allows the grid time to stabilize and/or begin orderly load shedding.

6. Load Following / Ramping Support for Renewables

92. Load following is one of the ancillary services required to operate a stable electricity grid. Energy storage systems used in load following applications are used to supply (discharge) or absorb (charge) power to compensate for load variations. Therefore, this is a power balancing application. In general, the load variations should stay within certain limits for the rate of change, or ramp rate. Therefore, this application is a form of ramp rate control. The same holds for generation variations, which is very applicable to renewable energy sources. Due to the intermittency of renewables production, having a storage device with several hour durations can provide a large advantage to renewable efficiencies, easing of grid impacts, and renewable production. Conventional power generation can also operate with a load following (or RES compensating) application. Within these applications, the benefits of energy storage systems over conventional power generation are that:

• Most systems can operate at partial load with relatively modest performance penalties

• Most systems can respond quickly with respect to a varying load

• Systems are suitable for both load following down (as the load decreases) and load following up (as the load increases) by either charging or discharging.

7. Frequency Response

93. Synthetic inertia behavior is the increase or decrease in power output proportional to the change of grid frequency; physical inertia is provided by conventional power generators, i.e. synchronous generators. If the total amount of physical inertia decreases in a power system, the amount of synthetic inertia should be increased to maintain a certain minimum amount of total inertia. Many grid-connected renewable energy sources do not provide additional synthetic inertia. Therefore, larger grid frequency deviations may occur as the total inertia in the power system decreases.


32

94. Some energy storage systems add synthetic inertia to the system and can thereby be used to compensate for fluctuations in the grid frequency. Causes of fluctuations could be the loss of a generation unit or a transmission line (causing a sudden power imbalance). Various generator response actions are needed to counteract a sudden frequency deviation, often within seconds.

95. Energy storage within a frequency response application could support the grid operator and thereby assure a smoother transition from an upset period to normal operation. For a frequency response type of application, the energy storage is required to provide support within milliseconds. Aside from this quick response, the frequency response application is similar to load following and regulation, as described previously.

8. Transmission & Distribution Congestion Relief

96. During moments of peak demand, it may occur that the available transmission lines do not provide enough capacity to deliver the least-cost energy to some or all of the connected loads. This transmission congestion may increase the energy cost.

97. Energy storage systems at strategic positions within the electricity grid help to avoid congestion related costs and charges. The energy storage system can be charged when there is no congestion and discharged when congestion occurs. Energy storage can, in this way, additionally delay and sometimes avoid the need to upgrade a transmission or distribution system.

L. BATTERY APPLICATION & CHEMISTRY

98. From the point of view of utility applications, the following table shows the relationship between battery application and utility technology selection. In practice, there is little distinction between Li-ion and NaS batteries. Lithium-ion batteries are currently the dominant technology for utility-scale grid storage. They are considered as the most beneficial choice in terms of both technology and economy for utility scale grid energy storage. They have been demonstrated successfully for grid services including capacity firming, frequency and voltage regulation and grid power quality enhancement.

99. On the other hand, there continues to be significant investment into battery design and development and it is prudent to consider more than one battery chemistry when procuring a battery given that the trade-off between battery cost and performance is changing rapidly.

Table III-7: Battery Application and Technology

Application

Current Market Scenario

Li-Ion Li-Ion

Li-Ion LTO NaS VRB ZnBr Zinc-air NCM LiFePO4

Electric Energy

Time Shift 9 8 8 9 8 8 7

Electric Supply

Capacity 9 9 9 9 8 8 7

Regulation 9 9 9 9 8 8 7

Spinning, Non-spin,

Supplemental

reserves

8 8 9 8 8 8 7

Voltage support 7 8 8 7 6 6 6


33

Application

Current Market Scenario

Li-Ion Li-Ion

Li-Ion LTO NaS VRB ZnBr Zinc-air NCM LiFePO4

Load following /

ramping support for

renewables

8 8 9 8 8 8 7

Frequency

response 7 7 8 7 6 6 5

Transmission and

distribution

congestion relief

9 9 9 9 9 9 8

100. Storage battery performance is compared in Table III-8:

Table III-8: Storage Battery Performance Comparison Li-

Ion NCM

Li-Ion LiFePO4

Li-Ion LTO

NaS VRB ZnBr Zinc-

air Parameter/ Technology

Power capability Available down to 1 MW Capacity

Yes Yes Yes Yes Yes Yes Yes

Maximum (MW) 35 35 40 50 20 20 15

Power capability SOC upper limit 90% 85% 98% 90% 95% 98% 98%

SOC lower limit 10% 15% 10% 10% 5% 5% 10%

Recharge rates 1C 2C-1C 3C-1C 1C-

0.5C

1C-

0.25C

1C-

0.25C

2C-

1C

Round trip efficiency 77 -

85%

78 -

83%

77 -

85%

77 -

83%

65 -

78%

65 -

80%

72 -

75%

Availability Up-time 97% 97% 96% 95% 95% 95% 96%

Carve Outs 72

hr/yr 72 hr/yr

72

hr/yr

72

hr/yr

1

wk/yr

1

wk/yr

72

hr/yr

Energy Capacity Degradation

Energy Applications 30-

40% 20-40%

15-

25%

15-

30%

5-

10%

5-

10%

15-

25%

Power Applications 10-

20% 15-25% 5-15%

5-

15%

5-

10%

5-

10%

5-

15%

Expected life Years 10 10 10 15 10 10 10

Cycles 3,500 2,000 15,000 4,500 5,000 3,000 5,000

Environmental effect upon disposal? Yes Yes Yes Yes Yes Yes Yes

101. The following commercialization and installation data are based on publicly available information in 2017; the data shows that Li-ion batteries are the most common followed closely by NaS.


34

Table III-9: Installation and Commercialization Data

System Attributes Li-Ion

NCM

Li-Ion

LiFePO4 Li-Ion LTO NaS VRB ZnBr

Typical project size (kW) 6,500 5,000 2,000 6,000 4,000 1,000

Typical project size (kWh) 15,000 3,100 1,300 40,000 14,000 2,000

Largest project size installed

(kW) 30,000 31,500 40,000 50,000 15,000 1,000

Largest project size installed

(kWh) 60,000 12,000 40,000 300,000 60,000 2,000

Current total power capacity

installed (MW) 77 142 31 186 66 5

Current total energy capacity

installed (MWh) 30 220 19 1,254 226 25

M. UTILITY-SCALE BATTERY INSTALLATIONS IN SERVICE

102. There are many utility scale batteries in service around the world and battery energy storage is growing strongly in popularity with large development programs envisaged in some OECD countries.

Hornsby Wind Farm - Australia

103. The Hornsby Wind farm was built in 2018 in a record time of 4 months. It is equipped with a 100 MW / 129 MWh Li-ion battery. This wind farm was built in South Australia and at the time it was claimed to be the largest battery storage installation in the world. The operating regime is based on 3 hours discharge per day.

Figure III-10: Hornsby Wind Farm with Battery Storage Facility

Source: https://hornsdalepowerreserve.com.au/


35

104. With reference to public domain information, the Hornsdale battery was reported to cost $66m, the Consultant has estimated the cost of the Hornsby battery facility according to Table III-11 below.

Table III-11: Hornsby 100 MW / 129 MWh Cost

Cost Parameter

ESS Size

(kWh or

kW)

Component Unit

Cost Total

$ / kW or kWh $

Energy storage equipment cost (kWh basis) 129,000 198 25,525,114

Power conversion equipment cost (kW basis) 100,000 213 21,308,980

Power control system cost (kW basis) 100,000 49 4,870,624

Balance of system (kW basis) 100,000 49 4,870,624

Installation (kWh basis) 129,000 73 9,424,658

66,000,000

Source: Consultant’s estimate (verified by on-line reports)

Figure III-12: United States – Invenergy Facilities

Figure III-13: Japan – NaS Facility


36

IV. NEED FOR BESS IN CES

N. INTRODUCTION


• Enhanced frequency regulation support to reduce the impact of intermittent large-scale wind, to a lesser extent solar PV farms, on the stability of the CES grid

• Peak shifting to reduce dependency on Russian import


106. It is noted that these opportunities are related to different timescales of operation. Enhanced frequency regulation is short-term in nature, peak shifting is a daily and medium term in nature, whereas stand-by reserve capacity need is related to the annual peak demand periods and is medium to long-term in nature. The opportunities were analyzed for their technical potential in order to determine

• The optimal size of the BESS for the CES, in terms of MW of power conversion and MWh or energy storage capacity, required to meet the duties of peak shifting, enhanced frequency regulation and stand-by reserve capacity

• The corresponding CES operating regime that would apply given the supply and demand characteristics of the Mongolian power system

• The benefits of a BESS quantified in terms of the potential reduction in expected energy not served and energy savings

O. ENERGY TIME-SHIFT

107. Electric energy time-shift involves purchasing inexpensive electric energy to charge the BESS, available during periods when prices or system marginal costs are low, with discharge at a later time when the price or costs are high. Alternatively, storage can provide similar time-shift duty by storing excess energy production, which would otherwise be curtailed, from renewable sources such as wind or photovoltaic.

108. The wind production patterns of the wind farms operation in the CES exhibit considerable early morning wind. In the winter the wind is in excess of demand and must either be curtailed or spilled to Russia. As the wind production is contracted on a take-or-pay basis curtailment / spill represents a wasteful use of a costly resource. Accordingly, there is potential to charge the BESS using the wind energy that would be curtailed or sent to Russia, and the time-shift this energy to reduce Russian import, particularly during the evening peak demand hours, but also at other times of the year. A related benefit of this approach is that absorption of wind by the BESS will act to smooth the operation of the load following plant CHP4. This will result in fewer stops and starts will associated cost savings.


37

Figure IV-1: Early Morning High Wind Pattern in CES (2018 conditions)

Source: NDC

109. Energy time-shift is considered as an energy service because it affects the market. A BESS can help grid operators to minimise the cost of operating the power system. As a general indication of the BESS capacity the following formula is applicable

BESS Capacity [MWh] = Power Required [MW] * Duration Required [h] Depth of Discharge [%] * Battery Efficiency [%]

BESS Capacity [MWh] = 100 MW * 4 h = 263 MWh 80 % * 95 %

110. In practice however, the unique characteristics of each power system must be studied to determine the energy storage capacity need. This is particularly the case in Mongolia where the winter and summer demand patterns vary considerably. As the profile of the demand during the peak evening hours will change little over the next decade, the energy storage capacity need can be based on the 2018 demand profile. The Consultant has modelled the charging and discharging regime based on typical average daily demands and typical average daily supply profiles reported by NDC for each of the months of 2018. The 2018 data was reported on hourly basis (also for 2017) and provides the most accurate basis for sizing the capacity of a BESS. The ‘before-BESS’ and ‘after-BESS’ demand profiles are given by Figure IV-2.

Figure IV-2: BESS Energy Time Shift in CES (2018 conditions)

January February


38

March April

May June

July August

September October


39

November December


111. The total energy shift given by the charts above, in terms of the average MW reduction, and average charge and discharge levels, is summarized for each month of the year as given below in Table IV-3. The analysis shows that the optimal BESS sizing, for peak reduction, is 100 MW / 150 MWh.

Table IV-3: BESS Peak Reduction MW, Charge & Discharge Energy

Peak Reduction

Charge Discharge

MW MWh Jan 56 144 120

Feb 39 149 132

Mar 52 137 134

Apr 47 150 148

May 37 149 130

Jun 33 152 136

Jul 39 146 138

Aug 25 151 135

Sep 0 0 0

Oct 34 135 125

Nov 59 127 129

Dec 52 149 134

Maximum 59 144 120


112. The Consultant has undertaken despatch modelling with and without a 100 MW / 150 MWh BESS. The despatch modelling has been undertaken for the year 2022 according to the following cases

Case 1 – without battery

Case 2 – without battery and with CHP3 expansion 250 MW

Case 3 – with 150 MW expansion CHP3 and with battery

Case 4 – with 250 MW expansion CHP3 and with battery

113. Charts for each of the monthly balances in 2022 are provided here for reference for Case 4, again based on the ‘average’ days demand in each month. For the purpose of planning, the


40

‘average’ days are chosen as the energy volumes because the use of the highest demand days will lead to an over-estimation of the battery storage capacity need. The energy time-shift can be seen as the battery discharge in the red color.

Figure IV-4: CES Power Supply & Demand Daily Profiles – 2022

January February

March April

May June

July August


41

September October

November December


114. The dispatch charts above indicate the anticipated operating regime of the BESS. In the winter months of November, December, January and February, the BESS duty will primarily concern peak reduction (with wind absorption in the early morning hours to avoid spill of energy to Russia). In the summer months the BESS duty will primarily concern smoothing the demand profile, this will reduce in-efficient condensing power and smooth the operation of CHP4. Again, excess wind generation will be used to charge the BESS. In the summer month of September there is insufficient wind to charge the BESS (on average) and the facility may need to be rested, or charged at the end of August and topped up to the extent possible by condensing power and any available wind so as to provide ancillary services such as spinning reserve support. In principle resting the battery in this manner will extend the service life since the cycle counts will be reduced.

P. SPINNING RESERVE

115. Spinning reserve (or standby reserve) needs depend on the current and forecast reserve margin. The reserve margin is a function of the supply and demand balance.

116. The Ministry of Energy’s supply and demand balance forecast to 2022 is reported to be estimated based on factors pertaining to demand growth and newly planned large consumers as shown in Table IV-5.


42

Table IV-5: Short-Term Electricity Demand Forecast for CES

2020 2021 2022

I. Electricity demand (sent-out):

1 Peak load estimated based on organic growth 1,290.0 1,346.0 1,402.0

2

Demand for Newly connected consumers

Tsagaan Suvarga 10.0 50.0 65.0

Tavantolgoi coal mine 10.0 60.0 65.0

Mandalgovi Khuut mine 10.0 62.0 62.0

Mandalgovi Cement factory 10.0 10.0 10.0

Total Demand 1,330.0 1,528.0 1,604.0 II. Available CES Capacity

1 CHP#2 21.5 21.5 21.5

2 CHP#3 157.0 157.0 359.0

3 CHP#4 660.0 660.0 660.0

4 Darkhan CHP 56.0 56.0 56.0

5 Erdenet CHP 61.0 61.0 61.0

6 Ukhaakhudag TPP 17.0 17.0 17.0

7 Erdenet Mine TPP 46.0 46.0 46.0

8 Salkhit Wind PP - - -

9 Tsetsii Wind PP - - -

10 Sainshand Wind PP - - -

11 Darkhan Solar PV - - -

12 Monnaran Solar PV - - -

13 Naranteeg Solar PV - - -

14 Baganuur TPP (350*2=700MW) - - 320.0

15 Russian import 245.0 245.0 245.0

Total CES Capacity 1263.5 1263.5 1785.5 CES Capacity Deficit -66.5 -264.5 181.5



43

117. The Consultant has made a forecast of the supply and demand balance using a simple trend method and finds that the forecast is consistent with that of the Ministry of Energy.

Figure IV-6: CES Peak Demand

Source: Consultant

118. A good practice used to determine the spinning reserve need based on uncertainty modelling principles. The variability of intermittent generation and demand is modelled using probability distributions. The Consultant has carried out the analysis using Weibull distributions, for the Salkhit and Tsetsii wind farms, and a normal distribution for the CES demand. The evaluation was used to estimate the maximum probable load rise and load drop.

119. Two cases were considered, a without- and with-battery case. The analysis computes the spinning reserve need according to the maximum probable rise / drop of intermittent generation as wind capacity increases from 100 to 350 MW. The analysis also takes into account the maximum probably rise / drop in demand.

Table IV-7: Base Case – Increasing Wind Power Without BESS

MW 2018 2022 2026 2030 Maximum probable drop of intermittent generation 30.0 37.5 75.0 87.5

Maximum probable generation loss 100.0 100.0 100.0 100.0

Maximum probable load rise 20.0 20.2 21.1 23.2

Maximum probable load drop 20.0 20.2 21.1 23.2

Maximum probable increase of intermittent generation 0.0 0.0 0.0 0.0

Largest single commitment 100.0 100.0 100.0 100.0

Minimum probable operating level 1025.0 1437.3 1788.9 2324.3

SP - spinning reserve need 150.0 157.7 196.1 210.7

UG - unloadable generation 120.0 120.2 121.1 123.2

Installed non VRE Capacity 1175.0 1595.0 1985.0 2535.0

Installed Wind Capacity 100.0 150.0 300.0 350.0

System Demand 1117.0 1410.0 1780.0 2248.0

Min Probably Operating Level / System Demand -8% 2% 1% 3%

SP - spinning reserve need from Russia 150.0 157.7 196.1 210.7

Source: Consultant


44

Table IV-8: Increasing Wind Power With BESS

MW 2018 2022 2026 2030 Maximum probable drop of intermittent generation 30.0 37.5 75.0 87.5

Maximum probable generation loss 100.0 100.0 100.0 100.0

Maximum probable load rise 20.0 20.2 21.1 23.2

Maximum probable load drop 20.0 20.2 21.1 23.2

Maximum probable increase of intermittent generation 0.0 0.0 0.0 0.0

Largest single commitment 100.0 100.0 100.0 100.0

Minimum probable operating level 1025.0 1437.3 1788.9 2324.3

SP - spinning reserve need 150.0 157.7 196.1 210.7

UG - unloadable generation 120.0 120.2 121.1 123.2

Installed non VRE Capacity 1175.0 1595.0 1985.0 2535.0

Installed Wind Capacity 100.0 150.0 300.0 350.0

BESS Installed Capacity 0.0 100.0 100.0 100.0

System Demand 1117.0 1410.0 1780.0 2248.0

Min Probably Operating Level / System Demand -8% 2% 1% 3%

SP - spinning reserve need from Russia 150.0 152.7 151.1 150.7 BESS SP – needed contribution of BESS capacity to SP 0% 5% 45% 60%

Source: Consultant

120. The base case table shows that without a BESS the spinning reserve need from Russia would grow from 150 to 210 MW as wind increases from 100 to 350 MW. (NDC have explained that Russia cannot increase above the current level so this case is clearly unacceptable, the system is already at its wind limit with only 100 MW of wind).

121. Table IV-8 shows that with a BESS the spinning reserve need for 350 MW of wind can be met by a combination of Russia and the BESS. The computation shows that a part of the BESS can be devoted to meeting the spinning reserve need, 5% in 2022 rising to 60% in 2030 for an increase in wind capacity up to 350 MW by 2030.

122. In practice, the BESS can be used primarily for Russian peak import reduction until 2028 after which it can be used to support higher VRE absorption.

123. The maximum wind penetration of 350 MW in 2030 is also a function of CHP#4 condensing output. A capacity of more than 350 MW wind would restrict the condensing output of CHP#4 too much, and is not acceptable. However, according to the dispatch profiles, in addition to 350 MW of wind, a further 150 MW of solar PV could be absorbed.

Q. ENHANCED FREQUENCY REGULATION

124. It can be seen from Figure IV-9 that there are a range of frequency controls that are applied in power systems that operate over different timescales. This model applies to all power systems including that of the CES in Mongolia. This model has been used to evaluate the performance of the CES power system over short timescales of up to 10 minutes.


45

Figure IV-9: Frequency Control: Disturbance Response


125. The primary control operates in the time range of 5 to 30 seconds; this control is typically provided by power plant governors. The primary control exists mainly to manage the frequency within acceptable limits following a disturbance. The aim is to avoid generation tripping or load shedding for minor frequency excursions. This concept is depicted in the following figure:

Figure IV-10: Frequency Control: Disturbance Response


126. The Consultant understands that the CHP plants operating in the CES, are inflexible in terms of their ‘droop’ characteristics, i.e. they exhibit a high inertia and respond too slowly to disturbances to act as a primary control. Instead the Russian supply interconnector provides the primary control. As the interconnector distance to Ulaanbaatar is long at around 450 km, the response to disturbances to the south of Ulaanbaatar can be expected to be slower than if the Russian fleet was very near to Ulaanbaatar.

127. As the level of variable renewable energy (VRE) increases relative to other forms of thermal generation, it results in a reduction of the inertia of the power system. This effect means that power system disturbances will not be dampened to the extent that they would otherwise be if there was


46

no VRE. This effect has been reported by power system operators where VRE penetration is high. The National Despatching Centre has reported that this frequency variation has become more pronounced in the CES as more wind has been introduced – currently VRE is around 11% of the total MW of installed capacity – and the reduction in inertia can be expected to worsen if the 2030 target of 30% is reached without compensating measures.

128. Conversely, due to their inertial response characteristic, wind turbine generators are capable of injecting around 10% of their rated capacity automatically in response to disturbances that affect the active and reactive power transfer as seen by the wind turbines3 , thereby providing some support over a period of 15 seconds.

Figure IV-11: Dependence of ∆P vs. WTG ∆RPM over 15 secs

Source: NREL

129. The inertia of a power system is both difficult and costly to measure. In 2016, National Grid UK claimed a world first by successfully measuring the inertia of the UK power system. However, after considering to measure inertia routinely at different points in the power system, NatGrid abandoned their plan citing the cost and the difficulty. It follows that methods of estimation will remain as the means by which inertia is tracked and managed.

130. A simple approach to the determination of the BESS capacity is based on experience that the majority of frequency disturbances involve a frequency gain rate of 10 MW / Hz or less. Enhanced Frequency Regulation (EFR) and black start BESS grid applications are sized according to power converter capacity (in MW).

• BESS Capacity [MW] = Frequency gain [MW/Hz] * Governor droop [%] * System Frequency

• A 100 MW PCS can support a frequency gain rate of 50 MW / Hz = 100 MW / (4% * 50 Hz)

• A 25 MW block can support a frequency gain rate of 12.5 MW / Hz = 25 MW / (4% * 50 Hz)

131. The Consultant finds that 25 MW / 10 MWh of the BESS is sufficient for frequency support by 2026 when wind power capacity could reach to 350 MW. In practice the BESS would be used for energy shift during peak demand periods in the winter but at other times during the day could be used to support VRE.

3 Understanding Inertial and Frequency Response of Wind Power Plants, NREL 2012


47

Table IV-12: Summary of Technical Potential (EENS or Energy Savings)

Service Protects Against Time scale Value Relevance to CES in Mongolia Lost or

Impacted Hours p.a.

EENS or Energy (E)

(MWh)

1

Enhanced Frequency

Regulation (EFR) – 25

MW reserved by 2026

CO2 absorption up to 350

MW additional wind; 150

MW Solar PV

Milliseconds

to seconds

Without EFR, RE

absorption will be limited;

this value linked to

Service 6 below

Highly relevant; BESS supports

GoM targets for RE n.a. n.a.

2 Peak Power, load

shifting

Daily (according to

monthly load profile and

peak demand growth,

average 100 MWh per day

by 2021)

Up to 6

hours for

peak, up to

16 hours for

load

Reduced generation and

transmission capacity

investments

Highly relevant; battery can

reduce peak demand over a four

to six-hour period

1,200 44,400 (E)

4

Spinning Reserve

Margin support (60%

of BESS capacity by

2026)

1 in 20-year event with

loss of 100 MW for 2

weeks

Up to 4

hours per

day

Reduced generation

investment; less

dependence on Russia

during prolonged unit loss

Highly relevant because reserve

margin is at low levels in CES 67 1,680

5 Transmission Network

Loss Reduction

Daily losses (according to

peak demand)

5% of BESS

energy

output

Energy efficiency

Associated with reduced Russian

import and placement of 100 MW

/ 150 MWh BESS near to load

centre of UB

876 2,220 (E)

6 Renewable Energy

Absorption

Spill to Russia during

night time low load

periods; 0.5-hour x 5

incidents per annum

Winter nights

Supports GoM targets for

RE (up to 350 MW wind,

150 MW solar PV by

2030)

Highly relevant; BESS supports

GoM targets for RE 2.5 125 (E)


48

V. SITE SURVEYS

R. CONNECTION CONSTRAINTS

132. A BESS is flexible in that it is scalable and can inject at different voltage levels. The choice of BESS capacity and the voltage of connection depends on 1/ the nature of the benefits being sought, and 2/ the technical feasibility of connecting to the existing transmission network.

133. As was discussed in Section IV above, the benefits of the BESS are 1/ reduction of Russian import through energy time shift (with associated reduction in transmission losses), 2/ greater VRE absorption, and 3/ standby reserve in the event of loss of a CHP generator. The reduction of Russian import suggests to connect the BESS at 220 kV. Connection of the BESS at 110 kV would not only impact Russian import, it would potentially impact the operation of the Ulaanbaatar CHPs since CHP 3 generates at 110 kV. Moreover, the BESS capacity would need to be held to 50 MW and this would result in increased costs; the duplication of the balance of plant associated with two 50 MW sites would be excessive.

S. SITES CONSIDERED

134. Three potential sites were considered for the BESS: the Ulaanbaatar 220/110/35 kV substation; the CHP4 plant; and the Songino 220/110/35 kV substation. Site selection process was carried out by consultants together with MoE, NPTG, and in consultation with ADB.

Figure V-1: Alternative BESS Locations

Source: Google Earth, 2019

135. The Ulaanbaatar 220/110/35 kV substation is located on the eastern periphery of Ulaanbaatar. The Law on Water (amended 2015) protects areas around water sources through special protection zones, and strictly regulates construction of buildings, industrial digging, and mining, clearance of trees, and other development activities (with the exception of power plants, water supply facilities, sewage treatment facilities, bridges, roads, transmission lines, drinking water pipelines). The Ulaanbaatar 220/110/35 kV substation is located in a groundwater special protection zone (SPZ) where the majority of Ulaanbaatar’s ground water is sourced from wells. As such the site was rejected due to the risk of groundwater contamination, and the likelihood that the site would be rejected by both ADB and Mongolian environmental authorities.


49

Figure V-2: Ulaanbaatar 220/110/35 kV Substation

The red indicates the water source Special Protection Zone


136. CHP4 is the largest coal-fired CHP plant in Mongolia, with a design capacity of 540 MW later modified to 580 MW. It covers 70% of total electricity demand of the CES and 64% of total heat of the district heating system in Ulaanbaatar. The plant was built over 27 years ago and many upgrades and repairs have been made in recent years. A BESS site on the east side of the CHP4 220 kV substation was considered. This site was rejected in consultation with MoE and NPTG because of i) crowded site conditions and lack of suitable space; ii) potential disruptions to CHP4 production during BESS construction; iii) urban nature of the surrounding area, and potential disruptions to traffic during construction.

Figure V-3: CHP4, Central Ulaanbaatar



50

137. The Songino substation in Songino Khairkhan District was the third option, and was selected. It has suitable available land; good road access; and is rural in nature, with no local residents or nearby sensitive receptors. The site selection was confirmed by MoE.

Figure V-4: Songino 220/110/35 kV Substation

138. Once the Songino substation area had been selected for the BESS, it was still necessary to select a site location. A total of eight potential sites near the substation were considered. The site immediately adjacent to the substation was ultimately selected after extensive consultations with the Land Department of Songino Kkhairkhan District, MoE, ADB, and after detailed cadastral surveys. The site was selected on the basis of the land being unoccupied and undeveloped, of sufficient size, and being available and not privately owned. MoE formally requested the site in a letter to Ulaanbaatar City on 02 July, and approval was granted on September 17, 2019.

Figure V-5: Cadastral Drawing of Selected Site


51

VI. POWER FLOW & CONNECTION STUDY

T. INTRODUCTION

139. In the medium to long-term, expansion of the existing CHPs, new thermal capacity, and / or increased import will be needed. The updating by World Bank of the Mongolian power system masterplan is in progress and will address the medium to long-term needs in detail.

140. As was discussed in Section IV above, it is envisaged that 100 MW / 150 MWh of the BESS capacity will be used to provide peak demand reduction (through energy time shift) during the period from 2022 to 2026, with an increasing share of capacity being made to support an increase in VRE. The reduction of peak demand will help to bridge the gap between current and future supply capacity needs.

141. As the BESS will be used for peak demand reduction, it can be expected that some transmission lines may see reduced loadings and others will see increased loadings. Overall however, we would not expect voltage regulation to worsen because 100 MW of power will be provided near to the load centre of Ulaanbaatar. This injection of power at Songino will reduce the loading on the transmission connection to Russia. Moreover, because the length of the transmission line connecting the Songino 220 kV substation to the CHP 4 220 kV substation is short, the voltage drop on the line will not be significant.

142. In principle, it is only required to check the transmission line loadings before and after the BESS is connected at the Songino 220 kV bus. So long as the transmission line loadings remain well within the line ratings then the connection can be considered to be technically feasible.

U. POWER FLOW STUDY

143. Supply and demand ‘balances’ have been developed for the 220 kV transmission network as given below by Figure VI-2 and Figure VI-3. Figure VI-2 is a balance for the winter of 2018. Figure VI-3 is a balance for the winter of 2022.

144. In the latter case of winter 2022, no new power sources have been included other than the 100 MW BESS at Songino. The following assumptions have been made

• The demand at Darkhan, Erdenet, Baganuur and Choir is constrained by the capacity of existing supply sources and cannot increase without building new power sources at or near to the location of the towns, e.g. 10 MW PV plants with short construction lead time

• Peak import from Russia can increase to 250 MW

• The injection of 100 MW of power from the BESS will only support growth in electricity demand in Ulaanbaatar.

145. It can be seen from the following table that the loading increases on only two transmission lines

Table VI-1: Change in 220 kV Transmission Line Loadings

Source Without BESS (MW)

With BESS (MW)

∆ (MW)

Darkhan to CHP 4 15 62 17

Songino to CHP 4 -38 62 24

Songino to Erdenet 38 38 0


52

Figure VI-2: 220 kV Transmission Network Peak Power Flows (Winter, 2018)

Source MW

Domestic Production

1 CHP-4 700 2 CHP-3 168 3 CHP-2 21 4 Darkhan 44 5 Erdenet 27 Total 960

Import 1 Russia 157

Total Sources Total 1,117

Load (including line losses)

1 Ulaanbaatar 708 2 Central Region 111 3 Khangai Region 187 4 Baganuur 13 5 Choir 98 Total 1,117


53

Figure VI-3: 220 kV Transmission Network Peak Power Flows (Winter, 2022)

Source MW

Domestic Production

1 CHP-4 700 2 CHP-3 168 3 CHP-2 21 4 Darkhan 44 5 Erdenet 27 6 Songino 100 Total 1,000

Import 1 Russia 250

Total Sources Total 1,250

Load (including line losses)

1 Ulaanbaatar 854

2 Central Region 111

3 Khangai Region 187

4 Baganuur 13 5 Choir 85 Total 1,250

146. Since the resulting transmission line flows are well within the transmission circuit ratings of 255 MW, and the net increase in line flows are small, the connection of a 100 MW of BESS power at the Songino 220 kV bus is technically feasible. The line flows would also be well within the ratings if it was decided to evacuate 125 MW of BESS power to meet a short-term contingency need.


54

147. In the diagrams shown in Figure VI-4, the line flow between CHP4 and Ulaanbaatar substations is not shown because the flows are not affected by the BESS.

Figure VI-4: Line Flows Without & With BESS 2019 2022

Table VI-5: Line Flows Without BESS (2019)

From To MW Cond No Ccts Cct

Rating MW

% Utilisation

Russia Darkhan 204 AC300/39 2 255 40% Darkhan CHP-4 15 AC300/39 1 255 6% Darkhan Erdenet 122 AC300/39 2 255 24% Erdenet CHP-4 38 AC400/51 2 297 6% CHP-4 Baganuur 98 AC300/39 2 255 19% Baganuur Choir 85 AC240/39 1 219 39%

Table VI-6: Line Flows Without BESS (2022)

From To MW Cond No Ccts Cct

Rating MW

% Utilisation

Russia Darkhan 250 AC300/39 2 255 49% Darkhan CHP-4 61 AC300/39 1 255 24% Darkhan Erdenet 122 AC300/39 2 255 24% Erdenet Songino 38 AC400/51 2 297 6% Songino CHP-4 62 AC400/51 2 297 10% CHP-4 Baganuur 98 AC300/39 2 255 19% Baganuur Choir 85 AC240/39 1 219 39%


55

VII. BESS DESIGN CONCEPT

V. DESIGN CONCEPT

148. A utility-scale BESS of 125 MW / 160 MWh comprises a battery field, intermediary medium voltage plant and equipment and, for the final connection to a transmission grid substation, high voltage plant and equipment including a main power transformer. These equipment’s must be capable of operating reliably throughout the economic life of the BESS across the range of climatic conditions in Mongolia.

149. The BESS must operate safely with acceptable risk of fire, and with adequate fire protection systems in the event that a thermal runaway does occur.

150. The following description of a Battery Energy Storage System for Songino is based on a typical Li-ion design concept currently in use world-wide. Whilst this does not rule out other chemistries are not ruled out of contention, the same issues must be addressed.

1. Fire Prevention

a) Fire Risk 151. Lithium secondary batteries contain both oxidizers (negative) and fuel (positive) within the enclosed battery space, and therefore also carry the risk of fire and explosion in case of overcharging, over-discharging, excess current, or short circuits. For battery safety, safety design is essential at the cell, module, pack, and final product level. If safety fails at one level, more severe accidents at the higher levels can quickly follow. There is no single standard or parameter for assessing battery safety. A battery protection circuit will improve safety by making such accidents less likely or by minimizing their severity when they do occur.

152. Adequate fire protection systems will be needed at the BESS site, suitable for the chemistry of the battery and the type of chemical fire that could result.

Figure VII-1: Magnified Photos of Fires in Cells, Cell Strings, Modules,

and Energy Storage Systems

Source: Doughty and Roth (2012)


56

b) BESS Buffer Zone 153. The following design criteria reduce the potential for damage should a BESS fire occur

• Install BESS outdoors a minimum of 20 m from important buildings or equipment. Maintain a minimum of 3 m separation from lot lines, public ways and other exposures

• Within the module, maintain a minimum of 1 m separation distance between enclosures for all units up to 50 kWh when not listed, or up to 250 kWh when listed

• Install a thermal barrier where the minimum space separation cannot be provided

• If the BESS must be located indoors, install in a 2-hour fire rated cut-off room, which is accessible directly outdoors for manual firefighting

• Restrict the access to competent employees or sub-contractors

• Ensure enclosures are non-combustible

Figure VII-2: Buffer Zone for Fire Safety (minimum 20m)

c) Thermal Runaway

• Test a BESS in accordance with UL 9540A, Test Method for Evaluating Thermal Runaway Fire Propagation in Battery Energy Storage Systems. This standard evaluates thermal runaway, gas composition, flaming, fire spread, re-ignition and the effectiveness of fire protection systems. Data generated can be used to determine the fire and explosion protection requirements for a BESS


57

d) Ventilation & Temperature Control

• Adequate ventilation or an air conditioning system is generally needed to control the temperature. Maintaining temperature control is vital to battery longevity and proper operation as batteries degrade exponentially at elevated temperatures. The standard operating temperature range of Li-ion batteries is 20 – 30 C

• Ventilation is provided in accordance with the manufacturer’s recommendations; in a containerized system ventilation is generally not an issue if the manufacturer installs the BESS

e) Gas Detection & Smoke Detection

• A very early warning fire detection system, such as aspirating smoke detection, is recommended

• Carbon monoxide (CO) detection is recommended within the container or BESS room

f) Fire Protection & Water Supply

• Sprinkler protection is recommended within BESS rooms and ideally within BESS containers. A sprinkler system should be designed to provide 12.2 litres /minute / m² over 232 m² (0.30 gallons per minute / ft² over 2500 ft²). Water has been proven to be the best agent to fight a fire involving Li-ion batteries. It is important to note that other extinguishing agents, such as aerosols or gaseous extinguishing systems, will extinguish the fire, but they do not provide cooling in the way that water does. Insufficient cooling allows a hot and deep-seated core to remain. The heat will rapidly spread back through the battery and reignite remaining active sections

• A procedure for battery submersion in a pre-emergency plan performed by a fire department. Submerging batteries in water (preferably outdoors) after they burn has proven to be effective at cooling the batteries and neutralizing the thermal threat. They will continue to release gases, mostly carbon monoxide, but also flammable gas such as hydrogen. Therefore, never submerge several batteries in a confined space without adequate ventilation

• Sufficient water must also be available for manual firefighting. The ability of a fire authority to control a fire involving a BESS depends on the presence of an adequate water supply and knowledge of the hazards. The following should be considered:

− An external fire hydrant should be located within 100 m of the BESS room or containers

− The water supply should be able to provide a minimum of 1,900 litres / min for at least 2 hours

2. BESS Connection to Songino 220kV Bus

a) 220 kV Plant & Equipment 154. The high voltage connection to the Songino 220 kV bus will include a short 220 kV overhead transmission line, and a 125 MVA power transformer with transformation voltage of 220 kV / 35 kV. The high voltage connection arrangement is shown as Figure VII-3.


58

Figure VII-3: High Voltage Single Line Diagram

3. Low Tension Voltage Plant & Equipment

155. The design of the low-tension plant, including the battery field configuration, will depend on the supplier’s design. For the purpose of illustration, it has been envisaged that three (3) outdoor 35 kV circuit breakers and an indoor 35 kV switchboard (seven (7) circuit breakers) will be required. The indoor switchboard will be housed in a BESS control room (with protection, control and instrumentation equipment with associated power supplies covering all HV and MV assets of the BESS).


59

Figure VII-4: Low Tension Single Line Diagram

156. A more detailed view of part of the electrical schematic is given by Figure VII-5. This figure shows a part of the BESS that will be replicated to reach 125 MW / 160 MWh of total capacity. (An alternative MV design would incorporate all 35kV circuit breakers into metal-clad indoor switchgear).

4. Physical Layout of the BESS

157. A typical outdoor ‘containerized’ battery field comprises blocks of batteries (3 power cells per 1 d.c. / a.c. inverter, and an a.c. LV / MV power transformer. The power transformers step up the voltage from low voltage to medium voltage (35 kV). (They also provide a heating and cooling supply). In the following plan and elevation views the typical spacings are given for battery blocks arranged in two rows.


60

Figure VII-5: BESS Power Block Electrical Schematic



61

Figure VII-6: Plan View of 125 MW / 160 MWh Battery Field

Figure VII-7: Side-Elevation View of Battery Rows (3) & Step Up Transformer

158. The land area that can be used for a BESS at Songino is restricted by the necessity to keep the transmission line right-of-ways clear of built structures. A physical layout of the BESS at Songino, showing the battery field, control room, MV and HV plant and equipment zone is presented below in Figure VII-8. It is anticipated that the BESS and the HV / MV connection plant and equipment will be placed on a raised earth platform of ~4m in height to mitigate against the risk of flood.

Figure VII-8: BESS Layout near Songino Substation


62

Figure VII-9: East Side of Songino Substation (view to south)

Figure VII-10: BESS Battery Field

(view to south from southern-most fenceline of Songino Substation)


63

Figure VII-11: HV Substation Site

(view to south along east fenceline of Songino Substation)

W. BILL OF QUANTITY

159. A bill of quantity has been prepared for the main plant items required for connection of the BESS. A bill of quantity for the BESS itself is a matter for the EPC contractor to advise.

Table VII-12: HV / MV Connection Asset Bill of Quantities

No. Item Unit Quantity 1 Switchgear 220kV Switchgear

1.1 245kV, 3-pole, 2,500A, 50kA - 3 sec, SF6 gas Circuit breaker, 3-pole

operation, with supporting structure set 1

1.2 245kV, 3-pole, 2,500A, 50kA – 3 sec, Disconnector with earthing

switch 50kA – 3 sec, with supporting structure set 2

1.3 Current Transformer for Transmission Line (3-phase /Set) set 1

1.4 Current Transformer for Transformer (3-phase /Set) set 1

1.5 245kV Capacitor type voltage Transformer for line (3-phase/Set) set 2

1.6 245kV Capacitor type voltage Transformer for busbar (3-phase/set) set 1

1.7 198kV, 10kA Surge arrester, discharge class 3, with surge counter set 1


64

No. Item Unit Quantity and A.C. leakage meter (1 Phase / 1Set)

34.5kV Metalclad switchgear, 2500A busbar (indoor-type, including Control & Protection)

1.8 Incoming CB Cubicle set 3

1.9 Outgoing CB Cubicle set 7

1.10 Auxiliary Transformer Cubicle set 2

1.11 Instrumentation Cubicle set 2

1.12 Bus Section Cubicle set 1

1.13 Bus Riser Cubicle set 1

2 Transformers

2.1 220/34.5kV, 125MVA (Ynd11), ONAN/ONAF, 3-phase, Oil-immersed

Transformer, with OLTC, 220kV and 34.5kV Surge Arresters set 1

2.2 34.5/0.4kV, 250kVA (Dyn5), outdoor, 3-phase, Oil-immersed Auxiliary

Transformer set 1

2.3 34.5kV, 300kVA, outdoor, 3-phase, Oil-immersed Neutral Earthing

Transformer, with Earthing Resistor set 1

3 Control, Protection & Metering

3.1 Computerized control system (CCS) set 1

3.2 220kV transmission line control panel set 1

3.3 220/34.5kV transformer control panel set 1

3.4 Synchronizing panel set 1

3.5 On-load tap changer control panel set 1

3.6 220kV transmission line protection relay panel (1 circuit/set) set 1

3.7 220kV busbar protection relay panel set 1

3.8 220kV breaker-failure protection relay panel set 1

3.9 220/34.5kV transformer protection relay panel set 1

3.10 Energy metering and Transient recorder panel set 1

4 LVAC & DC Equipment

4.1 110V battery set 2

4.2 110V battery charger set 2

4.3 48V battery set 2

4.4 48V battery charger set 2

4.5 Uninterruptible AC supply equipment set 1

4.6 AC distribution panel set 1

4.7 DC distribution panel set 2

5 Communication & SCADA


65

No. Item Unit Quantity 5.1 Optical approach cable lot 1

5.2 Optical distribution frame (ODF) set 1

5.3 Synchronous Transport Module-1 (STM-1) comprising the followings: lot 1 1) Optical interface, tele-protection interface

2) Cubicle (including power supply, interfaces)

3) Telecommunication management system

5.4 Telecommunication equipment Comprising the following: lot 1 1) PABX

2) MDF

6 Miscellaneous Equipment

6.1 220kV station post insulators with support structure lot 1

6.2 Bus fittings lot 1

6.3 Conductor and fittings lot 1

6.4 Insulator and fittings lot 1

6.5 Gantry steel structures and supports lot 1

6.6 34.5kV power cables lot 1

6.7 Low voltage and control cables lot 1

6.8 Generator 3-phase, 400V-150kVA, all accessories and connecting

equipment to the substation's LV system lot 1

6.9 Earthing and lightning protection system lot 1

7 Spare parts & tools

7.1 220kV circuit breaker 1

7.1.1 Motor driven mechanism set 3

7.1.2 Tripping Coil set 3

7.1.3 Closing coil set 3

7.1.4 Complete pole column set 3

7.1.5 Set of gaskets for one pole set 3

7.1.6 SF6 gas for 1 recharge of 1 CB set 1

7.2 220kV disconnectors and earthing switch

7.2.1 Supporting insulators set 2

7.2.2 Finger and butt contacts set 2

7.2.3 Motor operating devices set 2

7.2.4 Locking coil set 3

7.3 220kV Current transformers

7.3.1 for transmission line bay set 1

7.3.2 for transformer bay set 1

7.4 220kV Capacitor-type voltage transformers


66

No. Item Unit Quantity 7.4.1 for transmission line bay set 1

7.4.2 for busbar set 1

7.5 220kV surge arresters

7.5.1 Surge counter for 220kV surge arresters set 1

7.6 Power transformer

7.6.1 220kV bushing set 1

7.6.2 34.5kV bushing set 1

7.6.3 Cooling fan set 2

7.6.4 Complete set of transformer gaskets set 1

7.6.5 Complete set of contact for tap changer set 1

7.6.6 De-hydrating breather set 1

7.7 Protection, control & metering

7.7.1 Control panels

Actual use of lamps of each type set 2 Actual use of switches & buttons of each type set 2 Actual use of fuses of each type set 2 Actual use of MCCBs of each type set 2 One printed circuit board of each type set 2 Auxiliary relays of each type set 2 Meters of each type set 2

7.7.2 Protection panel

Actual use of lamps of each type set 2 Actual use of switches & buttons of each type set 2 Actual use of fuses of each type set 2 Actual use of MCCBs of each type set 2 One printed circuit board of each type set 2 Auxiliary relays of each type set 2 Alarm & bell for auxiliary relays set 2 Transducer resistance set 1 Each type of protection relays set 1

7.8 Communication equipment

Actual use of power supply of STM-1 set 1

7.9 Computerized control system (CCS)

Spare parts for CCS set 1

7.10 LVAC & DC equipment


67

No. Item Unit Quantity Spare parts of battery & charger lot 1 Spare parts of AC/DC distribution boards lot 1

7.11 34.5kV metal-clad switchgear

Spare parts for 34.5kV metal-clad switchgear lot 1

7.12 Tools

Set of special tools set 1 Tools for gauge rings of cartridge fuse bases set 2 Screwdriver for slot-headed and Philips screws, different sizes set 2 Box socket wrenches for hexagon bolts in AC and DC boards set 2 Testing device for voltage max. 500 V set 1 Tool box for tools and instruments indicated above, including padlock set 1 Filing cabinet for spare fuses set 1

Optical time domain reflect-meter (OTDR) set 1

Optical level generator set 1

Optical level meter set 1

Bit error rate measure set 1

8 220kV Transmission line (OHL)

8.1 220kV 3 phase, ACSR 400/51 m 300

8.2 220kV Towers (У-2T) set 3

9

Control Building works including civil works, architectural, electrical and mechanical services, grounding system, lightning protection system, fire alarm and fire-fighting system, PA, CCTV, etc.

lot 1

10 Guardhouse, Pump house, Warehouse Building works including civil works, architectural, electrical and mechanical services, grounding system, lightning protection system, fire alarm and fire-fighting system, PA, CCTV, etc.

lot 1

X. BESS CONSTRUCTION PLAN FOR CES

160. A BESS construction schedule is given below as Table VII-13. The schedule recognizes that there are restrictions that apply to some activities, specifically no construction is feasible during the months November to March, and commissioning of high voltage equipment is not allowed during the months of October to March.


68

Table VII-13: Consolidated Project Plan

Activities 2019 2020 2021 2022 2023 2024 2025 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

A. DMF

Output 1: Large scale advanced battery energy storage system installed.

1.1 Prepare bid document

1.2 Tender EPC contract and award

the contract

1.3 Engineering and Site preparation

1.4 Procurement and Delivery of plant

& equipment

1.5 Construction & Installation

1.6 Pre-commission

1.7 Core Testing and commissioning

1.8 O&M service

Output 2: Institutional and organizational capacity enhanced.

2.1 Recruitment of Project

Management Consultant (PMC)

2.2 Delivery of PMC service

2.3 Prepare the operational manual for

optimal battery use

2.4 Train at least x number of staff

2.5 Prepare operation and

maintenance strategy and adopt it in

the form of MOE ministerial decree


69

Activities 2019 2020 2021 2022 2023 2024 2025 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2.6 Develop electricity transmission

ancillary service pricing policy and

guideline

2.7 Organize knowledge dissemination

seminar

B. Management Activities

Establish Project Management Unit

(PMU)

PMU Project Supervision

Implement Environmental

Management Plan

Communication Activities

Inception/ Review/ Mid-term review

Project Completion Report


70

VIII. COST ESTIMATE

161. The cost estimates presented here are based on benchmark cost analysis of the Li-ion batteries. Costs include up-front Capex and O&M costs.

Y. CAPITAL COSTS

162. The capital cost estimates are based on benchmark cost analysis covering recent grid-scale BESS projects, and by way of reference to Lazards4. The cost estimate is given by the following table

Table VIII-1: Capital Cost Breakdown

All Costs USD

Engineering & Design Quantity Unit Price Parameter

Engineering and design 1 3,118,177 3,118,177

Project Administration Quantity Unit Price Parameter PMU 1 1,247,271 1,247,271

Govt standardization fee 1 112,254 112,254

Sub-Total 1,359,525

Materials & Equipment Quantity Unit Price Parameter Energy storage equipment 160,000 183 29,346,641



Balance of system HV Transformer 220 / 35kV 125 MVA 1 2,000,000 2,000,000

MV Transformers 35 / 0.4 kV 1 1,500,000 1,500,000

35 kV Switchgear / Cables 3 150,000 150,000

Storage Containers for Battery 1 1,000,000 1,000,000

Power Converter Containers 1 1,000,000 1,000,000

SCADA 1 370,624 370,624

Sub-Total 64,705,546 Construction Quantity Unit Price Parameter Energy storage equipment 1 3,584,475 3,584,475

Power conversion equipment cost 1 4,377,808 4,377,808

Sub-Total 7,962,283

TOTAL 77,145,530

Source: Consultant

Z. O&M COSTS

163. BESS O&M costs have been taken to be 1.0% of Capex (supply & construction costs) in accordance with Lazard estimates. Replacement of power converters and battery cells will be required after 15 years of operation. The replacement cost is $ 200 / kW for the DC equipment and

4 Lazard’s Levelized Cost of Storage Analysis — Version 1.0, November 2015


71

$ 16 / kWh for the AC equipment, for a total of $27.6m (in 2019 reference).

164. The O&M costs of the connection assets (HV and MV plant and equipment exclusive of the BESS have also been taken to be 1.0% of Capex (supply and construction costs).

165. A defects liability period of 2 years is envisaged for the BESS power cells and inverter equipment. Otherwise a 1-year period for all other plant and equipment.

166. A Start-up Support Services & Technology Transfer concept is envisaged for the BESS facilities as follows

• During the BESS plant construction period, as well as during the first 2 years of operation, the EPC contractor will provide a skilled BESS operator to undertake the operation of the BESS. The EPC contractor will be fully responsible for the operation of the facility. During this period the EPC contractor will train NDC and NPTG personnel in preparation for hand-over (may be a combination of class-room and on-the-job training)

AA. TOTAL INVESTMENT

167. An estimate of the total investment, including capital costs, taxes and duties, contingencies and financing charges is given below by Table VIII-2. The total Project investment cost is estimated to be USD$ 116.8 m. (The total cost estimate was prepared in conjunction with the TA Financial Specialist).

BB. COST RECOVERY

Given the nature and priority of the benefits of the BESS in Mongolia, it is sensible to consider the BESS as a ‘smart-grid’ device. As a transmission asset, cost recovery of the BESS will fall under the Energy Regulatory Authority’s methodology for determining the transmission tariff rate5.

5 RESOLUTION #5, Interim Methodology for determining prices and tariffs of Licensees, September 2001


72

Table VIII-2: BESS Total Investment Cost Estimate

Item

Total Cost

% of Total Base Cost

Local Currency

Local Component

Share %

Foreign Currency

Foreign Component

Share % A. Base Costs 1 Turn key contract 80.79 83.79% 8.08 10.00% 72.71 90.00%

a Engineering & Design 3.24 3.36% 0.32 10.00% 2.92 90.00%

b Equipment & Materials 66.83 69.31% 6.68 10.00% 60.15 90.00%

c Construction Works 8.21 8.52% 0.82 10.00% 7.39 90.00%

d Environmental and social impact mitigation 0.07 0.07% 0.01 10.00% 0.06 90.00%

e

Start-up Support Services & Technology

Transfer 2.43 2.52% 0.24 10.00% 2.19 90.00%

2 Implementation Consultant 1.98 2.06% 0.20 10.00% 1.78 90.00%

3 Project Administration 1.36 1.41% 0.00 0.00% 1.36 100.00%

4 Taxes and dutiesa 12.29 12.74% 12.29 100.00% - 0.00%

Subtotal (A)b 96.42 100.00% 20.57 21.33% 75.85 78.67% B. Contingenciesc 1 Physical 7.05 7.31% 0.90 12.75% 6.15 78.67%

2 Price 4.94 5.12% 0.63 12.76% 4.31 78.67%

Subtotal (B) 11.98 12.43% 1.53 12.75% 10.45 87.25%

C. Financing Charges During Implementationd 1 Interest During Construction 7.53 7.81% 0.00 0.00% 7.53 100.00%

2 Commitment Charges 0.89 0.92% 0.00 0.00% 0.89 100.00%

Subtotal (C) 8.42 8.73% 0.00 0.00% 8.42 100.00%

Total Project Cost (A+B+C) 116.82 121.16% 22.09 18.91% 94.72 81.09%



Project Financial

& Economic Analysis Final Report

Prepared for


By


in association with

Mon-Energy

May 2020

TA-9569 MON: Energy Storage Option for Accelerating Renewable Energy Project Finance & Economics

i

ABBREVIATIONS




CHP – Combined Heat & Power CoUE – Cost of Unserved Energy

CO2 – Carbon Dioxide


EENS – Expected Energy Not Served

EFR – Enhanced Frequency Regulation

EIRR – Economic Internal Rate of Return

ERC – Electricity Regulatory Commission

FIRR – Financial Internal Rate of Return

FiT – Feed-In-Tariff FS – Feasibility Study

GDP – Gross Domestic Product GOM – Government of Mongolia

HLT – High Level Technology

MOE – Ministry of Energy

MOF – Ministry of Finance




UB – Ulaanbaatar

WACC – Weighted Average Cost of Capital

NOTE



ii

CONTENTS


A. Introduction 3

B. Historical Financial Performance 4

C. Corporate Projections 5

D. Financial Management Assessment 7

E. Financial Analysis of the Project 7

F. Economic Analysis of the Project 9

II. INTRODUCTION 11

III. PROJECT FINANCIAL ASSESSMENT 11

G. Weighted Average Cost of Capital (WACC) 11

H. Financial Benefits 12

I. Financial Cost-Benefit Analysis 12

J. Sensitivity Analysis 13

IV. PROJECT ECONOMIC ASSESSMENT 14

K. Economic Costs 14

L. Economic Benefits 15

M. Economic Cost-Benefit Analysis 15

N. EIRR Sensitivity Analysis 17

V. CORPORATE FINANCIAL ANALYSIS 18

O. Historical Financial Performance of NPTG 18

P. Corporate Financial Projections 19

Q. BESS Investment & Financing Parameters 20

R. Financial Projections for NPTG 23

VI. FINANCIAL MANAGEMENT ASSESSMENT 25

S. Brief Project Description 25

T. Country Financial Management Issues 25

U. Financial Management System of National Power Transmission Grid (NPTG) 28

V. Personnel, Accounting Policies and Procedures, Internal Control, Internal and External Audit of NPTG 30

W. Financial Management System of Project Management Unit Under Ministry Of Energy 33

X. Personnel, Accounting Policies and Procedures, Internal Control, Internal and External Audit of PMU 35

Y. Disbursement Arrangements, Fund Flow Mechanism 37

Z. Risk description and Rating 39

AA. Proposed Time-Bound Action Plan 40

BB. Suggested Financial Management Covenants 41

CC. Financial Management Assessment Conclusions 42


3


A. Introduction

1. The energy sector in Mongolia is the largest contributor to greenhouse gas (GHG) emissions in the country, accounting for about two-thirds of the country’s GHG emissions. According to Mongolia’s nationally determined contributions, GHG emissions will increase to 51.5 million tons of carbon dioxide (mtCO2) by 2030 in the business-as-usual scenario with the energy sector’s share in total emissions increasing to 81.5%. The nationally determined contributions targets to reduce 7.3 mtCO2 of GHG emission by 2030 as compared with the business-as-usual scenario through emission reduction from power and heat generation (4.9 mtCO2), industry (0.7 mtCO2), and transportation (1.7 mtCO2). The Government of Mongolia aims to increase the share of renewable energy in total installed capacity in the country from 12% in 2018 to 20% by 2023 and 30% by 2030 in the State Policy on Energy, 2015-2030.

2. The Central Energy System (CES) grid of Mongolia, which covers major load demand centres including Ulaanbaatar, accounted for 96.0% of total installed capacity and 91.2% of electricity demand in the country in 2018. Coal-fired combined heat and power (CHP) is major source of power generation in the CES, which accounted for 93.0% of total power generation in the CES, and around 80% of power generation from CHP was shouldered by aging CHP number 3 and 4 plants in 2018. Because of a significant delay in new investment in new CHP capacity addition together with an increasing power demand, a capacity factor of the existing CHP plants during winter peak time has already reached above 90%. It has also resulted in growing dependence on an imported electricity from Siberian grid from Russian Federation and around 70% of transmission capacity for power import has already been utilized by 2018, which is also becoming bottleneck for stable power supply. An increasing demand pressure upon existing energy infrastructure has led to a growing concern over potential black out within a few years.

3. Renewable energy holds great potential to reduce power demand pressure upon the aging CHP plants and transmission capacity for power import, while stabilizing power supply and decarbonizing energy sector in the country. Renewable energy in total installed capacity must grow 274.2 megawatt (MW) by 2023 and 593.5 MW by 2030 (Table I-1), of which 260 MW had been commissioned. The growing number of wind and solar photovoltaic power plants connected to the grid has also raised concerns over curtailment in the grid system, which is dominated by coal-fired combined heat and power plants which are less flexible in regulating their own power outputs to balance against the fluctuating renewable energy power output in the grid. The Renewable Energy Investment Plan for Mongolia in 2015 estimated 150 MW in wind power and 225 MW in solar photovoltaic power of maximum grid absorption capacity at a 20% curtailment rate.

Table I-1: Electricity Load Demand Projection and Required Generation Capacity

Year CES

Electricity Demand

(GWh)

CES Required

Generation Capacity

(MW)

CES Required

Renewable Capacity

(MW)

Targeted Renewable Share in Total

Capacity

(%)

2017 5,473 1,174 120.0 10

2023 6,739 1,371 274.2 20

2030 9,238 1,984 595.3 30

CES = Central Energy System, GWh = gigawatt hour, MW = megawatt.



4

4. Battery energy storage is the only currently available option in the country to develop peaking power and spinning reserve capacity. The country has no access to natural gas resource, and hydropower was only one available option to supply peaking power and to develop spinning reserve for renewable energy penetration into the grid. Since 2015, the government has been seeking the development of 315 MW Egiin hydropower capacity in the Selenge river basin upstream of Baikal Lake in Siberia, Russia. But it has not moved forward due to the concern of the Russia Federation over the environment impacts and the water level in Baikal lake.

5. The proposed project will install 125 megawatt (MW) in capacity and 160 megawatt-hours (MWh) in energy of battery energy storage system (BESS) in Ulaanbaatar. It aims to (i) fully utilize a fluctuating renewable power, otherwise to be curtailed, to reduce high carbon intensive imported electricity from Siberia grid in Russian Federation and restore reserve margin for transmission capacity (para 2), and (ii) expand the room to connect new renewable energy capacity in the central energy system (CES) grid, and reduce demand pressure upon aging coal-fired CHP plants while decarbonizing heavily coal dependent power generation system, thereby supplying 44 gigawatt hours (GWh) of clean peaking power annually and enabling an additional 350 MW of renewable energy connection into the CES grid without curtailment. The proposed project will also help strengthen capacity of the grid operators and develop regulations in ancillary services, for sustainable operation and maintenance of the BESS system, and for future scaling up.

6. The total project cost is $116.8 million. The project will be financed with ADB loan ($100 million), the ADB High Technology Grant Fund (HLT) grant ($3 million) and contribution of the Government of Mongolia ($13.8 million). The project will be implemented during 2020–2022 and the BESS facilities will operate at full capacity by start of 2022.

7. The Ministry of Energy (MOE) will be the executing agency (EA) of the project, and it will undertake overall responsibility for the project implementation and provides guidance and oversight for the project management unit which is responsible for supervision of day-to-day project activities and assistance to the project implementing agencies to ensure smooth project implementation. The MOE has extensive experience in implementation of projects financed with foreign loans and grants and in managing disbursements from ADB.

8. The National Power Transmission Grid State Owned Company (NPTG), will be the project implementing agency (IA) which will take primary responsibility for the day-to-day project activities, conduct of environmental, social and land acquisition monitoring, procurement and initial payment control. NPTG has experience in projects financed by international donor organizations such as ADB, World Bank, SIDA, KFW Bank and Japanese development funds.

B. Historical Financial Performance

9. An assessment of National Power Transmission Grid (NPTG) financial statements for the last 5 years (2014-2018) was conducted in accordance with relevant ADB's guidelines and methodologies1.

10. By the end of 2018, total assets of NPTG amounted to MNT 407 billion (154 MUSD), 93% of which consisted of the company’s fixed assets. Importance of the long-term debt was decreasing from 8% of the total capital in 2014 to only 4% in 2018. Since 2015, the company has received assets (mainly power lines and substations) from the Government of Mongolia (GOM); investments were made by GOM and paid from the State budget and the assets are not in full operation yet. These state investments, transferred to NPTG, increased the amount of deferred income in the company’s balance sheet, and its share in the total book value increased from 7.5% in 2015 to 19.7% in 2018. The State equity (MNT 238 billion (90 MUSD) in 2018) was almost unchanged during 2014-2018, with a slight increase (of 4.4%) in 2017.

11. In 2017, Oyu Tolgoi LLC Mining Company signed a power purchase agreement (PPA) with NPTG, according to which NPTG is importing power from China’s Inner Mongolia on behalf of the

1 Financial Management and Analysis of Projects (ADB, 2005), Methodology Note on Financial Due Diligence (ADB, 2009), Technical Guidance Note on Financial Analysis and Evaluation (ADB, 2019)


5

mining company. This arrangement took effect on 4 July, 2017 for a term of up to six years, with a possibility of an early cancellation after the fourth year if a domestic power plant is commissioned earlier. In NPTG’s Income Statement, the PPA related cost and revenues (amounting to 292 million MNT (111 MUSD) in 2018) are included in the total Sales Revenues and total Costs of Goods Sold (COGS) and fully offset each other (according to available statistics, NPTG does not charge any margin for this service). Because of the offsetting effect and the non-recurrent nature of these items, the PPA revenues and COGS have been excluded from the analysis of NPTG’s historical performance and the corporate projections because they would lead to a bias in the financial performance ratios that concern revenues and COGS.

12. In 2014-2018, the gross profit margin (adjusted by depreciation expenses which are otherwise included in COGS) was relatively stable varying between 38 – 51%. EBITDA decreased from 27.7% in 2015, the maximum level during 2014-2018, to only 9.3% in 2018. The significant drop in EBITDA in 2018 was mainly caused by a sharp increase in general expenses related to obligatory increase of salaries and related payments. Due to high depreciation expenses, the company’s EBIT was mostly negative, reaching its maximum of 2.2% in 2015 and dropping to as much as -21.9% in 2018. The net profit margin improved from -8.8% in 2014 to 3.5% in 2015, then fluctuated around 0% during 2016-2018. The zero margin of 2018 was achieved mainly due to the non-operating income and interest payments received.

13. NPTG has received no state subsidies after 2014. The Energy Regulatory Commission (ERC) defines an annual payment to NPTG for its transmission services (a revenue cap regulation). NPTG’s transmission tariff rate is calculated by dividing the annual payment by the expected electricity delivered to the distribution companies.

14. During the period 2014 – 2018

• NPTG had negative annual total cash flows in 2014 and 2017. In 2014 this was caused by relatively high investment outflows, and in 2017 it was mainly due to negative cash flow from operations caused by high payments to tax authorities and unidentified other cash expenditures.

• The company’s liquidity was at a very good level, with an average current ratio of 3.5. However, after reaching a maximum of 5.5 in 2016, it decreased to only 1.8 in 2018.

• The cash operating ratio was at a healthy level of ca. 1.3 on average, declining to 1.1 in 2018.

• The share of long-term debt in the total book value was in average 6%, allowing the company’s debt service coverage ratio to stay at a good level between 2.0 in 2014 and 18.9 in 2018.

C. Corporate Projections

15. NPTG corporate financial projections have been modelled according to the target objectives of the State Policy on Energy 2015–2030, i.e. a) net profit margin to be at least zero by 2023 and b) net profit margin to be 5% by 2030. The revenue and COGS related to the PPA agreement between NPTG and Oyu Tolgoi LLC Mining Company has been excluded. No state subsidies or other governmental support to NPTG has been included. Given the relative strength of financial management in NPTG, no financial management loan covenants are proposed. Corporate financial projections are given by Table I-2.

16. A full cost-recovery tariff for NPTG has been modelled treating the BESS as a ‘smart’ transmission asset included in the total NPTG’s regulated asset base (RAB). The incremental tariff associated with the BESS was computed in the BESS project financial analysis and converted to nominal terms according to assumed local inflation. This incremental tariff is included in the modelled NPTG’s tariff for electricity transmission services.

17. Table I-3 provides a comparison of the computed NPTG tariff and an estimate of the total end-user tariff (the average retail tariff). In this comparison, the NPTG tariff has been modelled


6

according to the net profit margin targets, whereas the tariffs of the generation and distribution companies have simply been increased over time by the estimated local inflation rate. During 2022-2030, the average share of the incremental tariff associated with BESS in the total NPTG tariff would be 16.5% (increasing from 14.4% in 2022 to 19.3% in 2030). As it can be seen from the above projections, although the NPTG tariff with BESS is significantly higher than the case without the BESS, its overall influence on the end-user tariff is minor because the retail tariff is dominated by the prices charged by the electricity generation companies. The average difference in end-user tariff, that would be felt by customers over the longer term (2022-2030), is less than 1.55%.

Table I-2: Financial Projections for NPTG

EBIDTA = earnings before interest, depreciation, taxes and amortization, MNT = Mongolian Tugrik


billion MNT

Item 2019 2020 2021 2022 2023 2024 2025 2030

Income Statement



Net income -7.24 -6.96 -13.34 -4.48 0.11 -0.81 -5.84 11.59

Cash Flow Statement






Balance Sheet



Total ST debt 0.92 0.92 0.92 0.92 0.92 17.87 18.93 25.37


Total LT debt 15.11 84.66 263.75 291.12 321.31 332.59 333.95 322.95


Equities 364.94 363.66 348.03 341.04 338.64 335.32 326.97 335.51

Financial Ratios

EBITDA 0.09 0.12 0.11 0.32 0.34 0.34 0.34 0.31

EBIT -0.16 -0.11 -0.14 0.11 0.16 0.17 0.19 0.21


Current ratio 1.76 2.13 2.70 5.42 8.66 4.76 4.96 5.95






Forecast


7

Table I-3: Preliminary Projected Tariff for NPTG / End-User Tariff in CES

Notes: all tariffs are shown free of VAT, kWh = kilowatt hour, MNT = Mongolian tugrik


D. Financial Management Assessment

18. The Financial Management Assessment (FMA) of NPTG and MOE (PMU) has proved that these agencies have robust financial management practices and qualified management and operational staff which will secure successful implementation of the project.

19. The major financial management weakness of the implementing agency is related to the lack of experience in ADB’s policies and procedures, absence of procedures for FX risk hedging, lack of insurance policies for critical equipment, and an insufficient independence of internal audit function. These issues can be resolved with support of the Ministry of Energy, Ministry of Finance, and the technical assistance provided by the relevant ADB programmes.

20. The financial management capacity assessment (FCMA) proved that NPTG has relatively good financial management practices and qualified management and operational staff which will secure successful implementation of the project. The major financial management weakness is related to (i) lack of experience in ADB’s policies and procedures, (ii) lack of segregation of duties and some internal controls; (iii) less independent role of internal auditor, and (iv) absence of procedures for foreign exchange risk hedging and financial management reporting adjustment. These risks can be mitigated in accordance with the risk management and mitigation plan presented in Report on Finance & Economics.

21. Mongolia’s public sector and entities level financial management are relatively robust and present moderate risks from ADB’s perspective. Identified risks in lacking knowledge on ADB procedures, foreign exchange risk management, internal audit, and financial reporting can be mitigated according to the risk management plan presented in the relevant part of Report on Finance & Economics.

E. Financial Analysis of the Project

22. Capital investment in the BESS facilities will be financed mainly with the ADB loan which will also cover associated contingencies, interest during construction and commitment fee costs. The estimated ADB loan amount of 100 MUSD, and an ADB HLT grant of 3 MUSD, will be used to finance the project base cost. The financial contribution of the Government of Mongolia will cover associated tax costs of 13.82 MUSD for a total project cost is 116.82 MUSD.

23. The ADB loan will be issued in US dollars and will have a 5-year grace period; the principal


2018 2019 2020 2021 2022 2023 2024 2025 2030


CPI index 1.085 1.075 1.080 1.080 1.080 1.080 1.080 1.080



















8

payments will be made during 20 years thereafter. The loan disbursement will take place during 2020-2024, the principal repayments will start from 2025 onwards.

24. The WACC has been computed according to ADB Guidelines based on parameters available on the ADB website (as per 22 October, 2019) for the purposes of discounting cashflows.

25. Following the ADB guidance and data, the ADB loan interest used for the project financial analysis is based on 10-year LIBOR USD swap rate (1.764%) adjusted for the ADB's annual lending spread of 0.50%, maturity premium of 0.20%, and commitment charge of 0.15%.

26. The ADB HLT grant is valued at opportunity cost of capital assumed to be equal to 10-year US treasury bond coupon rate (1.630% as per 5 November, 2019).

27. GOM contribution to the project financing is valued at equity cost which is handled as the opportunity cost of capital. The cost of GOM financing is estimated at the risk-free rate adjusted for additional risk premium. The risk-free rate is 13.910% (the coupon rate of the local currency bond issued in October 2017 and maturing in October 2020); the assumed risk premium of 9.030% reflects a longer period of the BESS project execution and the Mongolian country risk.

28. The corporate tax rate used in the WACC calculation is assumed to be 10%. The inflation rate is assumed to be 1.5% for USD and 8.5% for MNT based on ADB estimates.

29. As can be seen from the following table, under the given assumptions the tax-adjusted project WACC is equal to 4.77% in nominal terms and to 2.30% in real terms.

Table I-4: Weighted Average Cost of Capital

Equity

(GOM

contribution)

Debt

(ADB Loan)

Grant

(ADB HLT)

A. Amount (USD million) 13.816 100.00 3.00 116.82

B. Weightage (%) 11.83 % 85.60 % 2.57 % 100.00 %

C. Nominal cost (%) 22.94 % 2.61 % 1.63 %

D. Tax rate (%) 0.00 % 10.00 % 0.00 %

E. Tax-adjusted nominal cost (%)

[ C x (1-D) ]

22.94 % 2.35 % 1.63 % 4.77 %

F. Inflation rate 8.50 % 1.50 % 1.50 %

G. Real Cost (%)

[ (1+E) / (1+F) - 1]

13.31 % 0.84 % 0.13 %

Weighted Component of WACC

[G x B]

1.574 % 0.719 % 0.003 % 2.30 %


30. A financial cost-benefit analysis of the Project was carried out (with grant financing). The Project has incremental benefits because it will improve stability of the existing national transmission system. Thus, the benefit is applied to the gross electricity volume purchased and delivered by the national power grid. An incremental tariff has been computed based on a full cost recovery principle for the BESS and a needed return on investment under the assumed financing structure.

31. A base case and sensitivity financial analysis was conducted for the Project, that latter to assess the impact of changes in assumptions. The sensitivity analysis included calculation of FNPV switching values2 and FIRR when the key inputs are changed. The results of the base case and

2 Switching value is the change in a parameter which brings NPV to zero and thus shifts the project decision from acceptance to rejection.


9

sensitivity analysis of FIRR for the Project is summarized in Table I-5.

Table I-5: Sensitivity Analysis, Financial Feasibility

Case Switching

value

Sensitivity to input change

Variation FIRR

A. Base Case 3.65 %


CAPEX change 18.34 % +10% 2.88 %

OPEX change 139.28 % +10% 3.55 %



FX change 20.38 % +10% 2.95 %


WACC 2.30 %


32. The analysis shows that the Project is relatively stable if a single key input does not change in adverse direction for more than 10%. When all considered factors are changing adversely and simultaneously for 10%, the Project becomes infeasible. However, such scenario is not very likely in the real-life situation.

33. All key factors except OPEX have a rather similar magnitude of influence on the project feasibility (switching values are close to +/- 20%); the Project is most insensitive to the change in OPEX.

F. Economic Analysis of the Project

34. Economic benefits for the proposed project are comprised of (i) 44 GWh annual saving of high carbon intensive power import from Siberian grid of Russian Federation, with 39,160 tons of annual carbon dioxide equivalent (CO2e) emission reduction,3 and (ii) 300,703 tons of annual thermal coal consumption saving for power generation and 802,879 tons of annual CO2e emission reduction, which are derived from 859 GWh of annual clean electricity supply from additional 350 MW of renewable energy capacity.4 The cost of carbon was set at $36.3 per ton in 2016 prices, with an annual increase of 2%. Since a reducing power import directly benefits to restore reserve margin of transmission capacity, the benefit of power import saving was deemed non-incremental. The benefit of additional renewable energy power supply was also deemed non-incremental. Whereas strong private sector investment appetite in renewable energy in Mongolia, no finance has been secured for the planned coal fired thermal power plants and CHP capacity addition in the

3 Benefit of imported electricity saving is estimated using $0.08 kWh of an import electricity tariff in 2018. A carbon emission factor of 0.89 for imported electricity from the Siberian grid was applied. Imported electricity saving is assumed to directly reduce carbon emissions of the Siberian grid since (i) electricity demand in Siberia, as well as in the Russian Federation as a whole, has been constant between 2007 and 2018 and has yet to reach the demand level recorded in 1991; (ii) the capacity factor of coal-fired power plants is declining, reflecting stagnated demand: from 51% in 1998 to 47% in 2018; (iii) oil and natural gas production in the eastern part of the Russian Federation, which is a major electricity demand driver, is forecast to decrease in the long-term projection toward 2040; and (iv) there are no physical grid interconnections to establish new exports to other countries. Thus, avoided imported electricity from the Siberian grid is not assumed to be replaced by domestic demand or exports to other countries. 4 Economic cost of coal was estimated at $148.34 per ton on a basis of gate price in Tavan Tolgoi coal mine which is major source of thermal coal supply in Mongolia, factoring transportation cost including losses to CHP plants in Ulaanbaatar. A carbon emission factor of 1.26 for wind and solar projects in Mongolia (sourced from Guidelines for Estimating Greenhouse Gas Emissions of Asian Development Bank Project in 2017) was applied.


10

CES so far.5 Thus, additional renewable energy capacity to be supported by the proposed project will also directly benefit to reduce high capacity factor of the existing CHP plants and create generation reserve margin for power supply stability.

35. The economic internal rate of return (EIRR) with environmental benefit for the project is 17.16%, greater than the economic opportunity cost of capital of 9%. The economic net present value is MNT 755,024.91 million. The EIRR without environmental benefit for the project is 4.65%, below the economic opportunity cost of capital of 9%, and the economic net present value is –301,017.83 million. The project involves high environmental benefit by catalysing new renewable energy capacity.

36. A sensitivity analysis for the project with environmental benefit was conducted to assess the impact of changes in assumptions. The sensitivity analysis indicates that the EIRR for the project will decrease to (i) 15.26% if there is a 10% shortfall in economic benefits, (ii) 15.75% if there is a capital cost overrun of 10%, (iii) 16.89% if O&M costs increase by 10%, and the project is economically viable in any adverse condition. The results of the base case and sensitivity analysis of EIRR for the Project is summarized in Table I-6.

Table I-6: Sensitivity Analysis, Economic Feasibility


Base Case 17.16 755,024.91

10% CAPEX Increase 15.69 665,493.03

10% OPEX Increase 16.82 722,381.18





CAPEX = capital expenditures, EIRR = economic internal rate of return, ENPV = economic net present value, MNT

= Mongolian togrog, OPEX = operational expenditures


5 The government plans to add 125 MW capacity for CHP number 3 plant, add 90 MW capacity of CHP number 4 plant, and newly construct 700 MW of Baganuur coal-fired thermal plant by 2023. Considering 4-5 years construction lead time for thermal power plant, given finance is secured within 2020, commercial operation of these planned coal-fired plants would be after 2025.


11

II. INTRODUCTION

37. This report comprises four sections:

• A project financial analysis

• A project economic analysis

• Corporate projections for the implementing agency (NPTG), and

• A financial management assessment of both the executing agency (MoE, PMU) and the implementing agency (NPTG).

III. PROJECT FINANCIAL ASSESSMENT

38. The Project financial evaluation involves identifying project benefits and costs during the years in which they occur and converting all future cash flows into their present value by means of discounting. The analysis generates net present value (NPV) and internal rate of return (IRR) indicators.

39. Financial evaluation assesses the ability of the project to generate adequate incremental cash flows for the recovery of financial costs (capital and recurrent costs) without external support from the point of view of the project owner such as the company who is going to own and operate the newly acquired assets and who will be bearing financial obligations related to the project.

40. The analysis is based on the Guidelines for Financial Management and Analysis of Projects (2005) and Technical Guidance Note on Financial Analysis and Evaluation (2019) by the ADB.

G. Weighted Average Cost of Capital (WACC)

41. The WACC has been computed according to ADB Guidelines based on parameters available on the ADB website (as per 22 October, 2019) for the purposes of discounting cashflows.

42. Following the ADB guidance and data, the ADB loan interest used for the project financial analysis is based on 10-year LIBOR USD swap rate (1.764%) adjusted for the ADB's annual lending spread of 0.50%, maturity premium of 0.20%, and commitment charge of 0.15%.

43. The ADB HLT grant is valued at opportunity cost of capital assumed to be equal to 10-year US treasury bond coupon rate (1.630% as per 5 November, 2019).

44. GOM contribution to the project financing is valued at equity cost which is handled as the opportunity cost of capital. The cost of GOM financing is estimated at the risk-free rate adjusted for additional risk premium. The risk-free rate is 13.910% (the coupon rate of the local currency bond issued in October 2017 and maturing in October 2020); the assumed risk premium of 9.030% reflects a longer period of the BESS project execution and the Mongolian country risk.

45. The corporate tax rate used in the WACC calculation is assumed to be 10%. The inflation rate is assumed to be 1.5% for USD and 8.5% for MNT based on ADB estimates.

46. As can be seen from the following table, under the given assumptions the tax-adjusted project WACC is equal to 4.77% in nominal terms and to 2.30% in real terms.


12

Table III-1: Weighted Average Cost of Capital

Equity

(GOM

contribution)

Debt

(ADB Loan)

Grant

(ADB HLT)

A. Amount (USD million) 13.816 100.00 3.00 116.82

B. Weightage (%) 11.83 % 85.60 % 2.57 % 100.00 %

C. Nominal cost (%) 22.94 % 2.61 % 1.63 %

D. Tax rate (%) 0.00 % 10.00 % 0.00 %

E. Tax-adjusted nominal cost (%)

[ C x (1-D) ]

22.94 % 2.35 % 1.63 % 4.77 %

F. Inflation rate 8.50 % 1.50 % 1.50 %

G. Real Cost (%)

[ (1+E) / (1+F) - 1]

13.31 % 0.84 % 0.13 %

Weighted Component of WACC

[G x B]

1.574 % 0.719 % 0.003 % 2.30 %


H. Financial Benefits

47. There are incremental benefits because the Project will provide with an improved stability of the national transmission system. Thus, the benefit is applied to the gross electricity volume purchased to the national power grid. The incremental tariff is based on the full cost recovery principle for the BESS and a needed return on investments under the assumed financing structure.

I. Financial Cost-Benefit Analysis

48. The financial analysis for the Project is conducted out to 2044 (25 years from the start of the project implementation in 2020). The Project has a residual value at the end of the project life. Financial benefits and costs are expressed in local currency (MNT) at constant prices as per 31 March 2019. Fixed FX rate of 2,507 MNT/USD is used to convert USD-priced items.

49. According to the financial analysis of the Project, the FIRR is found to exceed the WACC discount rate (2.30%).

Table III-2: Financial Analysis Results (million MNT)

Year Capital

Expenditure

Operating

Inflows

Operating

Outflows

(*)

Net Cash

Flow before

tax

Corporate

Tax

Net Cash

Flow after

tax

2020 -75 384 0 -4 068 -79 452 0 -79 452

2021 -151 956 0 -8 841 -160 797 0 -160 797

2022 -5 114 10 583 -5 130 339 0 339

2023 -4 999 11 097 -5 003 1 095 -15 1 080

2024 -1 677 11 635 -4 704 5 254 -85 5 169

2025 0 12 200 -4 468 7 732 -209 7 523

2026 0 12 792 -4 312 8 480 -357 8 123

2027 0 13 413 -4 162 9 252 -590 8 662

2028 0 14 064 -4 016 10 049 -828 9 221


13

Year Capital

Expenditure

Operating

Inflows

Operating

Outflows

(*)

Net Cash

Flow before

tax

Corporate

Tax

Net Cash

Flow after

tax

2029 0 14 747 -3 874 10 873 -1 071 9 802

2030 0 15 463 -3 737 11 726 -1 322 10 405

2031 0 16 213 -3 603 12 610 -1 579 11 031

2032 0 17 001 -3 474 13 526 -1 843 11 683

2033 0 17 826 -3 349 14 476 -2 115 12 361

2034 -49 222 18 691 -5 884 -36 415 -1 572 -37 987

2035 0 19 598 -3 529 16 069 -2 268 13 801

2036 0 20 550 -3 394 17 156 -2 579 14 577

2037 0 21 547 -3 263 18 284 -2 899 15 385

2038 0 22 593 -3 136 19 457 -3 230 16 227

2039 0 23 690 -3 013 20 677 -3 571 17 105

2040 0 24 840 -2 894 21 945 -3 925 18 021

2041 0 26 045 -2 779 23 266 -4 290 18 976

2042 0 27 310 -2 668 24 642 -4 668 19 974

2043 0 28 635 -2 560 26 075 -5 060 21 016

2044 66 305 30 025 -2 455 93 875 -5 466 88 409

Net present value 60 655

FIRR 3.65 %

(*) During the capital expenditure period, includes custom duties


J. Sensitivity Analysis

50. Sensitivity analysis is carried out for investigating the influence of change in key input parameters on the Project feasibility. The sensitivity analysis includes calculation of FNPV switching values6 and FIRR when the key inputs are changed. The results of the sensitivity analysis are presented in the table below.

6 Switching value is the change in a parameter which brings NPV to zero and thus shifts the project decision from acceptance to rejection.


14

Table III-3: Sensitivity Analysis, Financial Feasibility

Case Switching

value

Sensitivity to input change

Variation FIRR

A. Base Case 3.65 %


CAPEX change 18.34 % +10% 2.88 %

OPEX change 139.28 % +10% 3.55 %



FX change 20.38 % +10% 2.95 %


WACC 2.30 %


51. The analysis shows that the Project is relatively stable if a single key input does not change in adverse direction for more than 10%. When all considered factors are changing adversely and simultaneously for 10%, the Project becomes infeasible. However, such scenario is not very likely in the real-life situation.

52. All key factors except OPEX have a rather similar magnitude of influence on the project feasibility (switching values are close to +/- 20%); the Project is most insensitive to the change in OPEX.

IV. PROJECT ECONOMIC ASSESSMENT

K. Economic Costs

53. The economic analysis of the proposed project was conducted in accordance with the Asian Development Bank (ADB) Guidelines for the Economic Analysis of Projects7 for a proposed project life span of 25 years. All prices and costs were expressed in constant 2019 Mongolian togrog (MNT), using domestic price numeraire. The analysis used shadow exchange rate factor of 1.019.8

54. Total project costs were converted into the relevant economic values, excluding taxes and price contingencies, before the respective conversion factors were applied. The economic capital cost of the analysis is comprised of (i) MNT 288,942 million for the BESS and (ii) MNT 929,000 million for 350 MW of additional renewable energy capacity. The economic capital costs of the BESS are costs associated with civil works and installation, equipment and materials, project administration, and consulting services. Economic capital cost for BESS, including project administration and consulting services for capacity strengthening, will occur between 2020 and 2025. The economic capital cost for additional 350 MW renewable energy capacity was assumed using renewable overnight cost forecast between 2015-2025 carried out by International Renewable Energy Agency in 2016.9 The capital cost for additional 350 MW of renewable energy

7 ADB. 2017. Guidelines for the Economic Analysis of Projects. Manila. 8 These conversion factors were consistently used for ADB projects in Mongolia. 9 International Renewable Energy Agency. 2016. The Power to Change: Solar and Wind Cost Reduction Potential to 2025. Abu Dhabi. Analysis assumed 350 MW additional renewable capacity is comprised of 245 MW of solar PV ($193.55 million of capital cost) and 105 MW of onshore wind ($143.85 million of capital cost), using world average overnight cost projection of solar PV ($790 per kW) and onshore wind power ($1,370 per kW).


15

capacity is assumed to occur between 2021 and 2024.

55. Operation and maintenance (O&M) costs, assumed to remain constant in real terms, will occur throughout the project life span of 25 years for the BESS. Annual O&M costs for the BESS comprised of (i) MNT 1,800.18 million for the BESS operation and associated high-medium voltage connection assets, (ii) MNT 8,100.51 million of a charging electricity from the existing wind firm, and (ii) MNT 48,927.06 million of replacement cost for the battery pack, 13 years after full operation.10 Annual O&M costs for additional 350 MW of renewable power was estimated at MNT 35,373.47 million which is 4% of the estimated capital cost for additional renewable energy capacities.

L. Economic Benefits

56. Economic benefits for the proposed project are comprised of (i) 44 GWh annual saving of high carbon intensive power import from Siberian grid of Russian Federation, with 39,160 tons of annual carbon dioxide equivalent (CO2e) emission reduction,11 and (ii) 300,703 tons of annual thermal coal consumption saving for power generation and 802,879 tons of annual CO2e emission reduction, which are derived from 859 GWh of annual clean electricity supply from additional 350 MW of renewable energy capacity.12 The cost of carbon was set at $36.3 per ton in 2016 prices, with an annual increase of 2%. Since a reducing power import directly benefits to restore reserve margin of transmission capacity, the benefit of power import saving was deemed non-incremental. The benefit of additional renewable energy power supply was also deemed non-incremental. Whereas strong private sector investment appetite in renewable energy in Mongolia, no finance has been secured for the planned coal fired thermal power plants and CHP capacity addition in the CES so far.13 Thus, additional renewable energy capacity to be supported by the proposed project will also directly benefit to reduce high capacity factor of the existing CHP plants and create generation reserve margin for power supply stability.

M. Economic Cost-Benefit Analysis

57. The economic internal rate of return (EIRR) with environmental benefit for the project is 17.16%, greater than the economic opportunity cost of capital of 9%. The economic net present value is MNT 755,024.91 million. The EIRR without environmental benefit for the project is 4.65%, below the economic opportunity cost of capital of 9%, and the economic net present value is –301,017.83 million (Table IV-1). The project involves high environmental benefit by catalysing new renewable energy capacity. Annual economic benefit and cost flow are detailed in Table IV-1.

10 MNT 167.37 per kWh (or $0.061 per kWh) of Economic cost of charging electricity from the existing wind power plants is the estimated cost of onshore wind power supply in Mongolia, on a basis of 41% of actual wind power capacity factor in 2018. Since actual capital investment cost and O&M cost are not publicly available, the analysis used $1,560 per kW of global average overnight cost in 2015 for capital cost and $9.36 million or 4% of capital cost of O&M. 10.4% of discount rate was used, which is private sector weighted average cost of capital for wind power development in Mongolia estimated by United Nations Development Program in 2013. 11 Benefit of imported electricity saving is estimated using $0.08 kWh of an import electricity tariff in 2018. A carbon emission factor of 0.89 for imported electricity from the Siberian grid was applied. Imported electricity saving is assumed to directly reduce carbon emissions of the Siberian grid since (i) electricity demand in Siberia, as well as in the Russian Federation as a whole, has been constant between 2007 and 2018 and has yet to reach the demand level recorded in 1991; (ii) the capacity factor of coal-fired power plants is declining, reflecting stagnated demand: from 51% in 1998 to 47% in 2018; (iii) oil and natural gas production in the eastern part of the Russian Federation, which is a major electricity demand driver, is forecast to decrease in the long-term projection toward 2040; and (iv) there are no physical grid interconnections to establish new exports to other countries. Thus, avoided imported electricity from the Siberian grid is not assumed to be replaced by domestic demand or exports to other countries. 12 Economic cost of coal was estimated at $148.34 per ton on a basis of gate price in Tavan Tolgoi coal mine which is major source of thermal coal supply in Mongolia, factoring transportation cost including losses to CHP plants in Ulaanbaatar. A carbon emission factor of 1.26 for wind and solar projects in Mongolia (sourced from Guidelines for Estimating Greenhouse Gas Emissions of Asian Development Bank Project in 2017) was applied. 13 The government plans to add 125 MW capacity for CHP number 3 plant, add 90 MW capacity of CHP number 4 plant, and newly construct 700 MW of Baganuur coal-fired thermal plant by 2023. Considering 4-5 years construction lead time for thermal power plant, given finance is secured within 2020, commercial operation of these planned coal-fired plants would be after 2025.


16

Table IV-1: Sensitivity Analysis, Financial Feasibility

Total Economic

Cost BESS Capital &

O&M costs

New RE Capital & O&M costs

Total Economic Benefit

Import Saving with carbon reduction

New RE Coal Consumption & Carbon Saving

Net Benefit

Net Benefit (Without

Environmental

Benefit)

2020 187 428.93 187 428.93 0.00 0.00 0.00 0.00 -187 428.93 -187 428.93

2021 336 263.09 76 143.00 260 120.09 0.00 0.00 0.00 -336 263.09 -336 263.09

2022 344 574.26 27 599.36 316 974.91 88 696.60 13 826.43 74 870.16 -255 877.66 -297 586.32

2023 273 731.31 18 813.62 254 917.68 127 338.86 13 914.59 113 424.27 -146 392.45 -207 958.72

2024 174 974.12 12 956.47 162 017.65 204 947.30 14 004.51 190 942.80 29 973.18 -71 632.23

2025 47 187.91 10 027.89 37 160.01 245 556.05 14 096.22 231 459.82 198 368.14 74 938.64

2026 47 187.91 10 027.89 37 160.01 286 997.12 14 189.78 272 807.34 239 809.21 93 723.29

2027 47 187.91 10 027.89 37 160.01 289 918.83 14 285.20 275 633.64 242 730.93 93 723.29

2028 47 187.91 10 027.89 37 160.01 292 898.99 14 382.53 278 516.46 245 711.08 93 723.29

2029 47 187.91 10 027.89 37 160.01 295 938.74 14 481.81 281 456.94 248 750.84 93 723.29

2030 47 187.91 10 027.89 37 160.01 299 039.29 14 583.07 284 456.22 251 851.39 93 723.29

2031 47 187.91 10 027.89 37 160.01 302 201.86 14 686.36 287 515.50 255 013.95 93 723.29

2032 47 187.91 10 027.89 37 160.01 305 427.67 14 791.71 290 635.96 258 239.76 93 723.29

2033 47 187.91 10 027.89 37 160.01 308 718.00 14 899.18 293 818.82 261 530.09 93 723.29

2034 96 114.96 58 954.95 37 160.01 312 074.14 15 008.79 297 065.35 215 959.18 44 796.23

2035 47 187.91 10 027.89 37 160.01 315 497.39 15 120.59 300 376.80 268 309.49 93 723.29

2036 47 187.91 10 027.89 37 160.01 318 989.12 15 234.63 303 754.49 271 801.21 93 723.29

2037 47 187.91 10 027.89 37 160.01 322 550.68 15 350.95 307 199.73 275 362.77 93 723.29

2045 47 187.91 10 027.89 37 160.01 353 730.80 16 369.28 337 361.51 306 542.89 93 723.29

2046 47 187.91 10 027.89 37 160.01 357 987.19 16 508.30 341 478.89 310 799.29 93 723.29

EIRR (with Environment Benefit) 17.16 % EIRR (without Environment Benefit) 4.65 %

ENPV (With Environment Benefit) 755 024.91 ENPV (without Environment Benefit) -301 017.83



17

N. EIRR Sensitivity Analysis

58. A sensitivity analysis for the project with environmental benefit was conducted to assess the impact of changes in assumptions. The sensitivity analysis indicates that the EIRR for the project will decrease to (i) 15.26% if there is a 10% shortfall in economic benefits, (ii) 15.75% if there is a capital cost overrun of 10%, (iii) 16.89% if O&M costs increase by 10%, and the project is economically viable in any adverse condition.

Table IV-2: Sensitivity Analysis, Economic Feasibility


Base Case 17.16 755,024.91

10% CAPEX Increase 15.69 665,493.03

10% OPEX Increase 16.82 722,381.18





CAPEX = capital expenditures, EIRR = economic internal rate of return, ENPV = economic net present value, MNT = Mongolian togrog, OPEX = operational expenditures Source: Asian Development Bank estimates.


18

V. CORPORATE FINANCIAL ANALYSIS

O. Historical Financial Performance of NPTG

59. An assessment of National Power Transmission Grid (NPTG) financial statements for the last 5 years (2014-2018) was conducted in accordance with relevant ADB's guidelines and methodologies14.

60. By the end of 2018, total assets of NPTG amounted to MNT 407 billion (154 MUSD), 93% of which consisted of the company’s fixed assets. Importance of the long-term debt was decreasing from 8% of the total capital in 2014 to only 4% in 2018. Since 2015, the company has received assets (mainly power lines and substations) from the Government of Mongolia (GOM); investments were made by GOM and paid from the State budget and the assets are not in full operation yet. These state investments, transferred to NPTG, increased the amount of deferred income in the company’s balance sheet, and its share in the total book value increased from 7.5% in 2015 to 19.7% in 2018. The State equity (MNT 238 billion (90 MUSD) in 2018) was almost unchanged during 2014-2018, with a slight increase (of 4.4%) in 2017.

61. In 2017, Oyu Tolgoi LLC Mining Company signed a power purchase agreement (PPA) with NPTG, according to which NPTG is importing power from China’s Inner Mongolia on behalf of the mining company. This arrangement took effect on 4 July, 2017 for a term of up to six years, with a possibility of an early cancellation after the fourth year if a domestic power plant is commissioned earlier. In NPTG’s Income Statement, the PPA related cost and revenues (amounting to 292 million MNT (111 MUSD) in 2018) are included in the total Sales Revenues and total Costs of Goods Sold (COGS) and fully offset each other (according to available statistics, NPTG does not charge any margin for this service). Because of the offsetting effect and the non-recurrent nature of these items, the PPA revenues and COGS have been excluded from the analysis of NPTG’s historical performance and the corporate projections because they would lead to a bias in the financial performance ratios that concern revenues and COGS.

62. In 2014-2018, the gross profit margin (adjusted by depreciation expenses which are otherwise included in COGS) was relatively stable varying between 38 – 51%. EBITDA decreased from 27.7% in 2015, the maximum level during 2014-2018, to only 9.3% in 2018. The significant drop in EBITDA in 2018 was mainly caused by a sharp increase in general expenses related to obligatory increase of salaries and related payments. Due to high depreciation expenses, the company’s EBIT was mostly negative, reaching its maximum of 2.2% in 2015 and dropping to as much as -21.9% in 2018. The net profit margin improved from -8.8% in 2014 to 3.5% in 2015, then fluctuated around 0% during 2016-2018. The zero margin of 2018 was achieved mainly due to the non-operating income and interest payments received.

63. NPTG has received no state subsidies after 2014. The Energy Regulatory Commission (ERC) defines an annual payment to NPTG for its transmission services (a revenue cap regulation). NPTG’s transmission tariff rate is calculated by dividing the annual payment by the expected electricity delivered to the distribution companies.

64. During the period 2014 – 2018

• NPTG had negative annual total cash flows in 2014 and 2017. In 2014 this was caused by relatively high investment outflows, and in 2017 it was mainly due to negative cash flow from operations caused by high payments to tax authorities and unidentified other cash expenditures.

• The company’s liquidity was at a very good level, with an average current ratio of 3.5. However, after reaching a maximum of 5.5 in 2016, it decreased to only 1.8 in 2018.

• The cash operating ratio was at a healthy level of ca. 1.3 on average, declining to 1.1 in

14 Financial Management and Analysis of Projects(ADB, 2005), Methodology Note on Financial Due Diligence (ADB, 2009), Technical Guidance Note on Financial Analysis and Evaluation (ADB, 2019)


19

2018.

• The share of long-term debt in the total book value was in average 6%, allowing the company’s debt service coverage ratio to stay at a good level between 2.0 in 2014 and 18.9 in 2018.

65. Major historical financial performance indicators of NPTG have been estimated based on NPTG’s audited financial statements.

Table V-1: Historical Financial Performance of NPTG, billion MNT

Item 2014 2015 2016 2017 2018

Income Statement

Revenue and gains 27.62 33.86 41.05 45.57 56.55

Expenses and losses 30.01 32.71 41.28 45.53 56.55

Net income -2.39 1.16 -0.22 0.03 0.00

Cash Flow Statement

From operating activities 3.06 11.21 3.82 -2.99 5.30

From investing activities -3.32 -3.12 -1.85 -1.80 -2.13

Equity financing 0.00 0.00 0.00 0.00 0.00

Other financing activities -0.91 -2.23 -0.57 -0.18 -0.20

Ending cash balances 0.80 6.66 8.05 3.08 6.06

Balance Sheet

Total current asset 8.93 12.13 14.30 15.18 28.06

Total fixed assets 280.87 298.87 292.60 320.99 378.73

Total ST debt 1.63 0.00 1.35 1.44 14.00

Other current liabilities 2.84 2.89 1.23 2.47 1.36

Total LT debt 23.23 21.64 18.84 17.96 16.50

Other non-current liabilities 0.16 23.40 22.98 52.59 80.44

Equities 261.94 263.07 262.51 261.71 294.48

Financial Ratios

EBITDA 0.23 0.28 0.25 0.20 0.09

EBIT -0.08 0.02 -0.06 -0.12 -0.22

Net profit margin -0.09 0.03 -0.01 0.00 0.00

Current ratio 2.00 4.20 5.54 3.88 1.83

Cash operating ratio 1.30 1.38 1.32 1.24 1.10

Long-term loans to Total Capital

0.08 0.07 0.06 0.05 0.04

Long-term loans to Equity 0.09 0.08 0.07 0.07 0.06

Self-financing ratio 0.92 3.41 1.93 -1.18 2.22

Debt service coverage ratio 2.02 3.96 17.71 38.98 18.94


P. Corporate Financial Projections

66. Financial projections have been prepared for NPTG for the period 2019 to 2030, including balance sheet, income statement, cash flow statement and financial ratios. In addition, projections of the NPTG tariff and end-user tariffs have made for the same period.

67. According to ADB guidelines, the financial projections are to be made in nominal prices expressed in MNT, and to be based on international and local price escalation factors provided by ADB. The projections are based on an exchange rate of MNT 2,507 to $1.00 in 2019, developed according to purchasing power parity theory until 2030.


20

Table V-2 Price Escalation Factors for NPTG Corporate Projections

Item 2019 2020 2021 2022 2023

& onwards

Foreign inflation 1.5% 1.5% 1.6% 1.6% 1.6%

Local inflation 8.5% 7,5% 8.0% 8.0% 8.0%

Source: Asian Development Bank

68. The corporate financial projections for NPTG have been modelled according to the target objectives of the State Policy on Energy 2015–2030, i.e. a) net profit margin to be at least zero by 2023 and b) net profit margin to be 5% by 2030. The revenue and COGS related to the PPA agreement between NPTG and Oyu Tolgoi LLC Mining Company has been excluded. No state subsidies or other governmental support to NPTG has been included.

69. A full cost-recovery tariff for NPTG has been modelled treating the BESS as a ‘smart’ transmission asset included in the total NPTG’s regulated asset base (RAB). The incremental tariff associated to BESS was computed in the BESS project financial analysis and converted to nominal terms according to assumed local inflation. This incremental tariff is included in the modelled NPTG’s tariff for electricity transmission services.

Q. BESS Investment & Financing Parameters

70. The BESS comprises a 125 MW / 160 MWh battery facility and associated 220 kV / 34.5 kV connection assets. The BESS project is expected to start in 2020 and construction to be fully completed by the end of 2021. The BESS facilities will operate at full capacity by start of 2022.

71. Capital investment in the BESS facilities will be financed mainly with the ADB loan which will also cover associated contingencies, interest during construction and commitment fee costs. The estimated ADB loan amounts to 100 MUSD. In addition, ADB HLT grant of 3 MUSD will be used for financing the project base cost. The financial contribution of the Government of Mongolia will cover associated tax costs of 13.82 MUSD. The total project costs are 116.82 MUSD.

72. The ADB loan will be issued in US dollars and will have a 5-year grace period; the principal payments will be made during 20 years thereafter. The loan disbursement will take place during 2020-2024, the principal repayments will start from 2025 onwards.

73. The capital investment and financing plan by funding source is given by Table V-3 below.


21

Table V-3: BESS Investment & Financing Plan

($ million)

Item Amount

% of Cost

Category Amount

% of Cost

Category Amount

% of Cost

Category Total cost

Taxes and

duties

A. Base Costs

1 Turn key contract 78.29 96.9% 2.50 3.09 % 0 % 80.79 11.71

a Engineering & Design 3.12 96.1% 0.13 3.85 % 0 % 3.24 0.48

b Equipment & Materials 64.71 96.8% 2.13 3.2% 0 % 66.83 9.99

c Construction Works 7.96 97.0% 0.25 3.0% 0 % 8.21 1.23

d Environmental and social impact mitigation 0.07 100.0% - 0.0% 0 % 0.07 0.01

e O&M Services 2.43 100.0% - 0.0% 0 % 2.43 0.24

2 Implementation Consultant 1.48 74.8% 0.50 25.2% 0 % 1.98 0.20

3 Project Administration 1.36 100.0% - 0 % 0 % 1.36 0.14

4 Taxes and dutiesa - 0.00 % 12.29 100.0% 12.29 12.29

Subtotal (A)b

81.13 84.1% 3.00 3.1% 12.29 12.7% 96.42 12.29

B. Contingenciesc

1 Physical 6.15 87.25 % - 0.00 % 0.90 12.75 % 7.05

2 Price 4.31 87.24 % - 0.00 % 0.63 12.76 % 4.94

Subtotal (B) 10.45 87.25 % - 0.00 % 1.53 12.75 % 11.98

C. Financing Charges During Implementationd

1 Interest During Construction 7.53 100.00 % - 0.00 % - 0.00 % 7.53

2 Commitment Charges 0.89 100.00 % - 0.00 % - 0.00 % 0.89

Subtotal (C) 8.42 100.00 % - 0.00 % - 0.00 % 8.42

Total Project Cost (A+B+C) 100.00 85.60 % 3.00 2.57 % 13.82 11.83 % 116.82

a Includes taxes and duties of $12.3m to be financed by the GoM

b In 1st qtr-2019 prices as at 31 Mar 2019

Source: Consultant, ADB estimates

ADB Loan GovernmentADB (Grant)

c Physical contingencies computed at 7.3% of base costs. The Government will finance taxes on the base costs and on the assocaited base cost contingencies.

Price contingencies reflect inflation expectations; includes a provision for potential exchange rate fluctuation under the assumption of a purchasing power parity

exchange rate.

d Includes interest charges. Interest during construction for the ADB loan has been computed at an effective 5-year USD Libor fixed swap rate of 1.625% plus

maturity premium of 0.1% and an effective contractual spread of 0.5%.

First Utility Scale Energy Storage Project In Mongolia Project Finance & Economics

22

74. For the purpose of making financial projections

• The capital investment includes physical and price contingencies. It is assumed that the BESS equipment will be VAT exempt, i.e. no VAT-payment related cash flows will occur.

• Capital investments associated with existing aged facilities are based on the NPTG’s financial statements for 2014-2018; projections take into consideration the local inflation.

• According to ADB guidelines on financial evaluations, the ADB loan interest is built upon the 10-year LIBOR swap rate (1.764%)15 adjusted for ADB's annual lending spread of 0.50% and maturity premium of 0.20% (for loans with tenor of more than 16 years) which totals to 2.464%. Commitment fee is 0.15%. The capitalized interest during construction is based on 5-year LIBOR rate, maturity premium of 0.1%, and the above-mentioned contractual spread and totals to 2.225%.

• Repayment period and interest rate for existing long-term loans were evaluated based on loan information received from NPTG.

• The modelled operating income of NPTG consists of the income from providing the electricity transmission services, and a minor rental income which was included in the projections because of its recurrent character.

• No non-operational incomes or losses were considered in the corporate projections except foreign currency translation difference born by the change of the anticipated ADB debt outstanding volumes. In case of lack of cash for operations, the deficit is assumed to be covered with short term loans (cash overdrafts) repaid during the same year. No interest is assumed to be paid on cash deposits.

• Depreciation of NPTG’s assets is based on the straight-line depreciation method and is done separately for the existing assets and the new assets coming both as business-as-usual capital investment and the BESS project investments.

• Annual operation expenditure of the BESS facilities is assumed to be 1.5% of the total CAPEX less costs associated with the project management and O&M LTSA; operation expenditure for the business-as-usual operations is based on NPTG’s historical financial data. For all assets, OPEX takes into consideration the local inflation. Annual operation expenditure includes annual fixed costs, including personnel, insurance, external services, general maintenance, spare parts, consumables, supplies, and property taxes on existing assets. New assets’ property tax and relevant customs duties on the new equipment acquired during the implementation of the considered investment programme are calculated separately.

• NPTG’s net income up to MNT 3 billion is subject to corporate taxes of 10%, the excess is taxed at 25%. In case of losses, the company’s taxation model takes into consideration losses carried forward (2 years are allowed, with a maximum of 50% of taxable income in a given year to be used for losses write-downs).

15 ADB data as per 22 October, 2019


23

R. Financial Projections for NPTG

75. Financial projections are given by the following table.

Table V-4: Financial Projections for NPTG


76. Table V-5 provides a comparison of the computed NPTG tariff and an estimate of the total end-user tariff (the average retail tariff). In this comparison, the NPTG tariff has been modelled according to the net profit margin targets, whereas the tariffs of the generation and distribution companies have simply been increased over time by the estimated local inflation rate.

billion MNT

Item 2019 2020 2021 2022 2023 2024 2025 2030

Income Statement



Net income -7.24 -6.96 -13.34 -4.48 0.11 -0.81 -5.84 11.59

Cash Flow Statement






Balance Sheet



Total ST debt 0.92 0.92 0.92 0.92 0.92 17.87 18.93 25.37


Total LT debt 15.11 84.66 263.75 291.12 321.31 332.59 333.95 322.95


Equities 364.94 363.66 348.03 341.04 338.64 335.32 326.97 335.51

Financial Ratios

EBITDA 0.09 0.12 0.11 0.32 0.34 0.34 0.34 0.31

EBIT -0.16 -0.11 -0.14 0.11 0.16 0.17 0.19 0.21


Current ratio 1.76 2.13 2.70 5.42 8.66 4.76 4.96 5.95






Forecast


24

Table V-5: Preliminary Projected Tariff for NPTG / End-User Tariff in CES

Notes: all tariffs are shown free of VAT

kWh = kilowatt hour, MNT = Mongolian tugrik Source: ADB Consultant’s estimates

77. During 2022-2030, the average share of the incremental tariff associated with BESS in the total NPTG tariff would be 16.5% (increasing from 14.4% in 2022 to 19.3% in 2030). As it can be seen from the above projections, although the NPTG tariff with BESS is significantly higher than the case without the BESS, its overall influence on the end-user tariff is minor because the retail tariff is dominated by the prices charged by the electricity generation companies. The average difference in end-user tariff, that would be felt by customers over the longer term (2022-2030), is less than 1.55%.


2018 2019 2020 2021 2022 2023 2024 2025 2030


CPI index 1.085 1.075 1.080 1.080 1.080 1.080 1.080 1.080



















25

VI. FINANCIAL MANAGEMENT ASSESSMENT

78. The FMA reviewed the capacity of NPTG SOJSC and MOE in terms of their systems and procedures including planning and budgeting, accounting, internal control, financial reporting, internal audit, and external auditing. On this basis, recommendations were made to address identified deficiencies. The FMA also considered the funds flow arrangements and disbursement procedure proposed for the project. The FMA was carried out in June - September, 2019 with reference to the relevant ADB’s guidance on FMAs.16 The assessment was carried out based on the responses to the FMA questionnaire. Other supporting materials such as NPTG’s financial statements for 2014-2018, external auditor reports for 2016-2018, organizational charts and curriculum vitae of key personnel were reviewed during the preparation of this FMA.

S. Brief Project Description

79. The BESS facility is a ‘smart’ transmission asset which would enable a more efficient use of local renewable energy resources and improve reliability and efficiency of the national electricity network.

80. The planned project comprises a 125 MW / 160 MWh battery facility and associated 220 kV / 34.5 kV connection assets. The project is expected to start in 2020 and construction to be fully completed by the end of 2021. The BESS facility will operate at full capacity by start of 2022.

81. NPTG will be the owner of the BESS facility and the Implementing Agency for the project.

T. Country Financial Management Issues

82. The following risks related to public financial management (PFM) can be identified based on the ADB’s 2017–2020 Country Partnership Strategy (CPS) for Mongolia17:

83. Inherent volatility of the mining sector and its impact on macroeconomic stability. According to the CPS, this risk has already materialized. The IMF program will largely address fiscal and macroeconomic stability, to which ADB will contribute through policy-based lending (PBL) and Technical Assistance projects.

84. Governance risk related to financial management. One of the reasons for this is a frequent change in government structure and staffing. ADB will continue to address this risk with project administration and capacity building of key governmental agencies.

85. PFM influenced by political factors. In recent years, political factors have driven large capital expenditures off-budget in avoidance of normal budgetary approval processes, resulting in significant fiscal pressures and weak financial supervision. Balance of payments pressures persist in the context of currency depreciation, reserves depletion, and meagre FDI inflows.

86. Slow progress on key structural reforms. There is a large unfinished structural reform agenda. Mongolia’s failure to put in place an effective prudential supervisory framework of the banking system to ensure adequate capitalization and timely resolution of nonperforming loans by banks is particularly problematic. Further, establishing a sovereign wealth fund could help the country to better manage the benefits of its natural resource development and avoid the recurring boom-and-bust cycles. Poor governance and inefficient tax system constrain private business activities.

87. Weak budget planning and execution. The Government of Mongolia’s budgetary planning

16 ADB. 2015. Financial Management Technical Guidance Note-Financial Management Assessment. Manila and ADB. 2009. Financial Due Diligence a Methodology Note. Manila.

17 ADB.2017. Country Partnership Strategy: Mongolia, 2017–2020. Manila. ADB.2017. Inclusive and Sustainable Growth Assessment: Mongolia 2017-2020. Manila.


26

and implementation framework is weak. The initial budget formulation approved by parliament typically lacks credibility and does not provide the basis for sound fiscal management, including the efficient delivery of goods and services by line agencies. Revenue forecasts tend to be overly optimistic, resulting in frequent budget amendments during the year and persistent breaches of fiscal consolidation targets. Efforts to control expenditures and make fiscal policy more resilient to economic fluctuations have been undermined by off-budget spending. For example, the Fiscal Stability Law that went into effect in 2013 has been amended several times to accommodate higher-than-budgeted fiscal deficits and external debt levels. Wide-ranging reforms and institutional strengthening are needed across the broad spectrum of Mongolia’s budgetary process to bring discipline to fiscal policy.

88. Undermined public debt sustainability. Worsening external environment (reduction of FDI, falling commodity prices, and growth moderation in China) has undermined Mongolia’s macroeconomic stability, with the balance of payments coming under pressure, public finances deteriorating, and external debt repayments due in 2017–2018 in excess of $1.2 billion. This worsens fiscal position and rises off-budget borrowing on commercial terms. Rapid credit growth during the mining boom years (2011-2015), dollarization, weak financial supervision, and inadequate provisioning have strained banks and financial stability.

89. The focus of ADB’s County Partnership Strategy, 2017-2020 is to help the Government of Mongolia restore macroeconomic stability and get back on a path of fulfilling its long-term development vision. One of ADB’s core targets for this period is to support ensuring the stability of the country’s financial sector and making social welfare programs more cost effective and fiscally sustainable. ADB will continue to focus its operations on the government’s high-priority areas and complex projects that require significant technical expertise. It will also be proactive in exploring the use of the range of available financing modalities, particularly policy-based lending (PBL), to fully program available resources and achieve targeted outcomes given current government fiscal constraints.

90. ADB will give greater emphasis to the government’s capacity to finance operation and maintenance and other recurrent costs in designing new projects to enhance financial sustainability. ADB will make efforts for improving the transparency and accountability of the management systems of the public sector to help ensure that the financial resources of both ADB and the government are used appropriately and effectively. In addition, it will continue to develop the prudential capacity of the Bank of Mongolia and Financial Regulatory Commission to effectively supervise the financial system.

91. Mongolia’s extensive social protection system has played an important role in fostering and safeguarding the country’s gains in poverty reduction and human development. ADB will use PBL to support further reform of the social welfare system and enhance its fiscal sustainability and effectiveness, particularly, policy actions that consolidate programs to reduce administration and implementation costs.

92. It is expected that implementation of the IMF program (initially developed in 2015), which aims at stabilizing the economy, restoring debt sustainability, and improving fiscal and monetary management, will boost growth in the medium term. ADB’s approach allows to quickly respond with PBL to evolving country circumstances under this program and to support further reform of social protection programs and address systemic risks in the financial system for restoring the country’s macroeconomic stability.

93. In 2015, the World Bank carried out the Public Expenditure and Financial Accountability (PEFA) assessment to establish a baseline measure of current PFM and to assess its strength and weakness. 18 It was undertaken on six core dimensions together with 28 indicators measuring performance of the country’s PFM system.

94. Major findings are summarized as follows.

18 World Bank. 2015. Mongolia–Public Financial Management Performance Report. Report Number 96546. No newer updates are available.


27

1. Budget planning. The annual budget preparation process is well-regulated in accordance with the Fiscal Stability Law (2010) and the Integrated Budget Law (2011). But the state budget faced annual deviations between planned and actual expenditures which were annually over by 15% during 2011–2013. Mid-year amendments to the budget were therefore required every year. This is mainly due to the structural volatility in the economy since the state budget is heavily dependent upon mineral resource revenue, which makes revenue projections and budget planning difficult. There is also a political imperative to expand budget forecast which leads to overoptimistic estimates of key macroeconomic parameters. Ministry of Finance (MOF) was reported to be in the process of improving revenue projections.

2. Budget transparency and comprehensiveness. Mongolia has, following the adoption of the Integrated Budget Law in 2011, made good progress in increasing the comprehensiveness of information included in the budget and in the public disclosure of information. There had been a concern over an increase in off-budget financing through the Development Bank of Mongolia (DBM) since 2013, but this off-budget financing was integrated into the state budget in 2015 when projects and programs financed by DBM started to be approved as a component within the frames of the Law on Budget. Oversight of fiscal risks of state-owned enterprises was assessed to be limited due to a lack of risk-related reporting within the compulsory set of financial information. Also, during the budget preparation, ministries do not abide by the ceilings set in the Medium-Term Fiscal Framework (MTFF) and the budget circular which hampers prioritization of spending.

3. Predictability and control of budget execution. Cash management was reported to be weak and largely based on expenditure controls and cash rationing with MOF changing monthly budget allotments regularly and with little advance notice. A major weakness determined is that the government’s incurrence of debt and issuance of guarantees are approved by the Ministry of Economic Development (MED) and MOF respectively without a unified overview mechanism. Also, budgeting for investment and recurrent expenditure are two separate processes with the former the responsibility of the MED and the latter the responsibility of the MOF. The weak co-ordination between MED and MOF compromises the strategic allocation of resources. Good progress has been made in the functioning of the treasury single account and the expenditure limits exercised through the Government Financial Management Information System. The internal audit function, which was set up only in 2012, has progressed well with full time auditors in the government agencies. The weaknesses might be explained by a relative newness of the internal audit function as many of the newly created audit units do not yet consistently meet professional standards (e.g. related to independence, proficiency, quality assurance, risk management, and management response follow-up).

4. Accounting, recording and reporting. Accounting, recording, and reporting practices are generally strong. MOF regulation does not allow suspense accounts, and MOF regularly reviews budget entities’ chart of accounts. Advance accounts are reviewed semi-annually to ensure compliance with policy and contract requirements for clearance. In-year budget execution reports are legal requirements and prepared on a monthly and quarterly basis, and show actual expenditures and revenues compared with the approved budget. Data from budget entities is reconciled monthly with the Government Financial Management Information System, and the magnitude of errors is considered small. The budget entities are required to prepare financial statements twice yearly on full accrual basis and in line with the International Public Sector Accounting Standards. However, by the time of the WB report preparation it was admitted that implementation of accrual accounting in the public sector was not yet complete.

5. External scrutiny and audit. The parliament exercises considerable authority over budget supervision. All government entities are audited annually by the National Audit Office (NAO) and a full range of financial audits and some aspects of performance audit are carried out. NAO follows the International Standards on Auditing, and audit reports are regularly submitted to the Parliament in a timely manner and with clear evidence of follow-up on earlier NAO


28

recommendations, but the parliament pays less attention to external audit reports which weakens accountability.

95. The PEFA assessed that the country’s PFM system is overall reasonably well-functioning, especially regarding comprehensiveness and transparency of information, accounting and financial reporting, and external scrutiny. A Right to Information Act (2012) was also expected to institutionalize citizen participation for greater budget transparency.

96. However, the PEFA also observed weaknesses in fiscal discipline, strategic allocation of resources, and efficient service delivery which are directly associated with low predictability of state revenues. It also noted an implementation gap between the existing laws in PFM and the capacity of the key agencies to implement these laws.

U. Financial Management System of National Power Transmission Grid (NPTG)

i. Organization and Staff Capacity

97. NPTG is a fully state-owned company with the following ownership structure: 70% of shares are owned by the Ministry of Energy, 30% of shares are owned by the State Agency for Policy Coordination on State Property (former State property committee). The main objective of the company is to provide reliable electricity transmission on the territory of Mongolia and to have profitable operations. Reorganization and liquidation of the company is governed by the Civil Code and other related laws of Mongolia.

98. NPTG is supervised and monitored by the Ministry of Energy, Ministry of Finance, Agency for Policy Coordination on State Property, Energy Regulatory Commission, and General Department of Taxation.

99. The statutory reporting requirements followed by NPTG include the following: a. Financial statements are required to be prepared and submitted to the

i. Ministry of Finance ii. Ministry of Energy iii. Energy regulatory Commission, iv. Agency for Policy Coordination on State Property

b. Quarterly tax reports are submitted to the Tax Authority

c. NPTG reports on fulfilment of License obligations and requirements to the Regulator

(ERC)

100. The NPTG’s supreme power is the Shareholders’ Meeting, and the Board of Directors. The Board of Directors chairs the Directors Council, and the executive director affiliates under the Directors’ Council.

101. Key management personnel of the company consist of Executive Director, Chief Deputy Director / Chief Engineer, and Deputy Director for Social and Economic Affairs. The company has competent key personnel, most of them are holders of university degrees and they all possess solid experience in the areas of their expertise.

ii. Information Management

102. The NPTG’s financial accounting IT platform was purchased off-the-shelf and customized to the company’s needs. It is a standalone system which is not used by other departments in the headquarters and field units. While customization of the system allows for needed flexibility and fulfilment of the company’s reporting needs including automatic generation of financial data related to projects, absence of a company-wide IT platform may lead to lost or incomplete data when aggregating the financial accounting data on the company level.

103. There are no specific regulations regarding the data back-up procedures inside NPTG. Financial data is automatically saved in the National Data Centre. In case NPTG wants to have own


29

back-up files, they have to be saved on hard drives. While having automatic back up of data outside NPTG premises in a reliable storage allows to avoid some risks of losing or damaging data kept on NPTG servers, efficiency of back-up data restoration on NPTG computers needs to be clarified, and necessary procedures (contingency plans) should be developed.

iii. Budgeting and Funds Flow Arrangements

104. The company’s budget system allows adequate monitoring of the companies’ performance. Significant variations against the budget require explanation.

105. Proposed budget is reviewed and approved by the Board of Directors, Ministry of Energy and the Agency for Policy Coordination on State Property. The budget is developed according to the effective laws of Mongolia, decrees and orders of relevant state organizations, and internal rules of the company.

106. The company makes significant efforts to achieve realistic project plans and budgets; the plans and budgets and based on valid assumptions and developed by knowledgeable individuals. Finance and Economic Department performs variance analysis (budget vs. actuals); significant variations require explanations. Approval of the budget variations is done in advance. Minor revisions of fund releases against allocations are allowed.

107. For the project purposes, a loan fund will be arranged at the Ministry level, PMU will manage money consumption, and the loan payment and project property will be under NPTG’s responsibility.

iv. Effectiveness

108. As a fully state-owned company, NPTG should comply with the country’s the public financial management system requirements.

109. The company is responsible for preparing and reporting annual financial statements and disclosures in accordance with the provisions of the Accounting Law and in accordance with procedures and instructions approved by the Minister of Finance in conformity with IAS, IFRSs and other applicable standards. NPTG’s Accounting Policy was developed with support from the Energy Regulatory Commission (ERC).

110. External auditors shall conduct their audits in accordance with International Standards on Auditing and Financial Audit Guideline approved by General Auditor of Mongolia in conformity with the International Standards on Auditing.

v. Accountability Measures

111. NPTG’s Accounting Policy is approved and amended only by the Ministry of Finance.

112. The company’s financial reports are annually revised by independent external auditors which are annually assigned by the National Audit Office (NAO).

113. The external auditor expresses his opinion on the company's financial documentation and gives recommendation to the NAO who then provides with the final opinion. The external audit is carried out in accordance with International Standards for Auditing.

114. The company’s proposed budget is reviewed by the Ministry of Energy and the Agency for Policy Coordination on State Property. The transmission tariff is regulated and approved by ERC; NPTG can submit tariff increase proposals to ERC.

vi. Strengths

115. NPTG’s relative strengths in financial management are as follows:

• Well-qualified and experienced finance and accounting professionals in key positions;


30

• Low personnel turnover in the financial and economic functions of the company which ensures sustainability of operations and knowledge transfer;

• Well documented and up-to-date financial management, cash management and accounting processes, procedures and systems;

• Compliance with IFRS;

• No material external audit qualifications in recent years

vii. Weaknesses

116. NPTG’s major weaknesses are as follows:

• No policy and routines for FX risk management. As a 100% state-owned company, NPTG does not have any influence on decisions related to FX hedging or loan currency conditions. It always follows instructions of MOE and MOF 19 . Such heavy dependence on state regulations might lead to risky events in case the relevant state policies change without proper transition period preparations and change management.

• Lack of insurance policies and procedures for the company’s major fixed assets

• Lack of knowledge of ADB’s procedures by the company’s financial and accounting staff and internal auditor, possible lack of such knowledge by a new external auditor

• Internal Audit lacks full independence (reports only to CEO)

V. Personnel, Accounting Policies and Procedures, Internal Control, Internal and External Audit of NPTG

i. Personnel

117. NPTG has a highly qualified and experienced key personnel. The Finance and Economic Department is fully staffed and has all needed specialists for carrying out the department’s duties.

118. The Financial and Economic Department has a low turnover of employees. The staff regularly participates in relevant professional training organized by NPTG and thus keeps its professional qualifications up to date.

119. It is planned that the current financial and accounting staff would be assigned for the project tasks. If necessary, additional staff will be recruited, too. The key persons of the Financial and Economic Department (the Head, Chief Accountant, and Chief Economist) will be in charge for the project financial and accounting issues.

ii. Accounting Policies and Procedures

120. The NPTG’s accounting system allow for the proper recording of project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds. For controlling purposes, all transactions are checked by the Chief Accountant and completed only after his permission. Completed transactions will be audited by the internal auditor.

121. Accounting records and supporting documents are retained for 1–2 years for audit purposes and subsequently archived for 10 years. Only authorized staff with pass keys have access to records and documents.

122. Some minor findings were observed by external auditor in 2018, and action recommendations

19 According to a Parliament Resolution, fully state-owned companies are not responsible for FX rate fluctuations hedging. NPTG would receive the ADB loan and grant in MNT (according to the fixed FX rate set in the agreement between MOF and NPTG). Thus, MOF will be responsible for dealing with FX risks, NPTG should not have such a risk.


31

were given to NPTG.

123. NPTG uses accrual basis for accounting and complies with IFRS requirements. General Ledger and subsidiary ledgers are reconciled monthly. Financial statements are prepared quarterly; other management accounting reports are prepared monthly and on ad hoc basis by request of the company’s management. These schedules ensure timely information disclosure to the company’s management. Monthly financial reports compare actual expenditures to the budgets; cost analysis is done for defining the reasons of deviations. These reconciliations are a part of the company’s internal control procedure.

124. The project will be handled by NPTG Head Office and follow the Head Office procedures.

125. The company follows the principles of segregating of duties related to execution, recording and reconciliation of transactions, as well as ordering, receiving, accounting and payment functions what reduces the risks of fraud and accidental mistakes. This provides with possibilities for preventive and detective internal controls.

126. NPTG has functional procedures for handling invoices which covers proper documentation, reconciliation of invoiced and delivered quantities, checking of relevant calculations and authenticity of underlying documents as well as registering invoices in the relevant systems and their accounting. Robust cash and bank procedures and internal controls are in place. Bank accounts and cash at hand are reconciled on daily basis. Cash balances maintained at the head office should not exceed 1.5 million MNT (ca. 600 USD).

127. NPTG implements passive assets safeguards policies. It maintains and regularly updates the registries and carries out physical inventories, but does not have any established procedures for insuring its fixed assets except vehicles. This might create a risk of substantial financial expenditures in case of an unexpected damage or loss of critical equipment. It is recommended to arrange insurance for critical and new imported assets based on a relevant risk assessment, at least if the insurance costs and conditions do not undermine potential benefits of holding such insurance.

128. The companies’ financial management activities are governed by the company’s accounting policy and accounting procedures manuals which are updated when relevant changes take place. Accounting policy is approved and amended only by the Ministry of Finance.

129. The compliance with policies and procedures will be monitored by internal control, and reported to the Board of Directors, Directors Council and Executive Director.

iii. Internal Control and Internal and External Audit

130. The company has strong internal controls related to collection process and cash transactions. Also ad hoc checking is used for accounts reconciliation. No online transactions are allowed which mitigates possible fraudulent activities by the company’s insiders, or outsiders.

131. Only transportation means are covered by insurance policies. Internal controls related to assets can be based only on the company’s Fixed Assets Register which are updated monthly. However, assets which are pledged or encumbered are not registered what creates opportunities for theft of other fraudulent actions over these assets and may lead to legal and financial problems if such fraud is detected too late.

132. Physical inventories of current assets are made annually or semi-annually. Fixed assets inventory is done annually. Physical inventory of fixed assets and stocks is reconciled with the respective fixed assets and stock registers, and discrepancies are analysed and resolved. The company has sufficient internal controls over disposal of assets.

133. Currently, the Internal Audit function consists of only one person who is in charge of financial topics and had started only 9 months before the current FMA assessment time. It is required that the Internal Auditor should have the Certified Public Accountant (CPA) designation.


32

134. Internal Audit programmes are guided by the company’s internal rules. Internal Audit reports to CEO who also approves internal audit programmes. There is no Audit Committee in NPTG; actions taken on the internal audit findings depend on CEO’s decisions and tasks. This leads to a lack of independence of Internal Audit. In order to maintain Internal Audit’s independence and objectivity, it is recommended to make Internal Audit function to report to both the Board of Directors and CEO.

135. Internal audit activities in the company are heavily concentrating on financial and accounting issues, although they also cover analysis of operations and compliance to laws and regulations. The company’s Internal Audit will include the project in its annual work programme.

136. The company’s Internal Auditor lacks knowledge about the ADB’s guidelines and procedures, including the disbursement guidelines and procedures. This might lead to overlooked problems during the project implementation time. Therefore, the company’s Internal Auditor has to be trained in the relevant ADB procedures.

137. The company does not have a permanent external auditor; external auditors are assigned annually by National Audit Office. External audit is performed at the beginning of the year following the audited period. The audit report shall be issued by 10th of March every year.

138. The same external auditor will perform the regular company audit and the project audit since the project financial statements will be prepared by the Financial Department in the NPTG’s headquarters. Same procedures of auditing will be applied to both corporate NPTG’s financial statements and project financial statements, IT systems, and compliance requirements. No special arrangements would be needed for auditing the project statements, neither on NPTG’s, nor on MOF / MOE / NAO / external auditor side.

139. During 2016-2018, NPTG received no negative auditor’s opinions. Some external auditor findings took place in 2018, however they were not material, and recommendations for improvements were given.

140. It is reported that the external auditor has experience in ADB procedures. However, bearing in mind the auditor is assigned annually by NAO, it is recommended to ensure the external auditor’s familiarity with ADB procedures before the beginning of the project implementation, and to arrange necessary training, if needed.

iv. Financial Reporting Systems

141. The IT platform in use was purchased off-the-shelf and customized to the companies’ needs. The computerized software is used for direct generation of periodic financial statements. Separate accounts for the project implementation will be opened in the same financial system thus the project financial data will be integrated with the company financial data automatically.

142. According to the external auditor’s report for 2018, the financial software "Diamond" used for the company's financial accounting is not capable to show the list of customer name in the General ledger transactions, customer code does not exist which is not allowing to do the external review and auditing. The auditor gave relevant recommendations to the CEO and key financial persons of NPTG.

143. Financial data are automatically saved in the National Data Centre; additional back-up copy needs to be saved on a hard disk for internal company needs.

v. Disbursement Arrangements, Fund Flow Mechanism

144. Disbursement arrangements and the fund flow mechanism are discussed below in Section Y for both the Implementing Agency and the Executing Agency.


33

W. Financial Management System of Project Management Unit Under Ministry Of Energy

i. Organization and Staff Capacity

145. The Ministry of Energy (MOE) is a governmental body fully controlled by the State of Mongolia. The Ministry is managed by the Minister through the Vice Minister and the State Secretary.

146. The Project Management Unit (hereinafter PMU) will be established under the Ministry of Energy and will be 100% state-owned. PMU will report to the Ministry of Energy, Project Steering Committee and the Ministry of Finance (MOF). It will also give its report to the National Audit Office if necessary (including the financial statement and tax reports).

147. The Project Steering Committee will be a regulatory body for PMU, it will be operating independently but should work in cooperation with government agencies and organizations.

148. Ministry of Finance will approve the organizational structure of the PMU as it is recommended by the Ministry of Energy. The establishment, structure and management of the organization will be assigned according to the government procedure that approved by the 196th Order of the Ministry of Finance in 2015 to use foreign loan assets and to implement, organize, finance, monitor and evaluate the project and events that will be financed by these assets. The organizational structure will also need to meet the requirements of the project

149. PMU finance staff will be assigned by the MOF as recommended by the MOE according to the government procedure for using foreign loan assets and for implementing, organizing, financing, monitoring and evaluating the project and events that will be financed by these assets. If the PMU finance staff is paid by the government, then the staff will belong to the MOE, or Finance and Investment Department of MOF.

150. PMU staff will have adequate administrative and accounting capacity to manage the advance sub-account and statement of expenditures and procedures in ADB’s loan disbursement handbook.

ii. Information Management

151. A financial accounting information technology (IT) platform which will be used by PMU is purchased off-the-shelf, and is customized to adjust the particular needs of the entity. The software was licensed by MOF.

152. MOE has a back-up procedure for the PMU’s IT system. Copies of the data will be kept in the project management monitoring system, and the hard copies will be kept in Ministry of Energy’s Archive.

iii. Budgeting and Funds Flow Arrangements

153. Project budgets are done in sufficient detail. Comparing of the actual expenditures to budget is done monthly and if there are significant variations against the budget, explanations are required. Approval of variations is required in advance.

154. Project budget preparation will be done by the project staff in charge (Treasury and finance functions); budget approval will be done by MOE and MOF; oversight and monitoring of the budgets will be done by the Project Director and MOE’s Internal Audit. The budget preparation process will be linked to the project's implementation plan. In order to prepare the budget, data will be obtained from different responsible units. Budget amendments will made in accordance with the Budget Law.

155. MOE has been cooperating with ADB since 1995, thus the risk of a failed budget is rather low.

156. The project funds flow arrangements will be regulated by the 196th Order of the Ministry of Finance (2015) to use foreign loan assets and to implement, organize, finance, monitor and evaluate


34

the project and events that will be financed by these assets. For fund disbursements, financing agreement and the procedure approved by MOF will be followed. The advance account will be established in any commercial bank according to the Ministry of Finance's approval.

157. MOE will be exposed to the foreign exchange risk. Although MOF attempts to manage FX risk according to the foreign exchange regulation law, the performing organization covers the major part of this risk. If possible, a standard FX risk hedging procedure should be established; in this case basic training in financial risk management and use of financial instruments would be needed for the responsible MOE and (if needed) MOF staff. This training may be done either as a stand-alone training performed by ADB, or in co-operation with MOF and the Bank of Mongolia. The hedging procedure should not contradict existing laws and regulations.

iv. Effectiveness

158. MOE’s financial reports should be prepared in accordance with the Accounting Law of Mongolia, and International Financial Reporting Standards (IFRS).

159. Financial reports need to be submitted to MOF in conformity with the Accounting Law of Mongolia and according to the expenditure regulations part of the contract made with ADB.

v. Accountability Measures

160. PMU will report to the Ministry of Energy, Project Steering Committee and the Ministry of Finance. It will also submit its report to the National Audit Office, if necessary. In addition, financial reports will have to be submitted to the Asian Development Bank (ADB).

vi. Strengths

161. MOE’s relative strengths in financial management are as follows:

• Extensive experience in implementation of projects financed through foreign loans and grants and in managing disbursements from ADB (since 1995).

• Well-qualified and experienced finance and accounting professionals, low personnel turnover;

• Generally well-documented financial management, cash management and accounting processes, procedures and systems;

• Solid internal controls and procedures

• Internal and external auditors familiar with ADB policies and procedures;

• Compliance with IFRS

vii. Weaknesses

162. MOE’s major weaknesses are as follows:

• Part of the PMU’s staff is recruited on the “as-needed” basis thus creating possibilities for interruption of knowledge transfer.

• Financial reporting risk arising from manual entry of project data into the PMU financial reporting system


35

X. Personnel, Accounting Policies and Procedures, Internal Control, Internal and External Audit of PMU

viii. Personnel

163. PMU finance staff will be assigned by MOF as recommended by MOE. The new staff will be recruited to work together with the current staff to be assigned to the project.

164. Within the scope of the work, the financial staff of the Project shall:

• Be responsible for all project finance management activities, including financial and accounting reporting, project and expenditure of foreign and domestic investment projects, registration of project costs, etc. following the procedures related to Donor organization and Implementing organization's financial, accounting, regulations

• Have accountability and oversight of all account activities under the project

• Provide control over the day-to-day operating expenses of the project units, provide reports and other required reports and reports to the relevant authorities within the specified timeframe.

• Keep and store records of the assets and assets used in the Project

• Develop project finance and documentation

• Handle project cash operations and issue a cash report

• Fulfil and supervise the tasks to be undertaken under the Implementation Plan

• Be responsible for providing relevant work papers to related departments

• Provide timely information to project managers and relevant officers

165. The hiring process will be competitive what will secure that finance and accounting staff is qualified. The hired staff will be trained in the ADB procedures. However, additional training will be needed to update knowledge of managing advance account, SOE preparation, re-orientation on ADB’s Loan Development Handbook policies and guidelines.

166. It is planned to hire additional project finance and accounting staff when the project funding agreements have been signed and project implementation will commence. Since the newly hired staff would have to carry out their duties properly, it means that the training needs should be monitored and adjusted on a continuous basis.

167. The staff needs to attend training held in the frames of a targeted strategy of MOE (insurance, procurement activity, accounting standards, and tax training) every year. Also training by MOF and ADB is provided.

ix. Accounting Policies and Procedures

168. PMU will use accrual-based accounting and follow the IFRS requirements and local accounting laws and regulations.

169. PMU has to present reports to MOE and MOF in conformity with Accounting Law of Mongolia and according to the expenditure regulations which are part of the contract that is concluded with ADB. It also has to report to ADB according to the ADB’s requirements. Control is usually performed by managing organizations.

170. General Ledger and subsidiary ledgers are reconciled monthly. Reconciliation difference will be corrected by the PMU accountant. The explanation of possible differences will be given to the ministry worker in charge.


36

171. Accounting records are sent to the MOE’s Archive annually according to the Archive Law. In case some archived documents are needed for review, they are requested from the MOE’s Archive. It is recommendable to scan paper documents before they are sent to the archive, and to keep all scanned copies within PMU. This way these documents would be faster to find, and they would be backed up according to a regular procedure.

172. Segregation of duties. Authorization to execute a transaction is done by the donor organization, GOM, implementing organization management, and project management; recording of the transaction is done by the project management and coordinator; custody of assets involved in the transaction is done by the implementing organization and project finance expert; reconciliation of bank accounts and subsidiary ledgers is performed by the financial expert of the project.

173. PMU will have a functional procedure for handling invoices and payments which covers proper documentation, reconciliation of invoiced and delivered quantities, checking of relevant calculations and authenticity of underlying documents as well as registering invoices in the relevant systems and their accounting.

174. To ensure compliance with relevant policies and guidelines, a PMU worker will make a result-based contract, which requires the worker to report to the State secretary and be monitored by the chairman of Finance and Investment Department of Ministry of Energy. The accounting policy and procedure manuals will be updated regularly. This will mitigate operative risks and help to comply with the guidelines.

175. MOE’s bank accounts are reconciled monthly. Because the cash on hand will be taken from the Activity Account, it will be regularly verified by the Project Steering Committee, MOF and MOE.

176. The head office and branches use the same accounting and reporting system. Project report will be prepared by the performing organization monthly, quarterly and annually. The Project Steering Committee will consider the report monthly to debate on its meeting. Project report will be audited once a year by MOF, National Audit Office and MOE.

177. The above procedures prove that MOE and its PMU will have a solid system of internal controls which will contribute to a successful project financial reporting, monitoring and control.

x. Internal Control and Internal and External Audit

178. PMU’s internal controls related to accounting, reporting, cash and asset safeguards are described earlier in relation to the relevant policies and procedures. Among the most important finding, the following improvements of internal control are recommended:

• FX risk management should be considered

179. As an additional safeguards of paper copies of accounting records, gradual introduction of a digital archive of scanned copies is recommended.

180. In case of fraud, corruption, waste and misuse of project resources such situations will be reported to the higher management officials. Relevant laws and rules will be applied.

181. PMU has no Internal Audit Committee, but it will have control-examination and assessment worker. The worker monitors the implementation of project and activities quarterly. MOE has an Internal Auditor. The project will be included in the internal audit annual work programme, internal audit findings will be reported to the Minister of Energy and the State Secretary.

182. Internal audit program is guided by the International Financial Reporting Standards and Accounting Law of Mongolia. The current Internal Auditor of MOE has been working within this field for at least 3 years. The internal auditor should have a bachelor or higher degree, and be a certified public accountant, it is required that he / she has three years of experience in civil services.

183. It is reported that MOE’s internal auditor found some issues related to availability and


37

completeness of records, but no additional information has been provided.

184. Financial statements are audited by external auditors assigned by the National Audit Office and MOF, this happens at least once per year. The National Audit Office will assign the auditor to PMU based on a competitive hiring process to PMU. Ministry of Finance will also hold a competitive hiring process by the request of ADB.

185. Since the PMU will not participate in preparing the annual project financial statements, it will not participate in arranging auditing of these statements either; NPTG and its external auditor will be responsible for these activities (see Section IV D above). The PMU will prepare their own financial statements, and it will be audited by its external auditor, similar to other state entities.

186. Assigned external auditor follows International Standards on Auditing. The audit reports have to be issued on June the 30th, or according to the Loan Agreement. No major accountability issues have been noted in the audit reports for the past three years.

187. It is reported that both MOE’s Internal and external auditors have sufficient knowledge and understanding of the ADB procedures.

xi. Financial Reporting Systems

188. A financial accounting information technology (IT) platform which will be used by PMU is purchased off-the-shelf, and is customized to adjust the particular needs of the entity. The software was licensed by MOF. The system is stand-alone and will be used for project financial reporting. Financial reports are produced automatically, but the project financial data will be entered manually.

189. Since manual entry of the project data into the PMU financial reporting system poses a risk of inadequate data accuracy, it is recommended to establish relevant internal controls such as segregation of duties (different PMU persons responsible for entering the data into the PMU system and for reviewing the data saved in the PMU system) and regular reconciliation of project data in the PMU and NPTG systems (to be done at least monthly)),

xii. Disbursement Arrangements, Fund Flow Mechanism

190. Disbursement arrangements and the fund flow mechanism are discussed in Section Y for both the Implementing Agency and the Executing Agency.

Y. Disbursement Arrangements, Fund Flow Mechanism

191. MOE will act as the executing agency of the project. It will undertake overall responsibility for the project implementation and provide guidance and oversight for the Project Management Unit (PMU) which will be responsible for the day-to-day activities of the project and will provide assistance to implementing agencies to ensure smooth project implementation.

192. NPTG (the implementing agency) will be responsible for supervision of the day-to-day project activities, conduct of environmental, social and land acquisition monitoring, procurement and initial payment control. In order to ensure successful project implementation, NPTG will establish a Project Management Unit (PMU).

193. A project management consultant will be recruited to support the PMU and NPTG during the project implementation, and assist them in detailed engineering design, procurement, social and environmental safeguard monitoring, and financial management.

194. The disbursement arrangements will include: (i) direct payment procedure for large equipment and material supply contracts, (ii) reimbursement procedure as appropriate when MOE initially funds ADB eligible expenditures from its own resources, and (iii) imprest accounts procedure for all other expenditure. The PMU will be responsible for (i) preparing withdrawal applications, (ii) collecting supporting documents from NPTG, and (iii) submitting withdrawal applications to MOF. MOF will be


38

responsible for sending withdrawal applications to ADB.

195. MOF will authorize the PMU to establish two imprest accounts and two corresponding sub-accounts (one each for the loan, and for the grant) for PMU management, promptly after loan and grant effectiveness at a commercial bank acceptable to ADB. The currency of the imprest accounts will be US dollar, and the currency of the sub-accounts will be in Mongolian Tugrik. The imprest accounts and sub-accounts are to be used exclusively for ADB’s eligible expenditures. The PMU, who established the imprest accounts in its name, is (i) accountable and responsible for proper use of advances to the imprest accounts, including advances to the sub-accounts, and (ii) will maintain and manage the imprest accounts and sub-accounts. MOF and MOE will be co-signatories on the imprest accounts. The proposed project fund flow diagram is presented in the following figure.

Figure VI-I: Proposed Fund Flow Diagram

ADB = Asian Development Bank, NPTG = National Power Transmission Grid, OCR loan = Ordinary Capital Resources loan, HLT Fund = High Level Technology Fund Source: ADB Consultant


39

Z. Risk description and Rating

196. Based on the detected weaknesses, Table VI-1 summarizes the financial management risk assessment, and proposed risk mitigation and management measures.

Table VI-1: Risk Assessment & Management Plan

Risk Description

Risk without

mitigation

Mitigation Measures or Risk Management Plan

Risk with mitigation

Inherent Risk

Country-specific

The country PFM system is overall

reasonably well functioning, but the

PEFA observed weaknesses in fiscal

discipline, strategic allocation of

resources, and efficient service

delivery which are directly associated

with low predictability of the state

revenues. It also noted an

implementation gap between the

existing laws in PFM and the capacity

of the key agencies to implement

these laws.

Moderate

Continuing to develop and improve the PFM

system and procedures and support key

structural reforms. ADB will support

ensuring the stability of the country’s

financial sector through capacity building for

government’s ability to finance operations,

improve transparency and accountability of

the management systems of the public

sector and to develop prudential capacity of

the Bank of Mongolia and Financial

Regulatory Commission to effectively

supervise the financial system.

Moderate

Entity-specific

Power transmission business is state

regulated, the entity’s profitability and

debt servicing capacity depend on

tariff levels set by the ERC

Moderate

The loan agreement should include special

covenants related to regular tariff

adjustments ensuring debt service capacity

of the company

Low

Overall Inherent Risk Moderate Moderate

Project Risk

Implementing agency, external

auditor - Outdated/lack of knowledge

on ADB procedures.

Moderate NPTG’s accounting and finance staff and

internal and external auditors have no or

limited experience in ADB projects. Project

implementation consultant selected by ADB

will provide on-job training with regard to

ADB financial management requirements,

including disbursement, accounting, and

auditing procedures 20.

Low

Funds flow and accounting policies

and procedure - No regulatory policy

and procedures for managing foreign

Moderate The executing and implementing agencies

will employ methods to hedge the foreign

exchange risk such as foreign exchange

Low

20 As per October, 2019, there is no on-going training in ADB procedures for NPTG, external auditors and MOE staff. Training specifically on ADB procedures were not conducted in recent years; trainings of finance staff are limited with local trainings organized by MOF.


40

exchange risks. contract and options.

Implementing agency - Internal Audit

function lacks independence from the

management. Administratively,

internal auditor is under the

management and this may affect

independent role and responsibilities

of the internal audit.

Moderate Functionally, the internal auditor directly

reports to the Board of Directors. A project

management consultant will be recruited will

provide trainings, extend support to the

internal auditor in preparation and

implementation of quarterly and annual

internal audit program related to the project.

Low

Implementing Agency - Lack of

insurance policies and procedures for

the company’s major fixed assets

.

Moderate NPTG will conduct a risk-based cost –

benefit assessment of arranging insurance

for the critical fixed assets, especially new

imported equipment. The project

implementation consultant will support

NPTG in evaluation of insurance needs and

availability and selection of a reliable

insurance provider.

Low

Executing Agency - Financial

reporting risk arising from manual

entry of project data into the PMU

financial reporting system

Moderate PMU will establish relevant internal controls

(different PMU persons responsible for

entering the data into the PMU system and

reviewing the data in the PMU system;

regular reconciliation of data in the PMU and

NPTG systems (at least monthly))

Low

Overall Project Risk Moderate Low

Overall (Combined) Risk Moderate Moderate

ADB = Asian Development Bank, PFM = public financial management, PEFA = Public Expenditure and Financial

Accountability Report by World Bank

AA. Proposed Time-Bound Action Plan

197. Based on the assessment, the table below summarizes the action plan to improve the identified financial management weaknesses.

Table VI-2: Preliminary Time-Bound Risk Action Plan

Weakness Mitigation Action Responsibility Timing

Outdated/lack of

knowledge on ADB

procedures

Engage project implementation

consultants to support and

provide on-job training with

regard to ADB financial

management requirements,

including disbursement,

accounting, and auditing

procedures

ADB, MOE, NPTG 3 months after loan

effectiveness

No regulatory policy and

procedures for

managing foreign

Develop FX risk management

policies and procedures

MOE, MOF, NPTG Before loan

effectiveness


41

exchange risks.

Lack of insurance

policies and procedures

for the company’s major

fixed assets

Risk-based cost – benefit

assessment of arranging

insurance for the critical fixed

assets, especially new

imported equipment.

ADB, MOE, NPTG 6 months after loan

effectiveness

Internal Audit lacks

independence since it

reports to CEO.

Ensure a full independence of

the Internal Audit unit.

NPTG Before loan

effectiveness

Financial reporting risk

arising from manual

entry of project data into

the PMU financial

reporting system

PMU will establish relevant

internal controls for mitigating

financial reporting risk arising

from manual entry of project

data into the PMU financial

reporting system

MOE, NPTG Before loan

effectiveness

ADB = Asian Development Bank, NPTG = National Power Transmission Grid, MOF = Ministry of Finance; MOE =

Ministry of Energy

198. NPTG reports that only vehicles are covered with insurance policies. Since absence of insurance coverage of the major operating fixed assets might create a risk of substantial financial expenditures in case of an unexpected damage or loss of critical equipment, it is recommendable to explore feasible possibilities for the insurance coverage under Mongolian conditions. Since Mongolia might lack reliable fixed assets insurance providers, or their services might be too expensive when compared to potential insurance benefits, it is recommended to conduct a risk-based cost – benefit assessment of arranging insurance for the critical fixed assets, including the new BESS project equipment. A project implementation consultant experienced in industrial equipment insurance practices should be selected by ADB in order to support NPTG and MOE in evaluation of insurance needs and their feasibility, in studying insurance packages applied to the BESS facility equipment, and in selection of reliable insurance providers.

199. In order to ensure independence, effectiveness and efficiency of NPTG’s Internal Audit function, ADB is recommended to recruit a project management consultant who will discuss the independence of Internal Audit (IA) with MOE and NPTG management explaining the reasons why IA should report to both the Board of Directors and the CEO, and agreeing needed actions, including training of the IA staff. Preferably, in addition to the topics related to financial and accounting internal audits, the training should cover i.e. IT audits, operational audits, development of risk based annual audit plans, procedures for following up implementation of the IA recommendations, and a recap on audit methods and tools. The training program should be based on detailed discussions with NPTG (and MOE) on the current state and role of the IA in the company, general IA principles and requirements currently applicable in Mongolia, and a gap analysis (current state vs international best practices, also taking in consideration cultural differences among different countries). If MOE and / or MOF become interested in this training, their staff should participate, too. The consultant should also provide the NPTG’s IA staff with trainings and support in preparation and implementation of quarterly and annual internal audit program related to the BESS project. It is recommended that the management consultant would have proven experience and knowledge in internal audit, risk management and compliance topics, and hold a recognized internal audit designation (such as CIA).

BB. Suggested Financial Management Covenants

200. Given the relative strength of financial management in NPTG, no financial management loan covenants are proposed at the time of writing of this report.


42

CC. Financial Management Assessment Conclusions

201. Public sector and the executing and implementing agencies’ levels of financial management are relatively robust and present moderate risks from ADB’s perspective. Identified risks in lacking knowledge on ADB procedures, foreign exchange risk management, internal audit, and assets safeguards can be mitigated as described in the risk management plan.

Initial Environmental Examination (Update)

Project Number: 53249-001 January 2020

Mongolia: First Utility Scale Energy Storage Project

Prepared by the Ministry of Energy for the Asian Development Bank

CURRENCY EQUIVALENTS

(as of 14 November 2019) Currency Unit – Mongolian Tugrik (MNT)

MNT 1.00 = $0.0004 $1.00 = MNT 2,701

ABBREVIATIONS

ADB Asian Development Bank AP Affected Person AQA Air Quality Agency AuES Altai-Uliastai Energy System BESS Battery Energy Storage System CEMP Construction Environmental Management Plan CES Central Energy System CITES Convention on International Trade in Endangered Species CRA Climate Risk Assessment DEIA Detailed Environmental Impact Assessment EA Executing Agency EARF Environmental Assessment and Review Framework EHS Environment, Health and Safety EIA Environmental Impact Assessment EMoP Environmental Monitoring Plan EMP Environmental Management Plan EPA Engineer-Procure-Construct FSR Feasibility Study Report GDP Gross Domestic Product GEIA General Environmental Impact Assessment GFDRR Global Facility for Disaster Reduction and Recovery GHG Greenhouse Gas GIP Good International Practice GoM Government of Mongolia GRM Grievance Redress Mechanism HDI Human Development Index IA Implementing Agency IBAT Integrated Biodiversity Assessment Tool IEC Independent Environmental Consultant (national) IEE Initial Environmental Examination ILO International Labor Organization INDC Intended Nationally Determined Contributions, Paris climate accord. IUCN International Union for the Conservation of Nature MASL Meters Above Sea Level MNS Mongolian National Standard MoE Ministry of Energy MNET Ministry of Nature, Environment and Tourism NAMEM National Agency of MОtОoroloРy anН EnvironmОntal MonitorinР NDA National Dispatching Center NPTG National Power Transmission Grid NREC National Renewable Energy Center OCHA United Nations Office for the Coordination of Humanitarian Affairs

OM Operations Manual, ADB PCR Physical Cultural Resources PMU Project Management Unit PPE Personnel Protective Equipment PPTA Project Preparatory Technical Assistance PSC Project Steering Committee PV Photovoltaic SPS Safeguard Policy Statement, ADB TA Technical Assistance UNEP United Nations Environment Program WB World Bank WCS World Conservation Society WHO World Health Organization

WEIGHTS AND MEASURES

µg/m3 Micrograms per Cubic Meter BOD5 Biochemical Oxygen Demand, five days CaCO3 Calcium Carbonate cm Centimeter CO Carbon Monoxide CO2 Carbon Dioxide COD Chemical Oxygen Demand dB(A) A-weighted sound pressure level in decibels DO Dissolved Oxygen GWh Gigawatt Hour ha Hectare kg Kilogram km Kilometer kV Kilovolt kWh Kilowatt Hour Leq Equivalent Continuous Noise Level m Meter m/s Meters per Second m2 Square Meters m³ Cubic Meters masl Meters Above Sea Level mg/l Milligrams per Liter mg/m3 Milligrams per Cubic Meter mm Millimeter MW Megawatt MWh Megawatt Hour NO2 Nitrogen Dioxide NOx Nitrogen Oxides O3 Ozone oC Degrees Celsius pH A measure of the acidity or alkalinity of a solution PM Particulate Matter PM10 Particulate Matter smaller than 10 micrometers

PM2.5 Particulate Matter smaller than 2.5 micrometers SO2 Sulfur Dioxide TDS Total Dissolved Solids TSP Total Suspended Particulates

NOTES

(i) The fiscal year (FY) of the Government of Mongolia and its agencies ends on 31 December.

(ii) In this report, "$" refers to US dollars.

This initial environmental examination is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. Your attention is directed to the “terms of use” section of the ADB website. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

I. INTRODUCTION .......................................................................................................... 1

A. THE PROJECT ............................................................................................................. 1

B. REPORT PURPOSE ...................................................................................................... 1

C. APPROACH TO IEE PREPARATION ................................................................................ 1

D. REPORT STRUCTURE .................................................................................................. 1

II. POLICY, LEGAL AND ADMINISTRATIVE FRAMEWORK .......................................... 4

A. MONGOLIA ENVIRONMENTAL POLICY AND LEGAL FRAMEWORK ...................................... 4

B. APPLICABLE ENVIRONMENTAL STANDARDS ................................................................. 13

C. APPLICABLE ADB POLICIES, REGULATIONS AND REQUIREMENTS ................................. 21

III. PROJECT DESCRIPTION .......................................................................................... 22

A. THE PROJECT ........................................................................................................... 22

B. COUNTRY CONTEXT AND RATIONALE .......................................................................... 23

C. EXAMPLES OF UTILITY SCALE BESSS ........................................................................ 27

D. LOCATION ................................................................................................................. 27

E. BESS DESIGN CONCEPT ........................................................................................... 31

F. BESS SAFETY .......................................................................................................... 33

G. BATTERY RECYCLING ................................................................................................ 37

H. ASSOCIATED FACILITIES ............................................................................................ 38

I. IMPLEMENTATION ARRANGEMENTS ............................................................................ 38

J. IMPLEMENTATION PERIOD .......................................................................................... 38

K. PROJECT COST ......................................................................................................... 39

IV. DESCRIPTION OF THE ENVIRONMENT .................................................................. 35

A. MONGOLIA ................................................................................................................ 35

B. ULAANBAATAR AND THE PROJECT SITE ...................................................................... 36

C. PHYSICAL RESOURCES .............................................................................................. 36

D. ECOLOGICAL RESOURCES ......................................................................................... 63

E. SOCIOECONOMIC PROFILE ......................................................................................... 64

F. SENSITIVE RECEPTORS ............................................................................................. 65

V. ANTICIPATED IMPACTS AND MITIGATION MEASURES ........................................ 65

A. ASSESSMENT OF IMPACTS ......................................................................................... 65

B. ANTICIPATED PRE-CONSTRUCTION PHASE IMPACTS AND MITIGATION MEASURES ......... 66

C. ANTICIPATED CONSTRUCTION PHASE IMPACTS AND MITIGATION MEASURES ................ 67

D. ANTICIPATED OPERATION PHASE IMPACTS AND MITIGATION MEASURES ....................... 72

E. PROJECT DECOMMISSIONING ..................................................................................... 76

F. PROJECT BENEFITS ................................................................................................... 77

VI. ALTERNATIVE ANALYSIS ........................................................................................ 79

A. SITE LOCATIONS ....................................................................................................... 79

B. SITE OPTIONS AT SONGINO SUBSTATION .................................................................... 82

C. BATTERY CHEMISTRY ................................................................................................ 84

D. NO PROJECT ALTERNATIVE ....................................................................................... 92

E. OVERALL ALTERNATIVE ANALYSIS .............................................................................. 92

VII. INFORMATION DISCLOSURE AND PUBLIC CONSULTATION ............................... 93

A. MONGOLIAN AND ADB REQUIREMENTS FOR PUBLIC CONSULTATION ............................ 93

B. ADB STAKEHOLDER CONSULTATIONS ........................................................................ 93

C. PUBLIC CONSULTATION DURING DEIA PREPARATION .................................................. 94

D. FUTURE DISCLOSURE AND CONSULTATION ACTIVITIES ................................................ 97

VIII. GRIEVANCE REDRESS MECHANISM ...................................................................... 98

A. INTRODUCTION .......................................................................................................... 98

B. ADB’S GRM REQUIREMENTS .................................................................................... 98

C. CURRENT GRM PRACTICE IN MONGOLIA .................................................................... 98

D. PROJECT GRM ......................................................................................................... 98

IX. CONCLUSIONS ....................................................................................................... 101

APPENDIX I: PROJECT ENVIRONMENTAL MANAGEMENT PLAN (EMP) .................. 104

A. INTRODUCTION ........................................................................................................ 104

B. OBJECTIVES ........................................................................................................... 104

C. IMPLEMENTATION ARRANGEMENTS .......................................................................... 104

D. RESPONSIBILITIES FOR EMP IMPLEMENTATION ........................................................ 105

E. POTENTIAL IMPACTS AND MITIGATION MEASURES .................................................... 107

F. ENVIRONMENT MONITORING PLAN ........................................................................... 107

G. PERFORMANCE INDICATORS .................................................................................... 128

H. ENVIRONMENT REPORTING ...................................................................................... 128

I. TRAINING AND CAPACITY BUILDING ......................................................................... 129

J. ESTIMATED EMP BUDGET ....................................................................................... 129

K. MECHANISMS FOR FEEDBACK AND ADJUSTMENT ..................................................... 129

APPENDIX II: DEIA APPROVAL .................................................................................... 131

APPENDIX III: SONGINO SUBSTATION DUE DILIGENCE COMPLIANCE AUDIT ....... 135

APPENDIX IV: LAND CLEARANCE LETTERS FROM ULAANBAATAR

GOVERNMENT ............................................................................................................... 143

APPENDIX V: PUBLIC CONSULTATION ATTENDANCE LIST ..................................... 145

APPENDIX VI: ENVIRONMENTAL MONITORING REPORT TEMPLATE ...................... 146

List of Tables

Table 1: Applicable Mongolian environmental laws. ....................................................... 5 Table 2: Mongolian ambient air quality standards (MNS 4585: 2016) and WHO Guidelines.

............................................................................................................................. 15 Table 3: Mongolian ambient water quality standards (MNS 4585: 2007). ..................... 16 Table 4: Mongolian Drinking Water Standards (MNS 0900: 2005). .............................. 17 Table 5: Mongolian effluent wastewater quality standard (MNS 4943: 2011). .............. 18 Table 6: Mongolian heavy metals standard (MNS 5850: 2008). ................................... 19 Table 7: Mongolian noise standard (MNS 4585: 2017) and WHO Guidelines. ............. 20 Table 8: Indicative project financing plan. .................................................................... 41 Table 9: Indicative Project implementation plan. .......................................................... 42 Table 10: Chemical and physical properties of soils section, BESS site. ...................... 40 Table 11: Average monthly soil temperatures by depth. ............................................... 41 Table 12. Absolute maximum and minimum temperatures recoded at Buyant-Ukhaa

Meteorological Station. ......................................................................................... 46 Table 13. Average annual precipitation by season at Ulaanbaatar meteorological stations.

............................................................................................................................. 46 Table 14: Frequency of wind speeds in Buyant-Ukhaa Meteorological Station ............ 49 Table 15: Watershed characteristics of ephemeral streams adjacent to project site. .... 59 Table 16: Exploitable groundwater resources in the vicinity of Ulaanbaatar. ................ 62 Table 17: Songino Khairkhan district demographic data. ............................................. 64 Table 18: Songino Khairkhan district education data. .................................................. 64 Table 19: Project beneficiaries in the CES. .................................................................. 78 Table 20: Li-Ion battery manufacturers. ....................................................................... 86 Table 21: NaS battery manufacturers. ......................................................................... 87 Table 22: VRB manufacturers. ..................................................................................... 89 Table 23: ZnBr Battery Manufacturers ......................................................................... 89 Table 24: Storage battery performance comparison. ................................................... 92 Table 25: Summary of public consultation meeting question and answer. .................... 95

List of Figures

Figure 1: Mongolia map. ............................................................................................... 3 Figure 2: EIA procedure in Mongolia. .......................................................................... 13 Figure 3: Mongolia’s energy systems. ......................................................................... 24 Figure 4: CES branches. ............................................................................................. 25 Figure 5: Hornsby Wind Farm with Battery Storage Facility ........................................ 27 Figure 6: United States – Invenergy facilities. ............................................................ 28 Figure 7: Japan – NaS facility. ..................................................................................... 29 Figure 8: Location of Ulaanbaatar, Mongolia. .............................................................. 29 Figure 9: Location of Songino substation site, Khoroo 32, Songino Khairkhan District,

Ulaanbaatar. ......................................................................................................... 30 Figure 10: High voltage single line configuration. ........................................................ 31 Figure 11: Plan view of 125 MW / 160 MWh battery field. ........................................... 32 Figure 12: Side-elevation view of battery rows (3) & step up transformer. ................... 32 Figure 13: Low Tension Single Line Diagram. ............................................................. 33 Figure 14: BESS Power Block Electrical Schematic. ................................................... 35 Figure 15: 220 kV connection assets at Songino substation........................................ 36 Figure 16: Li-Ion battery recycling process. ................................................................. 37

Figure 17: Topography of Mongolia. ............................................................................ 35 Figure 18: Topography in the general area of Project site (red) and Songino substation

(grey).................................................................................................................... 37 Figure 19: Project site and Songino substation NE-SW topographical profile. ............. 38 Figure 20: Project site and Songino substation NW-SE topographical profile. ............. 39 Figure 21: Soil section and sampling, BESS and Songino substation. ........................ 40 Figure 22: Permafrost (blue) in the Ulaanbaatar area.................................................. 41 Figure 23: Landuse in the area around the BESS and Songino substation. ................ 42 Figure 24: Mongolia earthquake risk Modified Mercalli (MM) scale map...................... 43 Figure 25: Seismic fault lines in Ulaanbaatar area. ..................................................... 45 Figure 26: Average month air temperatures 2013-2017, Buyant-Ukhaa Meteorological

Station. ................................................................................................................. 46 Figure 27. Average monthly precipitation at Ulaanbaatar meteorological stations ....... 48 Figure 28: Ulaanbaatar meteorological stations wind roses by season. ...................... 49 Figure 29: Air quality monitoring stations in Ulaanbaatar. ............................................ 51 Figure 30: Annual average SO2 concentrations by year (1998-2018) in Ulaanbaatar versus

Mongolian air quality standard. ............................................................................. 52 Figure 31: Average 24-hour SO2 concentrations by month (2018) in Ulaanbaatar versus

Mongolian air quality standard. ............................................................................. 52 Figure 32: Annual average NO2 concentrations by year (1998-2018) in Ulaanbaatar versus

Mongolian air quality standard. ............................................................................. 53 Figure 33: Average 24-hour NO2 concentrations by month (2018) in Ulaanbaatar versus

Mongolian air quality standard. ............................................................................. 53 Figure 34: Annual average PM10 concentrations by year (2010-2018) in Ulaanbaatar

versus Mongolian air quality standard. ................................................................. 54 Figure 35: Average 24-hour PM10 concentrations by month (2018) in Ulaanbaatar versus

Mongolian air quality standard. ............................................................................. 54 Figure 36: Annual average PM2.5 concentrations by year (2010-2018) in Ulaanbaatar

versus Mongolian air quality standard. ................................................................. 55 Figure 37: Average 24-hour PM2.5 concentrations by month (2018) in Ulaanbaatar versus

Mongolian air quality standard. ............................................................................. 55 Figure 38: Tull River watershed map. .......................................................................... 56 Figure 39: Ephemeral watersheds in the low hills adjacent to Songino substation. ..... 57 Figure 40: Looking southwest towards Songino substation. The ephemeral watersheds

are in the shallow hills to the left, southeast of the substation. .............................. 58 Figure 41: Looking southeast towards ephemeral stream #2. ..................................... 58 Figure 42: Groundwater source areas in Ulaanbaatar area. ........................................ 61 Figure 43: Typical sparse grasses at project site. ........................................................ 63 Figure 44: Photos showing escalating failure from cell, cell string, and module. .......... 74 Figure 45: Central Energy System and project location. .............................................. 78 Figure 46: BESS locations considered. ....................................................................... 79 Figure 47: Ulaanbaatar 220/110/35 kV Substation. The red indicates the water source

Special Protection Zone. ...................................................................................... 80 Figure 48: CHP4, central Ulaanbaatar. The proposed BESS site is adjacent to the CHP4

2220 kV Substation. ............................................................................................. 81 Figure 49: Songino 220/110/35 kV Substation. This was selected as the preferred site

option. .................................................................................................................. 82 Figure 50: Sites considered at the Songino 220/110/35 kV Substation (in blue), and the

selected site (in red). ............................................................................................ 83 Figure 51: Cadastral survey at land around the Songino 220/110/35 kV substation. ... 84 Figure 52: Cadastral drawing of selected site. ............................................................. 84

Figure 53: Cell-based Battery Energy Storage System. .............................................. 86 Figure 54: Redox Flow Battery Energy Storage System. ............................................. 88 Figure 55: Project public consultation meeting, held 21 October 2019 at the 32 Khoroo

Public Hall. ........................................................................................................... 94 Figure 56: Proposed Project GRM. ........................................................................... 100

EXECUTIVE SUMMARY

A. Introduction

1. This is the initial environmental examination (IEE) report for the proposed First Utility-Scale Energy Storage Project in Mongolia. The proposed Project will i) install a 125 MW/160 MWh battery energy storage system (BESS) in the central energy system (CES) of Mongolia, the country’s first utility scale BESS; and ii) strengthen the institutional and organizational capacity of the national dispatching center (NDC) and the national power transmission grid (NPTG). The Project will be located in Songino Khairkhan district in western Ulaanbaatar.

2. ADB’s environmental safeguard requirements are specified in the Safeguard Policy Statement (SPS 2009). The Project has been screened and classified by ADB as Environment Category B, requiring the preparation of an IEE including an environmental management plan (EMP).

3. This IEE report has been prepared based on an approved domestic FSR; a domestic Baseline Environmental Assessment (BES) and a full Detailed Environmental Impact Assessment (DEIA) report; site visits conducted by domestic and international environmental consultants; a Climate Risk Assessment (CRA); screenings utilizing the Integrated Biodiversity Assessment Tool (IBAT) developed by BirdLife International, Conservation International, IUCN and UN Environment's World Conservation Monitoring Centre; screening utilizing the World Bank managed Global Facility for Disaster Reduction and Recovery (GFDRR) hazard screening tool ThinkHazard; screening utilizing the Mongolia earthquake risk Modified Mercalli (MM) scale map produced by the United Nations OCHA; and, stakeholder and public consultation meetings.

B. Mongolia Environmental Policy and Legal Framework

Mongolian Requirements

4. Mongolia has enacted a policy and legal framework for environmental assessment and management. The Law on Environmental Protection (2012) is an overarching law for all environmental legislation. It is the principal law that regulates activities associated with the protection of the environment with special emphasis on ‘Natural Resource Reserve Assessment’ and ‘Environmental Impact Assessment’. The latest amendment to the Law on Environmental Protection (2012) establishes the liability of polluters to pay compensation for damage caused to the environment and natural resources. The amount of compensation payable depends on the natural resources that have suffered the damage.

5. The Law on Environmental Impact Assessment (2012) stipulates the EIA requirements of Mongolia (described further below). The purpose of this law is environmental protection, the prevention of ecological imbalance, the regulation of natural resource use, the assessment of environmental impacts of projects, and procedures for decision-making regarding the implementation of projects.

6. The Law on Water (2015) regulates the effective use, protection and restoration of water resources. It specifies regular monitoring of the levels of water resources, quality and pollution, and provides safeguards against water pollution. The Law on Water Pollution Fees (2019) introduces fines and fees for the pollution of water resources.

7. The Law on Land (2015) regulates the possession and use of land by a citizen, entity and organization, and other related issues. Articles 42/43 provide guidance on removing possessed land and granting compensation. Other relevant legislation includes The Law on Subsoil (1995), Law on Air (2012), and the Law on Wastes (2012). In addition to environmental laws and regulations, there are occupational health and safety laws and regulations the EA and IA must comply with.

8. Mongolia has developed a number of key environmental policy documents, including: Biodiversity Conservation Action Plan, 1996; State Environmental Policy, 1997; Mongolian Action Program for the 21st Century (Map21), 1998; National Action Plan for Climate Change, 2000; National Plan of Action to Combat Desertification, 2000; National Plan of Action for Protected Areas, 1997; National Environmental Action Plan, 1996, 2000; and Green Development Policy of Mongolia, 2014.

9. The Ministry Nature, Environment and Tourism (MNET) is the agency primarily responsible for the implementation of environmental policy in Mongolia. Agencies under the MNET with responsibility for environmental protection and management include the Department of Green Development Policy and Planning, the Department of State Administration and Management, the Department of Environment and Natural Resources.

10. Mongolia has signed on to a number of international environmental conventions, including the UN Framework Convention in Climate Change, 1994. In addition, the Mongolia has ratified a number of International Labor Organization (ILO) core labor standards.

11. The Law on Environmental Impact Assessment (1998, amended 2002 and 2012) regulates Mongolian EIA requirements. There are two stages defined in the EIA Law: an initial screening through a General EIA (GEIA), and a full Detailed EIA (DEIA). In the first stage the project implementer submits to the MNET i) baseline environment study (BES); ii) a feasibility study including a description of the proposed project, drawings and technical and economic justification; and iii) written opinion of the soum (district) governor. The MNET reviews the submission and issues one of three GEIA conclusions:

(i) project may be implemented provided that certain conditions set in the GEIA conclusion are followed;

(ii) project is required to undergo a detailed EIA (DEIA) for identification of potential impacts, avoidance of negative impacts with mitigation measures, and elaboration of an EMP. The DEIA should be conducted by a government licensed EIA company. Upon completion, the DEIA will be reviewed by the EIA committee of the MNET for approval; or

(iii) project rejected on grounds of non-conformity with relevant legislation, or the adverse impact of the equipment and technology on the environment are too great, or absence of the project in the land management.

12. The scope of the DEIA (if required) is defined in a Terms of Reference (ToR) prepared by the GEIA review committee. The DEIA report must be prepared by a MNET authorized Mongolian company, and should be submitted to the MNET or aimag government by the project proponent.

13. A Project GEIA was prepared by PPTA national environmental specialist and was submitted to MNET. Based on the review of the GEIA by MNET, a qualified national consultant (Sunny Trade Co., Ltd LLC) was recruited to prepare a Project DEIA. The DEIA was approved by Ministry of Nature, Environment and Tourism on 8 January 2020.

14. Mongolian National Standards (MNS) prescribe allowable ambient and discharge standards for ambient air, noise, water and soil quality, and industrial effluent, wastewater, boiler emissions, etc. During the design, construction, and operation of a project, the ADB SPS 2009 requires the borrower to follow environmental standards consistent with good international practice (GIP), as reflected in internationally recognized standards such as the World Bank Group’s EHS Guidelines. Relevant EHS Guidelines include General EHS Guidelines (covering environment; occupational health and safety; and community health and safety), and EHS Guidelines for Electric Power Transmission and Distribution.

ADB Requirements

15. The major applicable ADB policies, regulations, requirements and procedures for environmental assessment are the SPS 2009, and the Environmental Safeguards – A Good Practice Sourcebook (2012), which jointly provide the basis for this IEE. The SPS 2009 establishes an environmental review process to ensure that projects undertaken as part of programs funded through ADB loans are environmentally sound, are designed to operate in line with applicable regulatory requirements, and are not likely to cause significant environment, health, social, or safety hazards.

16. At an early stage in the project cycle, typically the project identification stage, ADB screens and categorizes proposed projects based on the significance of potential project impacts and risks. A project’s environment category is determined by the category of its most environmentally sensitive component, including direct, indirect, induced, and cumulative impacts. The Project has been classified by ADB as environment category B, requiring the preparation of an IEE (this report).

17. The SPS 2009 requires a number of additional considerations, including: (i) project risk and respective mitigation measures and project assurances; (ii) project-level grievance redress mechanism; (iii) definition of the project area of influence; (iv) physical cultural resources damage prevention analysis; (v) occupational and community health and safety requirements (including emergency preparedness and response); (vi) economic displacement that is not part of land acquisition; (vii) biodiversity conservation and natural resources management requirements; (viii) provision of sufficient justification if local standards are used; (ix) assurance of adequate consultation and participation; and (x) assurance that the EMP includes an implementation schedule and measurable performance indicators.

C. Project Description

18. The proposed Project will:

i. Install a 125 MW/160 MWh BESS in the central energy system (CES) of Mongolia, the country’s first utility scale BESS. The BESS will be cold climate resilient, equipped with an Energy Management System, and will have a life span of 15+ years. Operation of the BESS will:

a. absorb fluctuating renewable power which is otherwise curtailed;

b. allow for peak shifting to reduce dependency on imports of carbon intensive energy from Russia;

c. enhance frequency regulation support to reduce the impact of intermittent large-

scale wind, and to a lesser extent solar PV farms, on the stability of the CES grid; and,

d. supply clean electricity to meet growing peak demand in the CES.

ii. Strengthen the institutional and organizational capacity of the national dispatching center (NDC) and the national power transmission grid (NPTG) for:

a. optimal use of the BESS for renewable electricity evacuation;

b. implementation of an operation and maintenance strategy to avoid over charging and discharging, and a funding strategy to fully cover operation and maintenance cost as well as replacement cost after the end of battery life;

c. knowledge dissemination to other DMCs facing similar challenges in scaling up RE.

19. The BESS will be located at Khoroo 32, Songino Khairkhan district in western Ulaanbaatar, adjacent to the Songino 220/110/35 kV substation. It will be built in a modular manner by paralleling blocks of batteries to a suitable MW capacity. The actual arrangement will depend on the supplier of the BESS and advice will be taken from the manufacturer with regard to the size of blocks and the detailed design of the BESS.

20. Successful completion of the proposed Project will also allow the connection of an additional 350 MW by 2030 of RE capacity into the CES without curtailment, thereby fully meeting the government’s RE target by 2030. Once fully operational the project will: (i) evacuate 859 GWh of renewable electricity annually; (ii) reduce sub-bituminous coal use in existing CHPs by 219,000 tons annually; and (iii) reduce annual emissions by 842,039 tons of CO2, 460 tons of SO2, 180 tons of NOx, and 723 tons of PM.

21. The Project is aligned with the GoM’s medium and long term RE targets: (i) 125 MW of power storage installed to the CES to increase RE power generation and reduce coal fired power generation, as presented in the Medium Term National Energy Policy (2018-2023); and (ii) RE capacity increased to 20% of total generation capacity by 2023 and 30% by 2030, as presented in the State Policy on Energy (2015-2030) and in the Mongolia Nationally Determined Contribution in 2015.

22. Safety will be incorporated in all stages of BESS design to the highest available international standards. The BESS will include a battery protection circuit to improve safety by making accidents less likely or by minimizing their severity when they do occur; fire protection system suitable for the chemistry of the battery and the type of chemical fire that could result, and water supply; ventilation and temperature control systems; gas detection and smoke detection systems; Emergency Response Procedures (ERP); Occupational and Health and Safety (OHS) Plan; and a maintenance plan. A 20 m safety zone will be provided around the perimeter of the BESS facility.

23. The Ministry of Energy (MoE) will be the executing agency (EA) for the project. A project steering committee, comprised of MoE, Ministry of Finance, and the implementing agency (IA), will be established to provide overall guidance in project management and implementation. A project management unit (PMU) under MoE will be responsible for managing, coordinating, and supervising the project implementation. The National Power Transmission Grid (NPTG), state-

owned joint stock company mandated to transport bulk power in the CES, will be the IA, and will be responsible for day-to-day management of the project. The borrower is the GoM, which will onlend the loan proceeds to NPTG.

24. A BESS construction contractor will be recruited through an Engineer-Procure-Construct (EPC) contract to construct the BESS, including detailed design, permitting, and procurement, transportation and supply and installation of all equipment including batteries.

25. The project will be financed by ADB loan and the High-Level Technology Fund grant of US$3 million. The BESS will be planned and constructed over 18 months.

D. Description of the Environment

26. Mongolia is a landlocked country in east-central Asia bordered by Russia to the north and China to the south, east and west. It has an area of 1,564,116 km2, an average elevation of 1,580 meters above sea level (masl), and a population of 3.286 million. With a population density of 2.10 inhabitants per km2, Mongolia is one of the most sparsely populated countries in the world. Much of the southern portion of the country is taken up by the Gobi Desert, while the northern and western portions are mountainous.

27. Ulaanbaatar, the capital of Mongolia, is the country’s largest city, and home to 1.3 million people (45% of the population). It is administrated as an independent municipality. It spans an administrative area of 4,704 km2 and is comprised of 9 districts (düüregs).

28. The BESS will be located in Songino Khairkhan district in western Ulaanbaatar, adjacent to the Songino 220/110/35 kV substation. Songino Khairkhan District encompasses much of Ulaanbaatar’s’ western and northern area, extends to the foothills of Songino Khairkhan mountain.

Physical Resources

29. Songino substation is located 3 km from the northern bank of the Tuul River in the upper portion of the watershed, on the western side of Ulaanbaatar. The Project area is characterized primarily by shallow grassland and shrubland shallow rolling valleys. The site itself is located at approximately 1,350 masl on a valley sloping shallowly to the southwest, with the low hills of Songino Mountain to the east. The site will require leveling and fill of the lower lying areas up to 4 m in height.

30. The geology of the Project area is mainly Devonian and Carboniferous low permeability sedimentary rocks intruded by granite basement rock. The basement rock is overlain by Cretaceous sandstone and mudstone, clay and sand Neogene deposits, and Quaternary sand and gravel deposits. Site soils are typical of valleys in the area, semi-desert rocky sandy clay loams. There is no known permafrost in the project area. This will need to be assessed however prior to construction.

31. Land use within Songino Khairkhan district is predominately pasture and grasslands. The land at the Project site foot print is not currently used or occupied. The site is immediately adjacent to the Songino substation and wraps around it on three sides.

32. According to the Mongolia earthquake risk Modified Mercalli scale map produced by the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), the site is in a Degree VI zone. The map indicates that the site is not in the highest risk areas of Western Mongolia (e.g.

Degree IX and above). According to the World Bank Global Facility for Disaster Reduction and Recovery (GFDRR) hazard screening tool ThinkHazard, the site is in a very low earthquake hazard risk zone, and the impact of earthquake need not be considered in different phases of projects, in particular during design and construction. Nonetheless, there are several known active faults in the Ulaanbaatar area, and the Project site is near Emeelt fault, an NW-SE direction active fault located 15 km southwest from Ulaanbaatar.

33. The Project site is located in the upper reaches of the Tuul River basin. Annual mean river flow at Ulaanbaatar is 26.6 m3/s, and at Songino is 25.8 m3/s. During high flow years the mean 5 % probability flow is 59.1 m3/sec and in low flow years the mean 97 % runoff of the Tuul River is 6.0 m3/sec. The maximum flow of the Tuul River occurs during summer rainfall floods and not the spring melt.

34. The Project site is 3 km from the northern bank of the Tuul River at an elevation of 1,350 masl. The area has desert like conditions, and there are no permanent surface water bodies or streams on or adjacent to the site. The site is over 120 m higher than the adjacent Tuul River, and is reportedly not at risk from spring floods. There are three small ephemeral streams on the shallow hills to the east of the Songino substation. These are normally dry and are reported to have active flows only during high rainfall events.

35. Mongolia lies in the North Temperate Zone and has a severe continental climate, characterized by low precipitation and high daily and seasonal temperature ranges. It has long cold winters and short summers during which most of the precipitation falls. Winter is typically from November/December to March/April; spring from April through May; summer from June through August; and fall from September to October/November.

36. Ulaanbaatar has the largest annual temperature fluctuations of any capital city worldwide, with temperatures ranging from approximately - 30° C to 25 °C. Mean annual temperature ranges from -0.9 °С to 2.4 °С; mean winter temperatures range from -19.3 °С to -22.5 °С, and summer mean temperatures ranges from 14.3 °С to 15.3 °С.

37. Average annual precipitation in Ulaanbaatar ranges from approximately 255 to 280 mm, with the majority of the precipitation occurring during summer thunderstorms. It typical rains from 90 to 150 days per year, and snows from 25 to 30 days per year. Snow cover occurs from 140 to 170 days per year. Thunderstorms occur from 30 to 35 days during the warm season. High intensity rainfalls in the summer can lead to flash flooding.

38. The dominant wind direction in Ulaanbaatar is northwest, observed to blow through the city in 30 to 40% of the cases in any month of the year. Average monthly wind speeds are is from 1.6 m/sec (in January and December) to 4.4 m/sec (in May). Annual average solar radiation is 172 MJ/m2/day, and is highest in April (636 MJ/m2/day). Monthly sunshine average 168 hours, and is highest in December.

39. A Climate Risk Assessment (CRA) was undertaken for the project. According to Mongolia’s Intended Nationally Determined Contribution (INDC) to the UNFCCC, the annual mean air temperature over Mongolia has increased by 2.07 °C from 1940 to 2014, and the ten warmest years in the last 70 years have occurred since 1997. Average precipitation has decreased by 7 % since 1940. Projections call for trends in both maximum and minimum temperatures to continue increasing, especially in scenarios where global greenhouse gas (GHG) emissions are not significantly controlled. Changes in precipitation are less pronounced and show more variability by model. Additional potential changes, though more difficult to determine, include

a somewhat higher incidence of more episodic precipitation events, largely in the April to September period, and possibly increased incidence of extreme cold (dzud) conditions, though the latter is based largely on recent trends.

40. There are a number of monitoring stations in Ulaanbaatar operated by either the National Agency of Meteorology and Environmental Monitoring (NAMEM) or the Air Quality Agency (AQA) of Ulaanbaatar City. Air quality data indicates that annual and monthly average 24-hour PM10, PM2.5, SO2 and NO2 concentrations are elevated across the whole of Ulaanbaatar and frequently exceed Mongolian standards. In general, Ulaanbaatar’s severe air pollution problems stem from the use of mostly aging, Soviet-era coal-fired central heating and power generation stations, as well as the combustion of coal and other fuels, including waste fuels, for heating in individual homes, particularly in per-urban Ger districts.

41. The Project site is a low noise area. Key sounds sources are the highway 1.3 km to the northeast, and the adjacent substation and fertilizer plant.

Ecological Resources

42. The Project site is on the outskirts of the Ulaanbaatar urban area, adjacent to an existing substation, on a valley that has already been partially developed, excavated and levelled, and heavily grazed. Site vegetation is sparse and consists of low grasses such as Stipa sp (Least Concern IUCN Red List) and plants such as silverweed (Argentina anserine, Least Concern IUCN Red List). There are no trees or larger shrubs. All species found at the project site are common to the area, and surveys found no rare, endangered or protected species, or areas of critical habitat.

43. There are no known large wild mammals utilizing the site, though the area is grazed by cattle. Animals that may be found on or near the site are typical for the urban periphery of Ulaanbaatar, including the common raven (Corvus corax – Least Concern IUCN Red List status), house sparrow (Passer domesticus, Least Concern IUCN Red List status), and common unthreatened hares, marmots, mice and moles.

44. There are no parks, protected areas, nature reserves or Key Biodiversity Areas (KBAs) within 5 km of the project site.

Socioeconomic Profile

45. The estimated population of Mongolia reached 3,238,479 in 2018, up by 60,580 or 1.91 % compared to the previous year. Ulaanbaatar has a population of 1.491 million.

46. Songino Khairkhan was established as a separate administrative district in 1992, and is one of nine districts in Ulaanbaatar. The district encompasses much of Ulaanbaatar’s’ western and northern area, extending to the foothills of Songino Khairkhan mountain. It has an area of 1,200.6 km2, and a population of 322,000, making it the second largest district in Ulaanbaatar, both in population and size. Approximately 70% of the population lives in Ger areas.

47. According to the local government, Songino Khairkhan District is one of Ulaanbaatar’s key industrial centers, home to major processing plants and construction yards.

Sensitive Receptors

48. There are no schools, clinics or hospitals within the Project area. The nearest residences are more than 1000 m to the northwest over the adjacent range of hills, and the nearest community is 2 km away. There are no known physical cultural resources at the site.

E. Anticipated Impacts and Mitigation Measures

Assessment of Impacts

49. Anticipated positive and negative environmental impacts of the proposed Project were assessed based a Project domestic FSR; DEIA report; site visits and field surveys conducted by domestic and international environmental consultants; climate risk assessment (CRA); screenings utilizing the IBAT developed by BirdLife International, Conservation International, IUCN and UN Environment's World Conservation Monitoring Centre; screening utilizing the World Bank GFDRR hazard screening tool ThinkHazard; screening utilizing the Mongolia earthquake risk Modified Mercalli scale map produced by the United Nations OCHA; and, stakeholder and public consultation meetings.

50. Pre-construction, construction, operation and decommissioning phases were each considered separately. Potential impacts and proposed mitigation measures are discussed below, while detailed mitigation measures are presented in the project EMP (Appendix I).

Pre-construction Phase Impacts and Mitigation Measures

51. Anticipated pre-construction phase negative impacts are typically associated with any permanent land acquisition and associated loss of land and/or structures. All project works will take place on government owned unoccupied land, and there will be no land acquisition, involuntary resettlement, or loss of shelter, agricultural land or productive assets. Thus, there are no associated impacts or mitigation measures required.

52. A number of environmental management measures will also be implemented in the pre-construction phase during detailed design, including IEE and EMP updating (if necessary); incorporation of environmental mitigation measures into the BESS Contractor’s bidding documents, technical specifications, and civil construction and equipment installation contracts; implementation of the GRM; and training and capacity building.

Construction Phase Impacts and Mitigation Measures

53. Overall the scale of construction for the BESS is small and localized, and primarily consists of land preparation; installation of the battery containers, inverters, power transformers and control structure; construction of access roads; and other construction activities. Anticipated Project construction phase negative environmental impacts are low in magnitude, short to medium term in duration, and very localized in scale. Impacts may include soil erosion, construction noise, fugitive dust, wastewater, solid and hazardous waste, and risks to worker and community health and safety. No cultural or heritage sites will be affected nor will any critical habitat. Potential negative construction phase impacts can be effectively mitigated through the application of appropriate good international construction practices, and compliance with national laws and regulations and international guidelines including the General EHS Guidelines and the EHS Guidelines for Electric Power Transmission and Distribution. Adaptations to climate change will be incorporated during detailed design, and will be dependent on the final BEES design selected and on detailed site surveys.

Operation Phase Impacts and Mitigation Measures

54. Operation of the BESS will not produce any air pollution, significant noise, or significant solid or liquid waste. Spent battery cells will need to be recycled; due to the lack of facilities in Mongolia, this will be the responsibility of the BESS supplier. There is also a risk of fire and explosion. Potential operation phase impacts can be effectively mitigated through good design, the application of appropriate good operational management practices, development of emergency and fire response capabilities and procedures, compliance with relevant GoM standards and international good practices including the General EHS Guidelines. As there are no battery recycling facilities in Mongolia, it will be a contractual requirement that faulty or waste batteries will be collected, transported and recycled in an appropriate facility in the region by the battery suppliers. This will require appropriate approvals and permits from the Special Commission for Hazardous Waste Management of MNET. The borrower shall ensure that bidding documents stipulate that the battery supplier will be responsible for disposal of damaged and used battery cells, including obtaining export permits.

Project Decommissioning

55. The BESS lifespans is expected to be 15+ years, at which point it is expected that it may be decommissioned. It is not possible to develop detailed decommissioning plans for events 15+ years in the future. However, it is recommended that at a minimum of 6 months prior to closure a decommissioning and site reclamation plan be developed that addresses effectively potential impacts, and is in accordance with good international practices and relevant government regulations and standards in force at that time.

Project Beneficiaries

56. The Project will benefit the entire population of the CES, including the capital Ulaanbaatar, 16 aimags and over 300 soums and small settlements, with a combined estimated population of 2.686 million (2019). The population will benefit through stabilization of the energy system network, reduced economic burdens and losses on businesses and entrepreneurs caused by blackouts, increased opportunities for renewable energy, and decreased emissions and associated public health improvements.

F. Alternative Analysis

57. An analysis of project alternatives was undertaken during the feasibility stage. For example, three potential areas were considered for the BESS: the Ulaanbaatar 220/110/35 kV substation; the CHP4 plant; and the Songino 220/110/35 kV substation. The Songino substation was ultimately selected. It has suitable available land; good road access; and is rural in nature, with no local residents or nearby sensitive receptors.

58. Once Songino substation area had been selected for the BESS, it was still necessary to select a site location. A total of eight potential sites near the substation were considered. A site immediately adjacent to the substation was ultimately selected after extensive consultations with the Land Department of Songino Kkhairkhan District, MoE, ADB, and after detailed cadastral surveys. The site was selected on the basis of the land being unoccupied and undeveloped, of sufficient size, and being available and not privately owned. Land approval has been obtained from Ulaanbaatar City government.

59. It is a best practice not to specify the battery chemistry when tendering for a BESS, as this

allows for greater flexibility during the selection process. The IEE reviews a number pf potential chemistries (Lithium-Ion, Sodium-sulfur, Vanadium Redox, Zinc Bromine), but the selection will be made after all tenders have been received, on the basis of power capability, recharge rates, round trip efficiency, availability, energy capacity degradation, expected life, safety and environmental considerations, and cost.

60. The “no project” alternative addresses the likely consequences of not undertaking the proposed action. The Project is expected to result in significant CES operational, environmental and social benefits as described in Chapters III and V. Based on the important of the anticipated Project benefits, the “no project” alternative was rejected.

61. Overall, based on the analysis of alternatives, the Project has selected the most appropriate locations and technologies.

G. Information Disclosure and Public Consultation

Mongolian Requirements

62. Mongolian public consultation requirements are related to the DEIA process, described in Chapter II of this report. The Law on Environmental Impact Assessment (2012) requires that development plans and programs assessed as part of the DEIA process will be publicly disclosed on the website of the State Administrative Central Organization in charge of nature and environment; there will be a 30 working day period for submittal of verbal or written public input, and the DEIA consultant should organize community consultations that include local government and local residents within the area of influence; and the DEIA should include meeting minutes, comments by local government, and community consultation that has been conducted with local communities in the area of influence.

ADB Requirements

63. ADB’s SPS 2009 has specific requirements for information disclosure and public consultation. In order to make key documents widely available to the general public, the SPS 2009 requires submission of a final IEE for Category B projects to ADB for posting on the ADB website. The SPS 2009 requires that borrowers take a proactive disclosure approach and provide relevant information from environmental assessment documentation directly to affected peoples and stakeholders.

64. The SPS 2009 also requires that the borrower carry out meaningful consultation with affected people and other concerned stakeholders, including civil society, and facilitate their informed participation in project decision making.

ADB Stakeholder Consultations

65. The proposed Project was initially identified in the discussion with MoE during an ADB country programming mission in 2018, and was officially requested by the Ministry of Finance (MoF) in April 2019. ADB has conducted a number of project preparation missions, and consulted extensively with key stakeholders such as MoE, MoF, National Power Transmission Grid (NPTG), National Dispatching Center (NDC), and Energy Regulatory Commission (ERC).

Public Consultation During DEIA Preparation

66. A public consultation meeting was held on 21 October 2019 at the 32 Khoroo Public Hall, Songino Khairkhan district. The meeting was led by environmental and social specialists from MonEnergy, the PPTA consultant, and Sunny Trade Co., Ltd LLC, the company that prepared the DEIA. The meeting was attended by 30 participants. A number of questions were raised on matters such as battery safety and improved grid operation. The meeting concluded with a request from the Chairman of Representative Khural for participants to disseminate project information to others who could not attend, and a wish for a success project implementation.

Future Disclosure and Consultation Activities

67. The IA will continue to conduct regular community liaison activities during the construction and operation phases, including the implementation of the grievance redress mechanism. Ongoing consultation will ensure that public concerns are understood and dealt with in a timely manner. Environmental monitoring reports will be disclosed on ADB’s website semi-annually during construction and annually during operation.

H. Grievance Redress Mechanism

68. A project grievance is defined as an actual or perceived project related problem that gives ground for complaint by an affected person (AP). In order to address complaints if or when they arise, a Project GRM was developed in accordance with ADB requirements and Government practices. A GRM is a systematic process for receiving, recording, evaluating and addressing an AP’s project-related grievances transparently and in a reasonable period of time. The objective of the GRM is to prevent or address community concerns, reduce environmental and social risks, and assist the Project to maximize environmental and social benefits. In addition to serving as a platform to resolve grievances, the GRM has been designed to: i) provide open channels for effective communication, including the identification of new social and environmental issues of concern arising from the project; ii) demonstrate concerns about community members and their social and environmental well-being; and iii) prevent and mitigate any adverse environmental and social impacts on communities caused by project implementation and operations. The GRM will be accessible to all members of the community.

I. Conclusion

69. The Project environmental assessment process has: i) identified potential negative environment impacts and appropriately established mitigation measures; ii) received public support from the project beneficiaries and affected people;(iii) established an effective project GRM procedure; and iv) prepared a comprehensive Project EMP including environmental management and supervision structure, environmental mitigation and monitoring plans, and capacity building and training.

70. Based on the analysis conducted it is concluded that overall the Project will result in significant positive environmental and socioeconomic benefits, and will not result in significant adverse environmental impacts that are irreversible, diverse, or unprecedented. Any minimal adverse environmental impacts associated with the Project can be prevented, reduced, or minimized through the appropriate application of mitigation measures. It is therefore recommended that:

(i) the Project’s categorization as ADB environment category B is confirmed;

(ii) this IEE is considered sufficient to meet ADB’s environmental safeguard

requirements for the Project, and no additional studies are required; and

(iii) the Project be supported by ADB, subject to the implementation of the commitments contained in the EMP and allocation of appropriate technical, financial and human resources by the EA and IA to ensure these commitments are effectively and expediently implemented.

I. INTRODUCTION

A. The Project

1. This is the initial environmental examination (IEE) report for the proposed First Utility-Scale Energy Storage Project in Mongolia. The proposed Project will i) install a 125 MW/160 MWh battery energy storage system (BESS) in the central energy system (CES) of Mongolia, the country’s first utility scale BESS; and ii) strengthen the institutional and organizational capacity of the national dispatching center (NDC) and the National Power Transmission Grid (NPTG). The Project will be located in Songino Khairkhan district in western Ulaanbaatar (Figure 1). 2. Project operation will i) absorb fluctuating renewable power which is otherwise curtailed; ii) allow for peak shifting to reduce dependency on imports of carbon intensive energy from Russia; iii) enhance frequency regulation support to reduce the impact of intermittent large-scale wind, and to a lesser extent solar PV farms, on the stability of the CES grid; and, iv) supply clean electricity to meet growing peak demand in the CES.

3. The Ministry of Energy (MoE) will be the executing agency (EA) for the project. The NPTG, a state-owned joint stock company mandated to transport bulk power in the CES, will be the IA, and will be responsible for day-to-day management of the Project. The Project has an estimated budget of $115.29 million.

B. Report Purpose

4. ADB’s environmental safeguard requirements are specified in the Safeguard Policy Statement (SPS 2009). The Project has been screened and classified by ADB as Environment Category B, requiring the preparation of an IEE including an environmental management plan (EMP).

C. Approach to IEE Preparation

5. This IEE report has been prepared based on an approved domestic FSR; a domestic Baseline Environmental Assessment (BES) and a full Detailed Environmental Impact Assessment (DEIA) report; site visits conducted by domestic and international environmental consultants; a Climate Risk Assessment (CRA); screenings utilizing the Integrated Biodiversity Assessment Tool (IBAT) developed by BirdLife International, Conservation International, IUCN and UN Environment's World Conservation Monitoring Centre; screening utilizing the World Bank managed Global Facility for Disaster Reduction and Recovery (GFDRR) hazard screening tool ThinkHazard; screening utilizing the Mongolia earthquake risk Modified Mercalli (MM) scale map produced by the United Nations OCHA; and, stakeholder and public consultation meetings.

D. Report Structure

6. This IEE report consists of an executive summary, nine chapters and six appendices. The report is structured as follows:

Executive Summary Summarizes critical facts, significant findings, and recommended actions.

2

I Introduction Introduces the proposed Project, report purpose, approach to IEE preparation and IEE structure. II Policy, Legal, and Administrative Framework Discusses Mongolia’s and ADB’s environmental assessment legal and institutional frameworks, status of approval of the domestic DEIA reports, and applicable environmental guidelines and standards. III Description of the Project Describes the Project rationale, location, design, implementation arrangements, budget and time schedule. IV Description of the Environment Describes relevant physical, biological, and socioeconomic conditions within the Project area. V Anticipated Environmental Impacts and Mitigation Measures Describes impacts predicted to occur as a result of the Project, and identifies the mitigation measures which will be implemented. VI Analysis of Alternatives Presents an analysis of alternatives undertaken to determine the best way of achieving the Project objectives while minimizing environmental and social impacts. VII Information Disclosure, Consultation, and Participation Describes the process undertaken for engaging beneficiaries and carrying out information disclosure and public consultation. VIII Grievance Redress Mechanism Describes the Project Grievance Redress Mechanism (GRM) for resolving complaints. IX Conclusion and Recommendation Presents conclusions drawn from the assessment and recommendations. Appendixes Appendix I presents the project environmental management plan (EMP), including required construction and operation phase environmental mitigation measures, environmental monitoring and reporting requirements, and capacity building. Other appendices present supporting information, including the domestic EIA approval, an environmental audit of the Songino substation, land approval, emission reductions calculations, records from the public consultation activities, and an environmental monitoring report template.

3

Figure 1: Mongolia map.

4

II. POLICY, LEGAL AND ADMINISTRATIVE FRAMEWORK

A. Mongolia Environmental Policy and Legal Framework

7. Mongolia has enacted a policy and legal framework for environmental assessment and management. It has policies, legislation and strategies in place to manage protected areas such as national parks, to satisfy its international obligations, and to protect the quality of the environment for the health and well-being of its citizens. The hierarchy of policies and legislative provisions for environmental management in Mongolia includes the Constitution, international treaties, policies, and environment and resource protection laws, regulations and standards.1

1. Legal Framework

8. Environmental policy reform undertaken since the early 1990s has resulted in a large number of environmental laws, the ratification of most international environmental conventions, inclusion of a substantial area of the country in the protected area system, and an increased presence of Non-Governmental Organizations (NGOs). A summary of relevant environmental legislation is presented in Table 1.

a) Constitution

9. The overarching policy on environmental resources and their protection is set out in the Constitution of Mongolia (1992). Article 16.1.2 of the Constitution states that everyone has the right to live in a healthy and safe environment and to be protected against environmental pollution and ecological imbalance.

b) Law on Environmental Protection

10. The Law on Environmental Protection (2012) is an overarching law for all environmental legislation. It is the principal law that regulates activities associated with the protection of the environment with special emphasis on ‘Natural Resource Reserve Assessment’ and ‘Environmental Impact Assessment’. It governs the land and subsoil, mineral resources, water resources, plants, wildlife and air, and requires their protection against adverse effects to prevent ecological imbalance. The environmental protection law regulates the inter-relations between the state, citizens, economic entities and organizations, with a guarantee for the human right to live in a healthy and safe environment. It aims for an ecologically balanced social and economic development, the protection of the environment for present and future generations, the proper use of natural resources, including land restoration and protecting land and soil from adverse ecological effects. Article 7 of the law requires the conduct of natural resource assessment and environmental impact assessment to preserve the natural state of the environment, and Article 10, environmental monitoring on the state of and changes to the environment. National policy to protect ecologically significant aspects of the environment and to restore natural resources is prepared under the Law on Environmental Protection.

11. The latest amendment to the Law on Environmental Protection (2012) establishes the liability of polluters to pay compensation for damage caused to the environment and natural

1 UNDP, 2008. Institutional Structures for Environmental Management in Mongolia. Ulaanbaatar and Wellington.

5

resources. The amount of compensation payable depends on the natural resources that have suffered the damage.

Table 1: Applicable Mongolian environmental laws.

Current Laws Latest Changes Law on Environmental Protection Amended, 2012 Law on Environmental Impact Assessment Amended, 2012 Law on Development Policy Planning Enacted, 2015 Law on Air Amended, 2012 Law on Fees for Air Pollution Amended, 2012 Law on Water Amended, 2015 Law on Water Pollution Fees Enacted, 2012 Law on Fees for the Use of Natural Resources Amended, 2012 Law on Forests Amended, 2012 Law on Waste Management Amended, 2017 Law on Hazardous Substances and Chemicals Amended, 2006 Law on Land Amended, 2015 Law on Land Fees Amended 2012 Civil Code of Mongolia Amended 2014 Law on Cadastral Mapping and Land Cadastral Amended 2011 Law on Subsoil Amended, 1995 Law on Soil Protection and Combating Desertification Created, 2012 Law on Special Protected area Amended, 2014 Law on Buffer Zones Enacted, 1997 Law on Protection of Plants Amended, 2011 Law on Natural Plants Amended, 2012 Law on Fauna Amended, 2012 Law on Minerals Amended 2015 Law on Fire Safety Amended, 2015 Law on Disaster Protection Amended, 2012 Law on Sanitation Amended, 2012 Law on Protection of Cultural Heritage Amended 2014 Law on Labor Safety and Hygiene Amended, 2015

Source: ADB PPTA consultants.

c) Law on Environmental Impact Assessment

12. The Law on Environmental Impact Assessment (2012) stipulates the EIA requirements of Mongolia (described further below). The purpose of this law is environmental protection, the prevention of ecological imbalance, the regulation of natural resource use, the assessment of environmental impacts of projects, and procedures for decision-making regarding the implementation of projects.

d) Laws on Water

13. The Law on Water (2015) regulates the effective use, protection and restoration of water resources. It specifies regular monitoring of the levels of water resources, quality and pollution, and provides safeguards against water pollution. The Law on Water Pollution Fees (2019) introduces fines and fees for the pollution of water resources.

6

e) Law on Land

14. The Law on Land (2015) regulates the possession and use of land by a citizen, entity and organization, and other related issues. Articles 42/43 provide guidance on removing possessed land and granting compensation.

f) Law on Subsoil

15. The Law on Subsoil (1995) regulates the use and protection of subsoil in the interests of present and future generations.

g) Law on Air

16. The Law on Air (2012) regulates the protection of the atmosphere, allows the Government to set emissions standards, and provides for the regular monitoring of air pollution and impacts.

h) Law on Forests

17. The Law on Forests (2012) regulates protection, possession, sustainable use and production of forests in Mongolia. It defines prohibited activities in protected forest zones and their regimes regulates harvesting in forest utilization zones and their regimes.

i) Law on Waste Management

18. The Law on Waste Management (2017) regulates relations arising from prevention from and reduction of negative impacts of waste on public health and environment, reduction, sorting collection, transportation, storage, reuse, recycling, regeneration, elimination and export of waste, obtaining economic benefits from waste for efficient use of natural resources, improving public knowledge on waste and prohibition of import and cross-border transportation of hazardous waste.

j) Law on Specially Protected Areas

19. The Law on Specially Protected Areas (2014) regulates the use and procurement of land for state protection, fosters scientific research, and preserves and conserves the land’s original condition in order to protect specific characteristics, unique formations, rare and endangered plants and animals, historic and cultural monuments, and natural beauty. The law establishes four protected area categories, each managing land for a different purpose under a separate management directive. These include Strictly Protected Areas (SPA), National Parks (NP), Nature Reserves (NR) and National Monuments (NM).

k) Law on Natural Plants

20. The Law on Natural Plants (1995) regulates the protection, proper use, and restoration of natural plants other than forests and cultivated plants.

l) Law on Protection of Cultural Heritage

21. The Law on Protection of Cultural Heritage (2014) regulates the collection, registration, research, classification, evaluation, preservation, protection, promotion, restoration, possession and usage of cultural heritage including tangible and intangible heritage.

7

m) Health and Safety

22. In addition to environmental laws and regulations, there are occupational health and safety laws and regulations the EA and IA must comply with:

Article 16 of the National Constitution of Mongolia states that every employee has the right to “suitable conditions of work”.

The Mongolian Labor Code (1999) is the main piece of legislation guiding employment in Mongolia. It covers collective contracts and agreements, labor contracts, remuneration, working hours, working conditions, public holidays, vacations, safety, employment of minors and the disabled, dispute resolution and labor monitoring by the State.

The government adopted a National Program for Occupational Safety and Health Improvement in 2001 and national standards were also adopted such as the National Standard on Occupational Health and Safety MNS 5002:2000.

The Law on Labor Safety and Hygiene (2008) covers requirements for industrial buildings and facilities, requirements for machinery and equipment, requirements for hazardous chemicals and explosives, fire safety, medical check-ups, personal protective equipment, training, rights to favorable working conditions and investigation of accidents and occupational diseases.

n) Power Transmission and Distribution

23. The regulatory framework for electricity generation includes:

The Law on Energy (February 2001) defines the legal framework of the sector, describes the duties and responsibilities of stakeholder like the Mongolian parliament, government, ministry and energy regulatory commission and other parties, owner-ship form, classification of energy facilities, and license and energy tariff issues. According to this law the Mongolian energy sector was uncoupled and divided into classifications of generation, transmission grid, distribution grid, dispatching and consumer.

The Law on Renewable Energy (January 2007) brought additional legal framework for the supply and utilization of electricity from renewable energy (RE) resources like wind, solar and hydro. The law described all duties and responsibility of stakeholders and the feed-in tariffs for RE sources, validation time of feed-in tariffs and power purchase agreements.

The Mongolian grid code provides information on terms and definitions and procedures, is one of the main legal frameworks for grid connected operation.

The Law on Construction provides information on construction processes in Mongolia.

2. Environmental Policy Framework

24. A fundamental principle of the Mongolian state environmental policy is that economic development must be in harmony with the extraction and utilization of natural resources, and that air, water and soil pollution will be controlled. In 1996 Mongolia’s National Council for Sustainable Development was established to manage and organize activities related to sustainable development. The country’s sustainable development strategy is designed for environmentally friendly, economically stable and socially wealthy development, which emphasizes people as the determining factor for long-term sustainable development.

25. Mongolia has developed a number of key environmental policy documents, including:

Biodiversity Conservation Action Plan, 1996;

8

State Environmental Policy, 1997; Mongolian Action Program for the 21st Century (Map21), 1998; National Action Plan for Climate Change, 2000; National Plan of Action to Combat Desertification, 2000; National Plan of Action for Protected Areas, 1997; National Environmental Action Plan, 1996, 2000; and Green Development Policy of Mongolia, 2014.

26. In addition, other guidance documents with important environmental repercussions were developed under the auspices of other ministries and these include the Roads Master Plan, the Power Sector Master Plan, the Tourism Master Plan, and the Renewable Energy Master Plan. Other documents, such as the annual Human Development Reports have increasingly incorporated environmental aspects.

3. Environmental Institutional Framework

27. The State Great Khural of Mongolia is the highest organ of State power and the supreme legislative power. The State Great Khural is unicameral and consists of 76 members elected by the mixed electoral system.

28. The Ministry of Nature, Environment and Tourism (MNET) is the agency primarily responsible for the implementation of environmental policy in Mongolia. Agencies under the MNET with responsibility for environmental protection and management include:

- The Department of Green Development Policy and Planning is responsible for developing national advocacy, legislation, policies, strategies and programs on environmental protection and green development in accordance with the sustainable development goals of the country; developing financial and investment plans, and provide comprehensive policy guidance. Additional responsibilities include: coordination across sectors to promote green development consistent with ecological principles; planning and initiation of regional and international participation of Mongolia in solving global environmental challenges; and development of policies, programs and projects that introduce clean technologies, and scientific and technological achievements.

- The Department of State Administration and Management is responsible for administration and leadership in the MNET. Its functions include addressing human resource management and development issues, providing legal advice, introducing best practices for administration in the MNET, developing systems of reporting and accountability, resolving appeals and complaints, and improving organizational management. The department focuses on ensuring the continuity and stability of MNET operations by way of professional and disciplined departments, and on developing human resource policies and improving the effectiveness of their implementation, guidelines and recommendations on required future courses of action.

- The Department of Environment and Natural Resources is responsible for the planning and implementation of actions to reduce environmental degradation and adverse environmental impacts, and ensuring the appropriate use of natural resources. Its functions include implementing laws and regulations, policy, programs, and activities related to the conservation and appropriate use of natural resources; restoring areas that have suffered from degradation; organizing and coordinating biological conservation activities; conducting environmental assessments and maintaining the Environmental Information Databank; and organizing training and public awareness activities related to

9

environmental conservation. Activities undertaken in this context include:

- Reviewing EIAs;

- Monitoring the implementation of environmental monitoring programs, environmental protection plans, and rehabilitation programs of mines; receiving and reviewing annual reports on the above activities; and issuing professional guidelines and recommendations on required future courses of action;

- Conducting environmental assessments and maintaining the State Environmental Information Databank;

- Maintaining a unified registry of very toxic, toxic, and harmful chemicals, and issuing authorizations for their manufacture and import; and,

- Coordinating household and industrial waste management policy; and managing air pollution.

- The Department of Specially Protected Areas Administration and Management has been entrusted with the responsibility of implementing the laws and regulations concerning Specially Protected Areas (SPA). Its functions include coordinating activities related to the expansion of the SPA network and the implementation of associated programs, projects, and actions, as well as providing professional and practical assistance to the administrative authorities of SPA. It focuses on ensuring the integration of policies and actions promoting sustainable natural resource use and ecological balance. These responsibilities are carried out by developing partnerships with all organizations engaged in policy implementation, ensuring the effective allocation of resources, and organizing and coordinating their activities in line with government policy, programs, and plans.

- The Ecologically Clean Technologies and Science Division is responsible for developing and promoting clean technologies in Mongolia by introducing cleaner production technology to all aspects of production and services.

- The Department of Monitoring, Evaluation and Internal Auditing responsibilities are to monitor and control the implementation of policy planning and its operational phases, to evaluate results, to create information databases, to present statistical data and to ensure transparency and information disclosure.

- The Department of Land and Water is responsible for implementing government policy and decisions related to the sustainable use, protection and restoration of land and water resources in Mongolia; signing and monitoring the implementation of contracts and agreements, in the name of the MNET, with relevant foreign and domestic organizations, companies, and individuals; collecting fees and payments for the use of land and water resources and allocating these according to the appropriate procedures; and allocating and reporting on the use of funds for their conservation and restoration of land and water resources.

- The National Agency for Meteorology, Hydrology and Environmental Monitoring is responsible for managing a national, integrated hydrological, meteorological, and environmental monitoring network; ensuring preparedness for potential natural disasters or major pollution incidents; establishing conditions to permit the full and complete use of meteorological and hydrological resources; continuously monitoring radioactivity, air and water pollution, and soil contamination levels; and providing essential hydrological, meteorological, and environmental data to state and government officials, businesses, and individuals.

10

4. International Environmental Commitments

29. Mongolia has signed on to a number of international environmental conventions, including:

World Heritage Convention, 1990; Convention on Biological Diversity, 1993; UN framework convention in Climate Change, 1994; UN Convention on Combatting Desertification, 1996; The Convention on Wetlands of International Importance, especially as Waterfowl Habitat

‘Ramsar Convention’, 1996; Vienna Convention for the protection of the Ozone Layer, 1996; Montreal Protocol (regulating substances that deplete the ozone layer), 1996; Convention on International Trade in Endangered Species of Fauna and Flora (CITES),

1996; Convention on the Transboundary Movement of Hazardous Waste (Basel), 1997; Convention on Migratory Species of Wild Animals /Bonn Convention, 1999; Kyoto Protocol, 1999; Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous

Chemicals and Pesticides in International Trade, 2000; Cartagena Protocol, 2002; and, Stockholm Convention (SC) on Persistent Organic Pollutants (POPs), 2004; Minamata Convention on Mercury, 2015.

30. In addition, the Mongolia has ratified the following International Labor Organization (ILO) core labor standards:

Abolition of Forced labor (C105); Child Labor (C182); Discrimination (C111); Freedom of Association and the Right to Organize (C87); Equal Remuneration (C100); Minimum Age (C138); and, Right to Organize and Collective Bargaining Convention, 1949 (C098).

5. Environmental Impact Assessment Legal Framework and Procedures

31. The Law on Environmental Impact Assessment (1998, amended 2002 and 2012) regulates Mongolian EIA requirements, including all new projects as well as the renovation and expansion of existing industrial, service and construction activities and project which use natural resources. Depending on the type and size of the planned activity, the responsible party for implementing the EIA law will be either MNET or aimag government (provincial government).

32. There are two EIA stages defined in the EIA Law: an initial screening through a General EIA (GEIA), and a full Detailed EIA (DEIA). In the first stage the project implementer submits to the MNET i) baseline environment study (BES); ii) a feasibility study including a description of the proposed project, drawings and technical and economic justification; and iii) written opinion of the soum (district) governor. The MNET reviews the submission and issues one of three GEIA conclusions:

11

(i) project may be implemented provided that certain conditions set in the GEIA conclusion are followed;

(ii) project is required to undergo a detailed EIA (DEIA) for identification of potential impacts, avoidance of negative impacts with mitigation measures, and elaboration of an EMP. The DEIA should be conducted by a government licensed EIA company. Upon completion, the DEIA will be reviewed by the EIA committee of the MNET for approval; or

(iii) project rejected on grounds of non-conformity with relevant legislation, or the adverse impact of the equipment and technology on the environment are too great, or absence of the project in the land management.

33. The screening review and GEIA conclusion is free and usually takes about 12 working days.

34. The scope of the DEIA (if required) is defined in a Terms of Reference (ToR) prepared by the GEIA review committee. The DEIA report must be prepared by a MNET authorized Mongolian company, and should be submitted to the MNET or aimag government by the project proponent. A DEIA typically includes:

(i) Environmental baseline data; (ii) Project and technology alternatives; (iii) Recommended measures to mitigate and eliminate potential; adverse impacts; (iv) Analysis of the extent and distribution of adverse impacts and consequences; (v) Risks assessment; (vi) Environmental management plan to include environmental protection (mitigation)

plan and environmental monitoring program; (vii) Opinions and comments of affected households in the project area; (viii) If applicable other issues regarding cultural heritage in the project area and special

nature of the project; and (ix) A rehabilitation plan if applicable.

35. The reviewer(s) of the GEIA also review the DEIA, generally within 18 working days, and present the findings to the MNET. Based on the content of the DEIA, reviewer conclusions, and any additional comments by MNET departments, MNET issues a decision on whether to approve or reject the project.

36.

12

37. Figure 2 presents a simplified diagram of the EIA procedure in Mongolia.

13

Figure 2: EIA procedure in Mongolia.

6. Mongolian EIA Report

38. A Project GEIA was prepared by PPTA national environmental specialist and was submitted to MNET. Based on the review of the GEIA by MNET, a qualified national consultant (Sunny Trade Co., Ltd LLC) was recruited to prepare a Project DEIA. The DEIA was approved by Ministry of Nature, Environment and Tourism on 8 January 2020.

B. Applicable Environmental Standards

39. Mongolian National Standards (MNS) prescribe allowable ambient and discharge standards for ambient air, noise, water and soil quality, and industrial effluent, wastewater, boiler emissions, etc. Relevant MNS are discussed below.

40. During the design, construction, and operation of a project, the ADB SPS 2009 requires the borrower to follow environmental standards consistent with good international practice (GIP), as reflected in internationally recognized standards such as the World Bank Group’s EHS Guidelines. The EHS Guidelines contain discharge effluent, air emissions, and other numerical guidelines and performance indicators as well as prevention and control approaches that are normally acceptable to ADB and are generally considered to be achievable at reasonable costs by existing technology. When host country regulations differ from these levels and measures, the borrower/client is to achieve whichever is more stringent. If less stringent levels or measures are appropriate in view of specific project circumstances, the borrower/client is required to provide

14

justification for any proposed alternatives.

41. Relevant EHS Guidelines include General EHS Guidelines (covering environment; occupational health and safety; and community health and safety), and EHS Guidelines for Electric Power Transmission and Distribution.

1. Air Quality

42. The Mongolian Law on Air regulates protection of ambient air, prevention from pollution, and reduction and monitoring of emissions of air pollutants. The Mongolian ambient air quality standards are presented in MNS 4585: 2016 (replacing the 2007 version).

43. The World Health Organization (WHO) Air Quality Guidelines are recognized as international standards and are adopted in the EHS Guidelines. In addition to guideline values, interim targets (IT) are given for each pollutant by the WHO as incremental targets in a progressive reduction of air pollution.

44. The WHO guidelines and corresponding MNS are presented in Table 2. Overall the WHO guidelines (and some IT values) exceed the MNS for ambient air quality, and are adopted for use in this report.

2. Water

45. The EHS Guidelines recommend that discharges of process wastewater, sanitary wastewater, wastewater from utility operations or stormwater to surface water should not result in contaminant concentrations in excess of local ambient water quality criteria. The MNS water and wastewater standards are adopted for use in this report, supported by the WHO Guidelines for Drinking-water Quality, Fourth Edition (2011). Table 3 summaries Mongolian ambient water quality standards MNS 4585: 2007,

15

46. Table 4 summaries Mongolian drinking water standards MNS 0900: 2005, and Table 5 summarizes effluent wastewater quality standards MNS 4943: 2011.

Table 2: Mongolian ambient air quality standards (MNS 4585: 2016) and WHO Guidelines.

Pollutant Averaging

Period

Mongolian Standards

(µg/m³)

WHO ambient air quality guidelines (GL) and interim

targets (IT), (µg/m³) Nitrogen Dioxide (NO2) 20 Minute 200

1 hour - 200 24 hours 50 - Annual 40 40

Sulphur Dioxide (SO2) 10 Minute - 500 (GL) 15 Minute - - 20 Minute 450 -

1 Hour - - 24 hours 50 125 (IT-1)

50 (IT-2) 20 (GL)

Annual 20 - Particulate Matter (PM10) 24 hours 100 150 (IT-1)

100 (IT-2) 75 (IT-3) 50 (GL)

Pollutant Averaging

Period

Mongolian Standards

(µg/m³)

WHO ambient air quality guidelines (GL) and interim

targets (IT), (µg/m³) Annual 50 70 (IT-1)

50 (IT-2) 30 (IT-3) 20 (GL)

Particulate Matter (PM2.5) 24 hours 50 75 (IT-1) 50 (IT-2)

37.5 (IT-3) 25 (GL)

Annual 25 35 (IT-1) 25 (IT-2) 15 (IT-3) 10 (GL)

Carbon Monoxide (CO) 30 Minute 60,000 - 1 hour 30,000 - 8 Hour 10,000 -

Ozone (O3) 8 hours 100 160 (IT) 100 (GL)

Lead (Pb) 24 hours 1 - Annual 0.25 -

Source: MNS 4585:2016 and WHO Air Quality Guidelines (2006) in IFC EHS Guidelines (2007).

16

Table 3: Mongolian ambient water quality standards (MNS 4585: 2007).

Parameter Unit Standard (pH) 6.5-8.5 Dissolved Oxygen (O2) mgO/l 6&4 not less BOD5 mgO/l 3 COD mgO/l 10 NH4-N mgN/l 0.5 NO2-N mgN/l 0.02 NO3-N mgN/l 9 PO4- P mgP/l 0.1 Chloride Cl mg/l 300 Fluoride F mg/l 1.2 SO4 mg/l 100 Manganese Mn mg/l 0.1 Nickel Ni mg/l 0.01 Copper Cu mg/l 0.01 Molybdenum Mo mg/l 0.25 Cadmium Cd mg/l 0.005 Cobalt Co mg/l 0.01 Lead Pb mg/l 0.01 Arsenic As mg/l 0.01 Total Chromium Cr mg/l 0.05 Hexavalent chromium (Cr6+) mg/l 0.01 Zinc Zn mg/l 0.01 Mercury Hg mg/l 0.1 Mineral oil mg/l 0.05 Phenol mg/l 0.001

Source: Mongolian Standard MNS 4586:1998.

17

Table 4: Mongolian Drinking Water Standards (MNS 0900: 2005).

Parameter Unit Standard Physical Quality

pH mg/l (milligrams/liter) 6.5-8.5 Hardness mg equivalent/l 7.0 Total Dissolved Solids (TDS) mg/l 1000.0 Turbidity mg/l 1.5 Taste Score 2.0 Odor Score 2.0 Color Degree 20

Inorganic Quality Molybdenum (Mo) mg/l 0.07 Barium (Ba) mg/l 0.7 Boron (B) mg/l 0.5 Copper (Cu) mg/l 1.0 Calcium (Ca2+) mg/l 100.0 Magnesium (Mg2+) mg/l 30.0 Manganese (Mn) mg/l 0.1 Sodium (Na) mg/l 200.0 Phosphate (PO4-) mg/l 3.5 Fluoride (F) mg/l 0.7-1.5 Selenium (Se) mg/l 0.01 Strontium (Sr) mg/l 2.0 Sulfate (SO4-) mg/l 500.0 Chloride (Cl) mg/l 350.0 Arsenic (As) mg/l 0.01 Hydrogen sulphide (H2S) mg/l 0.1 Chromium (Cr) mg/l 0.05 Dry residue mg/l 1000.0 Uranium (U) mg/l 0.015 Beryllium (Be) mg/l 0.0002 Cadmium (Cd) mg/l 0.003 Total mercury (Hg) mg/l 0.001 Total cyanide (CN-) mg/l 0.01 Ammonium ion, (NH4+) mg/l 1.5 Nitrate ion, (NO3-) mg/l 50.0 Nitrite ions (NO2-) mg/l 1.0 Phosphate ions, (PO43-) mg/l 3.5 Silver (Ag) mg/l 0.1 Iodine (I2) mg/l 1.0 Vinyl chloride mg/l 0.0003 Nickel (Ni) mg/l 0.02 Lead (Pb) mg/l 0.01 Aluminum mg/l 0.5 Antimony (Sb) mg/l 0.02 Total iron (Fe) mg/l 0.3 Zinc (Zn) mg/l 5.0

Organic Quality Benzene mg/l 0.01 Xylenes mg/l 0.5 Nitrile 3 acetic acid mg/l 0.2 2 chlorinated methane mg/l 0.02 2 chlorinated ethane mg/l 0.03 3 chlorinated ethane mg/l 0.07 4 chlorinated ethane mg/l 0.04 Phenolic compounds mg/l 0.002 Styrene mg/l 0.02 Toluene mg/l 0.7

18

Parameter Unit Standard Ethyl benzene mg/l 0.3

Pesticides Atrazine mg/l 0.002 Carbofuran mg/l 0.007 Lindane mg/l 0.002 Molinat mg/l 0.006 Endrin mg/l 0.00006

Microbial Quality Total Coliform Coli / ml 100 (at source) 20 (at supply) E. Coli E. Coli / 100 ml E. Coli / 100 ml

Radiological Quality Total α radioactivity Bq/l 0.1 Total β radioactivity Bq/l 1.0

Source: Mongolian Standard MNS 0900: 2005.

Table 5: Mongolian effluent wastewater quality standard (MNS 4943: 2011).

Parameter Unit Standard Water temperature oC 20 pH - 6-9 Odor Sense No smell Total Suspended Solids (TSS) mg/l 50 BOD5 mg O2/l 20 COD mg O2/l 50 Permanganate oxidizing capacity mg O2/l 20 Total Dissolved Solids (TDS) mg/l 1,000 * Ammonia Nitrogen (NH4) mg N/l 6 Total Nitrogen (TN) mg/l 15 Total phosphorous (TP) mg/l 1.5 Organic phosphorous (DOP) mg/l 0.2 Hydrogen sulphide (H2S) mg/l 0.5 Total iron (Fe) mg/l 1 Aluminum (Al) mg/l 0.5 Manganese (Mn) mg/l 0.5 Total Chromium (Cr) mg/l 0.3 Hexavalent chromium (Cr6+) mg/l Absent Total cyanide (CN) mg/l 0.05 Free cyanide mg/l 0.005 Copper (Cu) mg/l 0.3 Boron (B) mg/l 0.3 Lead (Pb) mg/l 0.1 Zinc (Zn) mg/l 1 Cadmium (Cd) mg/l 0.03 Antimony (Sb) mg/l 0.05 Mercury (Hg) mg/l 0.001 Molybdenum (Mo) mg/l 0.5 Total Arsenic (As) mg/l 0.01 Nickel (Ni) mg/l 0.2 Selenium (Se) mg/l 0.02 Beryllium (Be) mg/l 0.001 Cobalt (Co) mg/l 0.02 Barium (Ba) mg/l 1.5 Strontium (Sr) mg/l 2 Vanadium (V) mg/l 0.1 Uranium (U) mg/l 0.05 Oil and grease mg/l 1 Fat mg/l 5 Surface active agents mg/l 2.5

19

Parameter Unit Standard Phenol (C6H5OH) mg/l 0.05 Trichloroethylene (C2HCl3) mg/l 0.2 Tetrachloroethylene mg/l 0.1 Chlorine remains (Cl) mg/l 1 Bacteria triggering water-borne disease

- Absent in 1 mg of water

Source: Mongolian Standard MNS 4943: 2011.

3. Groundwater

47. The Mongolian standard outlining the general requirements for protection of groundwater (MNS 3342: 1982) indicates that the contamination of groundwater with industrial raw materials, products and municipal wastes during transportation and storage is prohibited. Relevant requirements in the standard include:

a. Raw materials and products for industrial and municipal waste storage tanks with

potential to contaminate groundwater resources should comply with following: Geological - hydrogeological investigations of the storage tank construction,

potential soil infiltration estimates of geological materials, groundwater protection measures to be developed based on the amount and characteristics of the chemicals stored.

Storage tanks to be tested for leakage prior to use. For areas at the base of mountains, loops of rivers, river beds and highly

fractured parts of geological sediments which are used for drinking water, storage tanks cannot be established in these regions.

b. In case of ground water contamination due to accidents, the damaged area should be protected, spill gathered without further distribution, the prohibition of drinking water collection from this area, and quick organization and removal of traces of contamination.

c. In the event of ground water pollution or when the contamination reaches dangerous levels, the method of observation and control will depend on the ground water quality, its intended use and the potential consequences of the pollution.

48. There is no equivalent standard recommended in the EHS Guidelines, and the MNS standard is adopted for use in this report.

4. Soil

49. Mongolian standards for heavy metals in soil are presented in MNS 5850: 2008.

Table 6: Mongolian heavy metals standard (MNS 5850: 2008).

Parameter CR Pb Cd Ni Zn Mongolian Standard (MNS 5850: 2008)

150 100 3 150 300

Source: MNS 5850: 2008.

5. Noise

50. Mongolian noise standards are set out in the national standard MNS 4585: 2007 and are compared with relevant international guidelines from the WHO (as presented in the EHS

20

Guidelines) in Table 7. The classes within the standards are not directly comparable, however WHO noise guidelines are more stringent than Mongolian standards for sensitive receptors. Project activities near sensitive receptors will comply with WHO noise guidelines.

Table 7: Mongolian noise standard (MNS 4585: 2017) and WHO Guidelines.

Parameter MNS Standard dB(A) WHO Guideline dB(A)

Daytime 07:00 – 23:00

Night 23:00 – 07:00

Daytime 07:00 – 22:00

Night 22:00 – 07:00

Maximum Environmental Noise Exposure for the Public

60 45

WHO Class I - Residential, institutional, educational: 55 WHO Class II - industrial, commercial: 70

WHO Class I - Residential, institutional, educational: 45 WHO Class II - Industrial, Commercial: 70

Source: MNS 4585: 2007 and WHO Noise Quality Guidelines (1999) in IFC EHS Guidelines (2007).

6. Hazardous Wastes

51. Mongolia’s hazardous waste classification list was approved in 2015 by the Government of Mongolia (GoM) Resolution No. 263.2 Of direct relevance to the Project, under the list all batteries and accumulators are classified as hazardous waste. More specifically, Li-Ion batteries are classified as hazardous waste under waste classification code “16 06 06 - other batteries and accumulators”. Wastes from electrical equipment containing PCBs, HCFCs, HFCs, asbestos and other hazardous components are also classified as hazardous waste.

7. Special Protected Areas

52. The Law on Special Protected Areas (15 November 1994) is intended to protect the natural landscape, rare fauna and flora, historical and cultural sites and natural sightseeing sites.

53. The law classifies State special protected areas into four categories: i) strictly protected areas; ii) national conservation parks; iii) nature reserves; and iv) monuments. Strictly protected areas are further divided into three zones based on natural forms, features of soil, water, fauna, flora and its vulnerability to human activities: i) pristine zone; ii) conservation zone; and iii) limited use zone.

54. In the pristine zone, only protection activities conformant with the need to preserve original natural features may be conducted; research and investigation activities may be conducted only in the way of observation methods and without causing any damage to the natural features. All other activities are prohibited within this zone. In the conservation zone, biotechnological measures that use environmentally safe technologies may be implemented to enhance flora and fauna reproduction and to mitigate damages caused by natural disasters. The following activities may be conducted in the limited use zone using environmentally safe technologies and with

2 Hazardous waste classifications system in Mongolia, Resolution no. 263 dated 29 June 2015 signed by Prime

Minister and Minister of MNET.

21

appropriate licenses or permits:

soil and plant cover restoration; forest maintenance and cleaning; animal inventories and activities to regulate animal population numbers, age, sex and

structure, following an approved program and methods; use of mineral water and other treatment and sanitation resources; ecotourism organized following designated routes and areas, according to appropriate

procedures; use of accommodations according to appropriate procedures and designated for

temporary residence, camping, observation, research or investigation by travelers or other people with permission;

taking photographs, making audio and video recordings and using them for commercial purposes;

worshipping natural sacred sites and conducting other traditional ceremonies; and, collect and use the associated natural resources and medicinal and food plants, according

to established regulations, for household needs.

C. Applicable ADB Policies, Regulations and Requirements

55. The major applicable ADB policies, regulations, requirements and procedures for environmental assessment are the SPS 2009, and the Environmental Safeguards – A Good Practice Sourcebook (2012), which jointly provide the basis for this IEE. The SPS 2009 promotes GIP as reflected in internationally recognized standards such as the World Bank Group’s EHS Guidelines. The policy is underpinned by the ADB Operations Manual for the SPS (OM Section F1, 2013).

56. The SPS 2009 establishes an environmental review process to ensure that projects undertaken as part of programs funded through ADB loans are environmentally sound, are designed to operate in line with applicable regulatory requirements, and are not likely to cause significant environment, health, social, or safety hazards.

57. At an early stage in the project cycle, typically the project identification stage, ADB screens and categorizes proposed projects based on the significance of potential project impacts and risks. A project’s environment category is determined by the category of its most environmentally sensitive component, including direct, indirect, induced, and cumulative impacts. Project screening and categorization are undertaken to:

a. reflect the significance of the project’s potential environmental impacts; b. identify the type and level of environmental assessment and institutional

resources required for the safeguard measures proportionate to the nature, scale, magnitude and sensitivity of the proposed project’s potential impacts; and,

c. determine consultation and disclosure requirements.

58. ADB assigns a proposed project to one of the following categories:

a. Category A. Proposed project is likely to have significant adverse environmental impacts that are irreversible, diverse, or unprecedented; impacts may affect an area larger than the sites or facilities subject to physical works. A full-scale environmental impact assessment (EIA) including an EMP, is required.

22

b. Category B. Proposed project’s potential environmental impacts are less adverse and fewer in number than those of category A projects; impacts are site-specific, few if any of them are irreversible, and impacts can be readily addressed through mitigation measures. An IEE, including an EMP, is required.

c. Category C. Proposed project is likely to have minimal or no adverse environmental impacts. No EIA or IEE is required although environmental implications need to be reviewed.

d. Category FI. Proposed project involves the investment of ADB funds to, or through, a financial intermediary.

59. The project has been classified by ADB as environment category B, requiring the preparation of an IEE (this report).

60. The SPS 2009 requires a number of additional considerations, including: (i) project risk and respective mitigation measures and project assurances; (ii) project-level grievance redress mechanism; (iii) definition of the project area of influence; (iv) physical cultural resources damage prevention analysis; (v) occupational and community health and safety requirements (including emergency preparedness and response); (vi) economic displacement that is not part of land acquisition; (vii) biodiversity conservation and natural resources management requirements; (viii) provision of sufficient justification if local standards are used; (ix) assurance of adequate consultation and participation; and (x) assurance that the EMP includes an implementation schedule and measurable performance indicators. These requirements, which may not be covered in the domestic EIA, have been considered, and all applicable environmental requirements in the SPS 2009 are covered in this IEE.

III. PROJECT DESCRIPTION

A. The Project

61. Mongolia boasts some of the best resources for solar and wind power in the world, but a variety of factors have to date limited the installation of RE systems in Mongolia. The output of existing wind power systems have at times been curtailed (that is, not delivered to the electricity grid) or sold at a steep discount to the Russian Federation because output was not currently needed by the Mongolian grid. To assist in bringing wind and solar power to market, with their attendant economic and environmental benefits, a 125 MW/160 MWh BESS capacity will be installed in the capital city of Ulaanbaatar.

62. The proposed Project will:

i. Install a 125 MW/160 MWh BESS in the CES of Mongolia, the country’s first utility scale BESS. The BESS will be cold climate resilient, equipped with an Energy Management System, and will have a life span of 15+ years. Operation of the BESS will:

a. absorb fluctuating renewable power which is otherwise curtailed; b. allow for peak shifting to reduce dependency on imports of carbon intensive

energy from Russia; c. enhance frequency regulation support to reduce the impact of intermittent large-


d. supply clean electricity to meet growing peak demand in the CES.

23

ii. Strengthen the institutional and organizational capacity of the NDC and the NPTG for: a. optimal use of the BESS for renewable electricity evacuation; b. implementation of an operation and maintenance strategy to avoid over charging

and discharging, and a funding strategy to fully cover operation and maintenance cost as well as replacement cost after the end of battery life;

c. knowledge dissemination to other DMCs facing similar challenges in scaling up RE.

63. Successful completion of the proposed Project will also allow the connection of an additional 350 MW by 2030 of RE capacity into the CES without curtailment, thereby fully meeting the government’s RE target by 2030. Once fully operational the project will: (i) evacuate 859 GWh of renewable electricity annually; (ii) reduce sub-bituminous coal use in existing CHPs by 219,000 tons annually; and (iii) reduce annual emissions by 842,039,000 tons of CO2, 460 tons of SO2, 180 tons of NOx, and 723 tons of PM.

B. Country Context and Rationale

1. Energy Capacity

64. Mongolia is a land-locked country with an estimated population of 3.286 million3. It is one of the most sparsely populated countries in the world with only 2.10 persons per km2.

65. The Mongolian energy system consists of 5 power grids: the Central Energy System (CES); Western Region Energy System (WES); Altai-Uliastai Energy System (AUES); Eastern (Dornod) Region Energy System (EES); and, the Southern Region Power Supply (SRPS). These systems currently have 1,240 megawatt (MW) of installed capacity. The power plant fleet consists of five Combined Heat & Power Plants (CHPs) in operation in the CES, three small CHPs in operation in Choibalsan (EES), in Dalanzadgad, and in Ukhaakhudag (Southgovi), Durgun Hydropower Plant (HPP), Taishir HPP, the Altai and Uliastai Diesel Stations, and small Renewable Energy Sources (RES). The Oyu Tolgoi mine is supplied through a grid connection to China. The Ukhaakhudag thermal power plant and diesel station operates as a reserve power source for Oyu Tolgoi mine. These plants generate and supply electricity to consumers through 220/110 kV transmission grids and substations, and 35/10/6/0.4 distribution grids and substations.

3 National Statistics Office of Mongolia, 2019.

24

Figure 3: Mongolia’s energy systems.

Source: Ministry of Energy, 2018.

66. The CES grid, which covers major load demand centers including Ulaanbaatar, accounted for 91% of electricity demand in the country in 2018. The CES grid is divided into four branches: Ulaanbaatar Area Branch, Central Region Area Branch, Khangai Region Area Branch and South-Eastern Area Region Branch (Figure 4). The CES includes one unified transmission grid and 18 distribution grids, and is connected to the Buriad Energy System in Russia through 220 kV overhead transmission lines. The National Power Transmission Grid (NPTG), a state-owned enterprise (SOE), is responsible for providing power transmission services in the CES.

67. There are no developed petroleum and natural gas resources in Mongolia, and coal, which is readily abundant, is the dominant energy resource. As a result, Mongolia is the world’s fifth most carbon-intense economy, and its energy system is the most coal dependent of all Developing Members Countries (DMCs) of the ADB. In 2018, coal accounted for 60% of primary energy and 95% of secondary energy, and coal-fired combined heat and power (CHP) plants constituted 93% of total power production in the CES grid.

25

Figure 4: CES branches.

Source: NPTG, 2019.

68. Despite aging power facilities that are well past their economic life, the grid system has been well managed so far and the reliability of power supply has constantly improved since 2011.4 However, due to delayed investment in new generation capacity and growing electricity demand, the capacity factor of the CHP plants during peak times in winter has already exceeded 90%, and available generation capacity reserve in the CES could potentially be depleted by as early as 2020.5 Based upon updated medium and long term electricity load demand projections between 2015 and 2030, generation capacity additions of 230 MW by 2023 and a further 891 MW by 2030 are essential to meet the growing demand in the CES while maintaining an adequate reserve margin of 10% by 2023 and 20% by 2030.

2. Decarbonizing the Energy Sector

69. The energy sector is Mongolia largest contributor to GHG emissions, accounting for about two-thirds of the country’s GHG emissions. According to the Nationally Determined Contribution (NDC) of Mongolia,6 GHG emission will increase to 51.5 million tons of carbon dioxide (mtCO2) by 2030 in a Business-As-Usual (BAU) scenario in which the energy sector accounts for 81.5% of total emissions. The NDC targets to reduce 7.1 mtCO2 of GHG emission by 2030 as compared to BAU, through emission reduction from power and heat generation (4.9 mtCO2), industry (0.7 mtCO2), and transportation (1.7 mtCO2).

70. RE, especially wind and solar, holds tremendous potential for Mongolia. RE potential is estimated to be equivalent to 2,600 gigawatts of installed capacity, which could fully meet the

4 System Average Interruption Duration Index (SAIDI), average outage time per total number of customers, has constantly declined from 119 in 2011 and 61 in 2018.

5 Imported electricity from Russia has grown from 176 GWh in 2015 to 304 GWh in 2018. Utilization rate of 220 kilovolt transmission line for electricity import from Russia also reached 60% in 2018, beyond 50% of safety reserve margin.

6 http://www.4.unfccc.int/submissions/INDC/Published%20Documents/Mongolia/1/150924_INDCs%20%of%20Mongolia.pdf

26

power demand in the country. However, this rich RE resource has not been fully utilized. In the State Policy on Energy, 2015-20307 the GoM aims to increase the share of RE in total installed capacity from 12% in 2017 to 20% by 2023, and 30% by 2030. RE capacity in the CES must grow from 200 MW in 2018 to 274 MW by 2023 and 595 MW by 2030 to meet these medium- and long-term RE targets.

3. Renewable Energy Grid Absorption Limits

71. Approximately 400 MW of installed capacity private sector RE projects have been licensed in the CES, of which 200 MW had been commissioned by 2018.8 The growing number of wind and solar photovoltaic (PV) power plants connected to the grid has also raised concerns over curtailment in a system dominated by coal-fired CHP plants which are less flexible in regulating their power outputs to support balancing a fluctuating RE power output in the grid. The Renewable Energy Investment Plan for Mongolia in 2015 estimated 50 MW in wind power and 125 MW in solar PV of maximum grid absorption capacity without curtailment.9 Since 2015 the government has sought 315 MW of Egiin Hydro power development in the Selenge river basin the upstream of Baikal Lake in Siberia, to fully evacuate RE into the grid as well as meet peaking power demand. But that project remains stalled due to the concerns of the Russian Federation over environment impacts on water level in Lake Baikal.10

4. Energy Storage

72. To address the RE grid absorption limit, the proposed Project will install 125 MW/160 MWh of advanced battery storage in the CES to fully absorb fluctuating renewable power which is otherwise to be curtailed, and supply clean electricity to meet growing peak demand in the CES, thereby reducing GHG and air pollutant emission from the existing CHPs and high carbon intensive imported electricity from Siberia. Successful completion of the Project will provide room to connect an additional 350 MW RE capacity into the CES without curtailment, thereby fully meet the government’s RE target by 2030.

5. Government Policy

73. The Project is aligned with the GoM’s medium and long term RE targets: (i) 125 MW/ 160 MWh of power storage installed to the CES to increase RE power generation and reduce coal fired power generation, as presented in the Medium Term National Energy Policy (2018-2023); and (ii) RE capacity increased to 20% of total generation capacity by 2023 and 30% by 2030, as presented in the State Policy on Energy (2015-2030) and in the Mongolia Nationally Determined

7 Government of Mongolia. 2015. State Policy on Energy, 2015-2030. Ulaanbaatar. 8 195 MW of renewable energy installed capacity by 2018 is comprised of 155 MW of wind and 40 MW

of solar PV. Additional 60 MW of solar PV will start commercial operation by the end 2019. 9 Installed capacity of wind power by 2018 will be 155 MW in total, which exceeds the technical grid

absorption limit of 150 MW in wind power. Total installed capacity of solar PV is 50 MW, far below 125 MW of grid absorption limit with zero curtailment ratio.

10 ADB supported detailed engineering design for Egiin hydropower development in 1992. After several design change, initial site development works was initiated in 2015 with the concessional finance from the Peoples’ Republic of China (PRC). The Russia Federation objected to the project because of potential environmental impacts on Lake Baikal, and concessional financing from the PRC was cancelled in 2017.

27

Contribution in 2015.

C. Examples of Utility Scale BESSs

74. There are many utility scale BESSs in service around the world and battery energy storage is growing strongly in popularity with large development programs envisaged in some OECD countries.

75. The Hornsby Wind farm in South Australia was built in 2018 in a record time of 4 months. It is equipped with a 100 MW/129 MWh Li-Ion battery, which at the time it was claimed to be the largest BESS installation in the world (Figure 5). The operating regime is based on 3 hours discharge per day. The Hornsby battery facility reportedly cost $62 million. 11 The facility’s operation has reportedly exceeded expectations – it has reduced the price of frequency control and ancillary services (FCAS) from fossil-fuel powered back-up systems in power outages by 90 %. It provides the same service as the fossil-fueled systems, but quicker, at lower cost, and with zero emissions.

Figure 5: Hornsby Wind Farm with Battery Storage Facility

Source: https://hornsdalepowerreserve.com.au/

76. Figure 6 and Figure 7 show BESS installations in the USA and Japan, respectively.

D. Location

77. The BESS will be located at Khoroo 32, Songino Khairkhan district, adjacent to the

11 https://reneweconomy.com.au/revealed-true-cost-of-tesla-big-battery-and-its-government-contract-66888/

28

Songino 220/110/35 kV substation in western Ulaanbaatar (Figure 8 and

78. Figure 9).

Figure 6: United States – Invenergy facilities.

Source: FSR, 2019.

29

Figure 7: Japan – NaS facility.

Source: FSR, 2019.

Figure 8: Location of Ulaanbaatar, Mongolia.

Source: Wikipedia, 2019.

30

Figure 9: Location of Songino substation site, Khoroo 32, Songino Khairkhan District, Ulaanbaatar.

Source: Wikipedia, 2019.

31

E. BESS Design Concept

79. A utility-scale 125 MW BESS is comprised of a battery field, intermediary medium voltage plant and equipment and, for the final connection to a transmission grid substation, high voltage plant and equipment including a main power transformer. The following description of the BESS design is based on a typical Li-Ion design concept currently in use world-wide. The design concept is based on containerized battery / inverters.

1. BESS Connection to Songino 220 kV Bus

a) 220 kV Plant & Equipment

80. The high voltage connection to the Songino 220 kV bus will include a short three tower 220 kV overhead transmission line, and a 125 MVA power transformer with transformation voltage of 220 kV / 35 kV. The high voltage connection arrangement is shown in Figure 10. One of the transmission towers will be within the BESS site, the other two will be within the safety buffer around the Songino substation (

81. Figure 15).

Figure 10: High voltage single line configuration.

Source: BESS FSR, 2019.

32

2. Low Tension Voltage Plant & Equipment

82. A typical outdoor ‘containerized’ battery field comprises blocks of batteries (3 power cells per 1 dc / ac inverter, and an ac LV / MV power transformer. The power transformers step up the voltage from low voltage to medium voltage (35 kV). (They also provide a heating and cooling supply). In the following plan and elevation views the typical spacings are given for battery blocks arranged in two rows.

Figure 11: Plan view of 125 MW / 160 MWh battery field.


Figure 12: Side-elevation view of battery rows (3) & step up transformer.


83. The design of the low-tension plant, including the battery field configuration, will depend on the supplier’s design. For the purpose of illustration, it has been envisaged that three (3) outdoor 35 kV circuit breakers and an indoor 35 kV switchboard (seven (7) circuit breakers) will be required. The indoor switchboard will be housed in a BESS control room (with protection, control and instrumentation equipment with associated power supplies covering all HV and MV assets of the BESS).

84. A more detailed view of part of the electrical schematic is given by Figure 14. This figure shows a part of the BESS that will be replicated to reach 125 MW of total capacity.

3. Physical Layout of the BESS

85. A physical layout of the BESS, showing the battery field, control room, MV and HV plant and equipment zone is presented in

86. Figure 15. The area inside the black outline defines the land set aside by government decree for construction of the BESS Project. However, the red-hashed areas are the existing transmission line ‘right-of-way’ easements on which structures cannot be built. In practice the BESS will be situated on the land on the eastern edge and to the south-east of the existing

33

Songino substation.

87. The total mass of batteries to be included in the proposed project’s BESS is estimated at over 600 tonnes, assuming lithium ion batteries offering storage of 200 Wh/kg. This does not include the mass of wiring, space conditioning equipment, racks, inverters, or any of the other ancillary equipment required in the BESS. The battery field of the BESS (the orange area) will occupy a footprint of about 150 by 50 m, with an area of about 0.753 ha.

Figure 13: Low Tension Single Line Diagram.


F. BESS Safety

88. Safety will be incorporated in all stages of BESS design to the highest available international standards. The BESS will include a battery protection circuit to improve safety by making accidents less likely or by minimizing their severity when they do occur; fire protection system suitable for the chemistry of the battery and the type of chemical fire that could result, and water supply; ventilation and temperature control systems; gas detection and smoke detection systems; Emergency Response Procedures (ERP); Occupational and Health and Safety (OHS) Plan; and a maintenance plan.

89. The BESS design will be tested in accordance with UL 9540A, Test Method for Evaluating

34

Thermal Runaway Fire Propagation in Battery Energy Storage Systems. This standard evaluates thermal runaway, gas composition, flaming, fire spread, re-ignition and the effectiveness of fire protection systems. Data generated can be used to assess the fire and explosion protection requirements for a BESS.

90. A 20 m safety zone is a typical perimeter for the battery field of a BESS facility. The BESS battery field will be well clear of transmission assets and the right of way will allow for a 20 m buffer zone. Safety requirements are discussed in more detail in the EMP (Appendix I).

35

Figure 14: BESS power block electrical schematic.


36

Figure 15: 220 kV connection assets at Songino substation.


37

G. Battery Recycling

91. Battery life will depend on a number of factors, including chemistry selection. For example, Li-ion batteries in general are expected to last for approximately 12 years before replacement is required, though during operation some will fail earlier than that or be faulty. According to the National Recycling Council, Li-ion batteries are classified by the US federal government as non-hazardous waste and are safe for disposal in the normal municipal waste stream.12 While other types of batteries include toxic metals such as cadmium, the metals in lithium ion batteries - cobalt, copper, nickel and iron - are considered safe for landfills or incinerators. Nonetheless, the preferred option is recycling, and it should be noted that in Mongolia Li-ion batteries are classified as hazardous.

92. Battery recycling is a complex process (Figure 16). The recycling process starts by removing combustible materials, such as plastic insulation, with a gas-fired thermal oxidizer. Gases from the thermal oxidizer are sent to the plant’s scrubber, where they are neutralized to remove pollutants. The process leaves the clean, naked cells, which contain valuable metal content. The cells are then chopped into small pieces, which are heated until the metal liquefies. Non-metallic substances are burned off, leaving a black slag on top that is removed with a slag arm. The different alloys settle according to their weight and are skimmed off like cream from raw milk.

Figure 16: Li-Ion battery recycling process.

Co = cobalt, Li = lithium, Mn = manganese, Ni = nickel. Source: Korea Battery Industry Association 2017 “Energy storage system technology and business model”.

93. Given the complexities of battery recycling, it is common practice for the BESS supplier to exchange spent battery cells with new cells, and assume responsibility for recycling of the spent

12 The USS. Environmental Protection Agency (EPA) does not regulate the disposal of batteries in small quantities,

however large quantities are regulated under the Universal Rules of Hazardous Waste Regulations (40 CFR PART 273).

38

cells. This is particularly appropriate for Mongolia as there are no known Li-Ion (or other chemistry) battery recycling facilities in Mongolia. Therefore, it will be a contractual requirement that faulty or waste Li-Ion batteries will be collected, transported and recycled in an appropriate facility in the region by the battery suppliers. This will require appropriate approvals and permits from the Special Commission for Hazardous Waste Management of MNET. The borrower shall ensure that bidding documents stipulate that the battery supplier will be responsible for disposal of damaged and used battery cells, including obtaining export permits.

H. Associated Facilities

94. The Songino 220/110/35 kV substation is an associated facility of the BESS. Associated facilities are those which are not funded as part of a project but whose viability and existence depend exclusively on the project. An environmental audit of the Songino substation is presented in Appendix III.

I. Implementation Arrangements

95. The Ministry of Energy (MoE) will be the executing agency (EA) for the project. A project steering committee, comprised of MoE, Ministry of Finance, and the implementing agency (IA), will be established to provide overall guidance in project management and implementation. A project management unit (PMU) under MoE will be responsible for managing, coordinating, and supervising the project implementation. The National Power Transmission Grid (NPTG), state-owned joint stock company mandated to transport bulk power in the CES, will be the IA, and will be responsible for day-to-day management of the project. The borrower is the GoM, which will onlend the loan proceeds to NPTG.


J. Implementation Period

97. The BESS will be planned and constructed over 18 months beginning in January 2020. A project implementation plan is presented in

39

98. Table 9.

K. Project Cost

99. The project has an estimated budget of $115.29 million. ADB will finance $100 million (86.74%). The High-Level Technology Fund (HLT Fund) will provide $3.0 million of grant cofinancing to be administered by ADB. The government will finance $12.29 million (10.66%) through tax and duties exemption (

40

100. Table 8). A loan amounting to $100 million from ADB’s ordinary capital resources will be provided under ADB’s London interbank offered rate (LIBOR)-based lending facility. The ADB loan will be used for civil works, equipment and supplies, consulting services, contingencies, interest and commitment charge during construction, and operation cost for the PMU.

41

Table 8: Indicative project financing plan.

Source Amount ($million) Share of Total (%) Asian Development Bank Ordinary Capital Resources (loan)

100.0

86.74

High-Level Technology Fund (grant) 3.0 2.60 Counterpart financing 12.7 10.66

Total 115.29 100.00 Source: Asian Development Bank, 2019.

42

Table 9: Indicative Project implementation plan.

MAIN ACTIVITY

Start End 2020 2021 2022 2023 2024

I II

III

IV

I II

III

IV

I II

III

IV

I II

III

IV

I II

III

IV

Establishment of PMU (Q1/2020)

1/1/20 1/1/20

Recruitment of PIC (Q1/2020)

1/1/20 15/2/20

PIC Project Supervision

16/2/20

31/12/24

Output 1: BESS facility and transmission interconnection constructed 1 EPC Contract tendering (Q1/2020)

15/2/20

31/3/20

2 Site Preparation (Q2/2020)

1/4/20 14/5/20

3 Delivery of Plant & Equipment (Q2/2020)

15/5/20

15/6/20

4 Construction & Installation (Q2/2020)

16/6/20

31/7/20

5 Pre-Commissioning of BESS (Q2/2020)

1/8/20 31/8/20

6 BESS Core Testing and Commissioning (Q3/2020)

15/8/20

30/9/20

7 O&M Services (Q3/2020-Q3/2022)

1/9/20 31/8/22

Output 2: Consulting Services 1 Delivery of Services (Q3/2020–Q3/2022)

1/6/21 30/9/22

Loan Effectiveness (Q2/2020)

1/4/20 7/4/20

Mid-term Loan Review (Q4/2022)

1/6/22 1/9/22

Project Closing Activities (Q3-Q4/2024)

1/6/24 1/12/24

35

IV. DESCRIPTION OF THE ENVIRONMENT

A. Mongolia

101. Mongolia is a landlocked country in east-central Asia bordered by Russia to the north and China to the south, east and west. It has an area of 1,564,116 km2, an average elevation of 1,580 meters above sea level (masl), and a population of 3.286 million. With a population density of 2.10 inhabitants per km2, Mongolia is one of the most sparsely populated countries in the world. Much of the southern portion of the country is taken up by the Gobi Desert, while the northern and western portions are mountainous (Figure 17).

Figure 17: Topography of Mongolia.

Source: http://www.mongols.eu/maps-of-mongolia/thematic-maps/.

102. Mongolia has a northern continental climate characterized by long, cold winters, short summers, and an average of 257 cloudless sunny days a year. Precipitation is highest in the north, averaging 200 to 350 mm annually, and lowest in the south, averaging 100 to 200 mm annually. More than 60% of precipitation falls in the summertime. With wintertime temperatures regularly below -30 °C, Mongolia is among the coldest countries in the world.

103. Since 1990 Mongolia has successfully transitioned from a centrally-planned economy into one of the world’s fastest growing market-oriented economies. Mongolia has significant mineral resource wealth estimated at US$ 1-3 trillion, with coal, copper, and gold being the principal reserves. Mining is the most significant sector of the economy, accounting for 20% of total output, and commodities constitute 82% of total exports. China is Mongolia’s main export destination. Due to a lack of diversification in export products and a heavy reliance on foreign capital inflows to meet its investment needs, Mongolia is susceptible to volatile mineral market cycles.

104. Mongolia's political system is a parliamentary republic. Administratively Mongolia is

36

divided into 21 aimags or provinces, and 331 soums or districts. Soums are further subdivided into bahgs, the lowest level of administrative subdivision. While soums always have a permanent settlement as administrative centers, many bahgs don't.

B. Ulaanbaatar and the Project Site

105. Ulaanbaatar, the capital of Mongolia, is the country’s largest city, and home to 1.3 million people (45% of the population). It is administrated as an independent municipality. It spans an administrative area of 4,704 km2 and is comprised of 9 districts (düüregs, see

106. Figure 9), and 152 subdistricts (khoroos).

107. Ulaanbaatar is situated in the Tuul River valley at 1,350 masl, and is surrounded by the foothills of the Khentii mountain range that includes the Bogd Khan Uul and the Bogd Khan Uul National Park in the south, Chingeltei Uul in the north, Bayanzurkh Uul in the east and Songino Khairkhan Uul mountain range in the west and north west. The terrain is flat in the city center and becomes gently to steeply rolling in the outlying peri-urban areas. To the east, elevation rises up to about 1,400 m; to the west, about 1,250 m; to the north, between 1,600 and 1,800; and to south, 1,800 m. The seismic activity in vicinity of Ulaanbaatar is relatively low.

108. The east-west Tuul river bisects the city. The Ger districts13 represent the expansion of the city to the north, northeast and northwest. With respect to educational attainment, life expectancy, and monetary income, the national average Human Development Index (HDI) in Mongolia and Ulaanbaatar are 0.735 and 0.812 respectively.

109. The BESS will be located in Songino Khairkhan district, adjacent to the Songino 220/110/35 kV substation in western Ulaanbaatar. Songino Khairkhan District encompasses much of Ulaanbaatar’s’ western and northern area, extends to the foothills of Songino Khairkhan mountain.

C. Physical Resources

1. Topography

110. Songino substation is located 3 km from the northern bank of the Tuul River in the upper portion of the watershed, on the western side of Ulaanbaatar. The elevation of the Tuul River basin ranges from 770 to 2,800 masl.14 The Project area is characterized primarily by shallow grassland and shrublands and shallow rolling valleys. The site itself is located at approximately 1,350 masl on a valley sloping shallowly to the southwest, with the low hills of Songino Mountain to the east (Figure 18). Site topographical profiles are presented in

13 Gers are traditional portable dwellings traditionally used by semi-nomadic herders and others in Mongolia, typically heated by a central stove fueled with wood or animal dung, or with coal. Ger districts, which have grown up around many Mongolian cities, especially Ulaanbaatar, include both gers and other types of homes, including those built with masonry products and other materials.

14 MEGD, 2012.

37

111. Figure 19 and Figure 20. The site will require leveling and fill of the lower lying areas by up to 4 m, as has been done with Songino substation.

Figure 18: Topography in the general area of Project site (red) and Songino substation (grey).

Source: Google Maps, 2019.

38

Figure 19: Project site and Songino substation NE-SW topographical profile.

Source: Google Earth, 2019.

39

Figure 20: Project site and Songino substation NW-SE topographical profile.


2. Geology

112. The geology of Mongolia includes metamorphic, igneous, and sedimentary complexes representing all geological periods from Early Archean to Late Cenozoic. 15 The geological features of the Project area consist mainly of Devonian and Carboniferous very low permeability sedimentary rocks intruded by granite the basement rock. The basement rock is overlain by Cretaceous sandstone and mudstone, clay and sand Neogene deposits, and Quaternary sand and gravel deposits. Quaternary deposits are also distributed widely throughout the Tuul River Basin.

3. Soils

113. Soils in the Ulaanbaatar area are divided into three main groups: crumbled stones and light sandy clay in the low mountain areas, thin black brown soil in the mid-mountain areas, and thin light fine grained clayish brown soils in the valleys between the mountains, with an average depth of 80 m.16 Gullying and erosion is frequently visible on steep slopes in the Ger areas.

15 Joint Pilot Studies between Korea and Mongolia on Assessment of Environmental Management System in Gold Mining Industry of Mongolia I. Korea Environmental Institute and Mongolian Nature and Environment Consortium, 2004.

16 Feasibility Study of the Second Ulaanbaatar Services Improvement Project and Preliminary Design of Water Supply Facilities. Environmental Impact Assessment, 2003.

40

114. Site soils are typical of valleys in the area, semi-desert rocky sandy clay loams. A soil section was dug to assess site soil properties, and samples were taken for laboratory analysis at the Soil Laboratory, Institute of Geography and Geoecology, Academy of Sciences (Figure 21):

0-16 cm Light yellowish brown with low moisture. 0-8 cm thick short and long plant material and roots. Silty loose lumpy texture, light clay loam, 25% rocks 0.5-0.7 cm diameter.

16-45 cm Slightly dense blackish brown, with long dry roots, silty loose lumpy texture, 35-40% rocky-stones, decreasing in size with depth.

Figure 21: Soil section and sampling, BESS and Songino substation.

Source: PPTA consultant, 2019.

Table 10: Chemical and physical properties of soils section, BESS site.

Sampling depth, cm

Humus, %

СаСО3 %

рН ЕС 2,5 ds/m

Dynamic element per 100 g soil,

mg

Mechanical particles, % (size of particles, in mm)

Р2О5 К20 Sand (2-0.05

mm)

Silt (0.05-0.002

mm)

Clay (<0.002

mm) 0 - 40 2.781 000 7.31 0.129 2.15 22.9 49.9 35.1 15.0 40 - 60 0.706 14.9 7.82 0.276 0.63 8.4 50.3 30.3 19.4

Source: Institute of Geography and Geoecology, 2017.

115. The humus content at 0-40 cm is 2.781%, or moderately fertile, decreasing significantly with depth. Soil carbonates are not found in the upper layers, while soils from 20-60 cm are alkaline with a рН of 7.82. Electrical conductivity is higher in the lower layers reaching 0.276 ds/m, indicating higher salinity. Phosphorus and potassium content, important nutrients for vegetation, are moderate to very low. All layers are consistently dominated by sand ranging from 49.9.3 to 50.32%.

41

116. Average soil temperatures in Ulaanbaatar are 21 °C in July, 0 °С in October and -24 °C in January. Soils typically start freezing in mid-October and remain frozen until mid-April. Average frost depth is 3.5 m. Average monthly soil temperatures are presented in Table 11.

Table 11: Average monthly soil temperatures by depth.

Depth, m

Month

I II III IV V VI VII VIII IX X XI XII 0.2 -16.8 -15.8 7.6 -1.6 10.0 15.6 17.4 16.1 10.8 3.2 -6.2 -13.2 0.4 -17.1 -17.1 -7.6 -0.9 7.4 13.3 16.7 14.5 10.2 4.2 -3.6 -10.9 0.8 -10.2 -11.1 -7.8 -1.9 3.8 9.2 12.0 12.4 10.2 5.2 -0.4 -6.4 1.2 -7.4 -8.6 -6.8 -2.5 1.3 6.2 9.3 10.4 9.2 5.7 1.6 -3.1 1.4 -3.7 -5.7 -5.3 -2.4 0.1 3.6 6.9 8.4 8.2 5.7 2.5 -0.6 2.4 0.2 -1.9 -2.8 -1.6 0.8 0.3 2.6 4.0 5.8 5.1 3.3 1.4 3.2 1.2 0.7 0.2 1.0 0.2 0.4 0.8 2.2 4.0 4.3 3.6 2.4

Source: Dr. Namkhaijantsan G, Expert of Sunny Trade LLC, 2015.

4. Permafrost

117. There is no known permafrost in the project area (Figure 22). This will need to be assessed however prior to construction.

Figure 22: Permafrost (blue) in the Ulaanbaatar area.

Project Site

42

5. Land Use

118. Land use within Songino Khairkhan district is predominately pasture and grasslands. The land at the Project site foot print is not currently used or occupied. The site is immediately adjacent to the Songino substation and wraps around it on three sides.

119. There is a recently established Chinese-Mongolia joint-venture fertilizer factory located to the immediate west of the BESS site. There are no residences or other sensitive receptors in the immediate area of the BESS site. The nearest residences are more than 1000 m to the northwest. Landuse in the area around the BESS and Songino substation is shown in Figure 23.

Figure 23: Landuse in the area around the BESS and Songino substation.


6. Earthquake Risks

120. According to the Mongolia earthquake risk Modified Mercalli scale map produced by the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), the site is in a Degree VI zone (Figure 24). The map shows earthquake intensity zones in accordance with the 1956 version of the MM scale, describing the effects of an earthquake on the surface of the earth and integrating numerous parameters such as ground acceleration, duration of an earthquake, and subsoil effects. It also includes historical earthquake reports. The zones indicate where there is a probability of 20% that degrees of intensity shown on the map will be exceeded in 50 years. This probability figure varies with time; i.e., it is lower for shorter periods and higher for longer periods.

43

The map indicates that the site is not in the highest risk areas of Western Mongolia (e.g. Degree IX and above).

Figure 24: Mongolia earthquake risk Modified Mercalli (MM) scale map.

Source: United Nations Office for the Coordination of Humanitarian Affairs (OCHA), 2010.

121. According to the World Bank Global Facility for Disaster Reduction and Recovery (GFDRR) hazard screening tool ThinkHazard, the site is in a very low earthquake hazard risk zone, and the impact of earthquake need not be considered in different phases of projects, in particular during design and construction.17 Nonetheless, there are several known active faults in the Ulaanbaatar area, and the Project site is near Emeelt fault, an NW-SE direction active fault located 15 km southwest from Ulaanbaatar. Based on seismometers records, seismicity active has been recoded along the fault since 2005, and a clear active fault was confirmed by field surveys conducted by RCAG and Université Montpellier and Université de Strasbourg.

122. According to RCAG’s oral report to the Mongolia National Safety Council, recent activity of the fault was 5,500 years ago, though its activity is considered to be “approaching”, and in general seismic activity in the Ulaanbaatar area has been increasing since 2005. RCAG predicts the maximum earthquake magnitude on Emeelt fault at Mw 7.0 and at Gunjiin fault Mw 6.6. The

17 GFDRR: www.gfdrr.org.

44

calculated MSK scale seismic intensity for these earthquakes range from IV-VIII.18

18 The Medvedev–Sponheuer–Karnik scale, also known as the MSK or MSK-64, is a macroseismic intensity scale

used to evaluate the severity of ground shaking on the basis of observed effects in an area of the earthquake occurrence. The MSK scale has 12 intensity degrees: I. Not perceptible: Not felt, registered only by seismographs. No effect on objects. No damage to buildings. II. Hardly perceptible: Felt only by individuals at rest. No effect on objects. No damage to buildings. III. Weak: Felt indoors by a few. Hanging objects swing slightly. No damage to buildings. IV. Largely observed: Felt indoors by many and felt outdoors only by very few. A few people are awakened.

Moderate vibrations. Observers feel a slight trembling or swaying of the building, room, bed, chair etc. China, glasses, windows and doors rattle. Hanging objects swing. Light furniture shakes visibly in a few cases. No damage to buildings.

V. Fairly strong: Felt indoors by most, outdoors by few. A few people are frightened and run outdoors. Many sleeping people awake. Observers feel a strong shaking or rocking of the whole building, room or furniture. Hanging objects swing considerably. China and glasses clatter together. Doors and windows swing open or shut. In a few cases window panes break. Liquids oscillate and may spill from fully filled containers. Animals indoors may become uneasy. Slight damage to a few poorly constructed buildings.

VI. Strong: Felt by most indoors and by many outdoors. A few persons lose their balance. Many people are frightened and run outdoors. Small objects may fall and furniture may be shifted. Dishes and glassware may break. Farm animals may be frightened. Visible damage to masonry structures, cracks in plaster. Isolated cracks on the ground.

VII. Very strong: Most people are frightened and try to run outdoors. Furniture is shifted and may be overturned. Objects fall from shelves. Water splashes from containers. Serious damage to older buildings, masonry chimneys collapse. Small landslides.

VIII. Damaging: Many people find it difficult to stand, even outdoors. Furniture may be overturned. Waves may be seen on very soft ground. Older structures partially collapse or sustain considerable damage. Large cracks and fissures opening up, rockfalls.

IX. Destructive: General panic. People may be forcibly thrown to the ground. Waves are seen on soft ground. Substandard structures collapse. Substantial damage to well-constructed structures. Underground pipelines ruptured. Ground fracturing, widespread landslides.

X. Devastating: Masonry buildings destroyed, infrastructure crippled. Massive landslides. Water bodies may be overtopped, causing flooding of the surrounding areas and formation of new water bodies.

XI. Catastrophic: Most buildings and structures collapse. Widespread ground disturbances, tsunamis. XII. Very catastrophic: All surface and underground structures completely destroyed. Landscape generally

changed, rivers change paths, tsunamis.

45

Figure 25: Seismic fault lines in Ulaanbaatar area.

Source: RCAG, 2012.

7. Climate

123. Mongolia lies in the North Temperate Zone and has a severe continental climate, characterized by low precipitation and high daily and seasonal temperature ranges. It has long cold winters and short summers during which most of the precipitation falls. Winter is typically from November/December to March/April; spring from April through May; summer from June through August; and fall from September to October/November.

124. Ulaanbaatar has the largest annual temperature fluctuations of any capital city worldwide, with temperatures ranging from approximately - 30° C to 25 °C. Mean annual temperature ranges from -0.9 °С to 2.4 °С; mean winter temperatures range from -19.3 °С to -22.5 °С, and summer mean temperatures ranges from 14.3 °С to 15.3 °С. Average monthly and maximum and minimum recorded temperatures for the Buyant-Ukhaa Metrological station (located at Chinggis Khaan International Airport, the closest station to the Project site), are presented in Figure 26 and Table 12 respectively.

46

Figure 26: Average month air temperatures 2013-2017, Buyant-Ukhaa Meteorological Station.

Source: Dr. Namkhajantsan G., climate expert.

Table 12. Absolute maximum and minimum temperatures recoded at Buyant-Ukhaa Meteorological Station.

Absolute Maximum Station I II III IV V VI VII VIII IX X XI XII Buyant-Ukhaa -8.8 -2.3 10.0 20.6 27.3 31.0 31.3 30.7 25.2 17.6 5.9 -5.9

Absolute Minimum Station I II III IV V VI VII VIII IX X XI XII Buyant-Ukhaa -40.0 -37.2 -31.1 -17.7 -9.7 -5.2 3.9 -0.3 -7.8 -19.3 -31.0 -38.6

Source: Buyant-Ukhaa Meteorological Station, 2019.

125. Average annual precipitation in Ulaanbaatar ranges from approximately 255 to 280 mm, with the majority of the precipitation occurring during summer thunderstorms. Average annual precipitation at the Buyant-Ukhaa Meteorological Station is 242.2 mm, with 95% occurring in the summer. It typical rains from 90 to 150 days per year, and snows from 25 to 30 days per year. Snow cover occurs from 140 to 170 days per year. Thunderstorms occur from 30 to 35 days during the warm season. High intensity rainfalls in the summer can lead to flash flooding.

Table 13. Average annual precipitation by season at Ulaanbaatar meteorological stations.

Station Summer (months IV-X) % Winter (months XI-III) % Ulaanbaatar-Takhilt 262.5 93.6 18.1 6.4 University 257.4 94.3 15.5 5.7 Buyant-Ukhaa 242.2 94.8 13.0 5.2 Morin-uul 255.9 95.3 13.2 4.7


126. Average monthly relative humidity ranges from 65-85% in the morning and from 40-70% in the evenings. Lowest humidity occurs in the spring, with average monthly relative humidity between 40 and 65%, while the highest average monthly relative humidity levels of up to 83-85% occurs in the winter months of December and January. Average annual air pressure at the Buyant-Ukhaa Meteorological Station is 1.022 kPa.

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10 11 12

0С

Air temperature, 0С

2013 2014 2015 2016 2017

47

127. The dominant wind direction in Ulaanbaatar is northwest, observed to blow through the city in 30 to 40% of the cases in any month of the year. Average monthly wind speeds are is from 1.6 m/sec (in January and December) to 4.4 m/sec (in May). However, wind regimes are strongly influenced by local topography. Average monthly wind speeds by season for Ulaanbaatar meteorological stations including Buyant-Ukhaa are presented in

48

128. Figure 28. An analysis of wind velocities at Buyant-Ukhaa station is presented in Table 14.

Figure 27. Average monthly precipitation at Ulaanbaatar meteorological stations

Ulaanbaatar-Takhil University

Buyant-Ukhaa Morin-uul


0

10

20

30

40

50

60

I II III IV V VI VII VIII IX X XI XII

mm

Precipitation

Улаанбаатар

0

10

20

30

40

50

60


mm

Precipitation

Их сургууль

0

10

20

30

40

50

60

70

80


mm

Precipitation

Буянт-ухаа

0

10

20

30

40

50

60


mm

Precipitation

Морин уул

49

Figure 28: Ulaanbaatar meteorological stations wind roses by season.


Table 14: Frequency of wind speeds in Buyant-Ukhaa Meteorological Station

Month Wind Speed m/s

0–1 2–5 6–10 11–15 >15 % of Time Wind Speeds Occur

I winter 82.7 13.8 3.1 0.4 0.04 IV spring 42.3 32.4 21.3 3.0 1.0

VII summer 44.4 41.1 13.5 0.8 0.2 X fall 64.3 24.0 10.3 1.2 0.2


129. The wind regime at the Buyant-Ukhaa Meteorological Station is dominated by 0-5 m/s winds in January (96.5 % of the time), 2-10 m/s in April (53.7 % of the time in April), 0 – 5 m/s in August and October (85.5 % of the time and 88.3 % of the time respectively). Higher wind speeds over 6 m/s are most common in summer.

130. Annual average solar radiation is 172 MJ/m2/day, and is highest in April (636 MJ/m2/day). Monthly sunshine average 168 hours, and is highest in December.

8. Climate Change

131. A Climate Risk Assessment (CRA) was undertaken for the project. The CRA reviewed a number of projected climate change studies in Mongolia, including results from 10 climate models compiled by the US National Aeronautics and Space Agency (NASA) as part of the Coupled Model Intercomparison Project Phase 5 (CIMP5). The climate in Ulaanbaatar, as in Mongolia as a whole, has been changing, warming at a rate three times the global average. According to Mongolia’s Intended Nationally Determined Contribution (INDC) to the UNFCCC, the annual

0

10

20

30

40Х

ЗХ

З

ЗӨ

Ө

БӨ

Б

БХ

Spring



Буянт ухаа

Морин уул

0

10

20

30

40Х

ЗХ

З

ЗӨ

Ө

БӨ

Б

БХ

Summer



Буянт ухаа

Морин уул

0

10

20

30Х

ЗХ

З

ЗӨ

Ө

БӨ

Б

БХAutumn

УлаанбаатарИх сургууль

Буянт ухааМорин уул

0

10

20

30Х

ЗХ

З

ЗӨ

Ө

БӨ

Б

БХ Winter



Буянт ухаа

Морин уул

50

mean air temperature over Mongolia has increased by 2.07 °C from 1940 to 2014, and the ten warmest years in the last 70 years have occurred since 1997. Average precipitation has decreased by 7 % since 1940.

132. Projections call for trends in both maximum and minimum temperatures to continue increasing, especially in scenarios where GHG emissions are not significantly controlled. Changes in precipitation are less pronounced and show more variability by model. Additional potential changes, though more difficult to determine, include a somewhat higher incidence of more episodic precipitation events, largely in the April to September period, and possibly increased incidence of extreme cold (dzud) conditions, though the latter is based largely on recent trends. Although GCM outputs seem to show no precipitation, and thus no snow, for Ulaanbaatar in the winter months, historical records suggest that snow does fall and stays on the ground for much of the winter, but typically only to a depth of a few centimeters. It is thus unclear what impact climate change will have on winter snow accumulation in Ulaanbaatar, although some sources suggest that more precipitation will fall in the winter in Mongolia as a whole.

133. According to Mongolia’s INDC, some of the key impacts and vulnerabilities of these changes are:

Approximately 70% of pastoral land has degraded, while changing plant composition. Winter dzud (heavy snow, cold waves, storms etc.) risk is likely to increase leading to

more losses in livestock sector. Non-irrigated crop production is becoming more unstable. Assessments show that wheat

production might be decreased by 15% by 2030 due to climate change. The drying up of lakes, rivers and springs and melting of glaciers has intensified in the

last decades. The recent surface water resource inventory confirmed that 12% of rivers, 21% of lakes and 15% of springs have dried up. Water temperature and evaporation are continuously increasing, leading to declining water resources.

The intensification of dry climatic conditions causes an increase of the frequency of forest and steppe fires, the occurrence and the intensity of forest insect and pest outbreaks. As a result, the forest area is reduced by 0.46% annually, and forest resources have been degraded significantly.

The frequency of extreme weather phenomena has doubled in the last two decades. This is expected to increase by 23-60% by the middle of the century as compared to present conditions.19

134. The predicted increased temperature and attendant melting of permafrost, reduced average precipitation, and increased frequency and severity of extreme weather events indicates the need for attention to climate change adaptation and building resilience.

9. Air Quality

135. There are a number of monitoring stations in Ulaanbaatar operated by either the National

19 Government of Mongolia (undated, but probably 2015), Intended Nationally Determined Contribution (INDC)

Submission by Mongolia to the Ad-Hoc Working Group on the Durban Platform for Enhanced Action (ADP). Available at https://www4.unfccc.int/sites/submissions/INDC/Published%20Documents/Mongolia/1/150924_INDCs%20of%20Mongolia.pdf.

51

Agency of Meteorology and Environmental Monitoring (NAMEM) or the Air Quality Agency (AQA) of Ulaanbaatar City (Figure 29). Figure 30 to Figure 37 presents a summary of the mean data for Ulaanbaatar from the NAMEM sites over a number of years and by month for 2018.

Figure 29: Air quality monitoring stations in Ulaanbaatar.

National Agency of Meteorology and Environmental Monitoring Air Quality Monitoring Station

Air Quality Agency of Ulaanbaatar City Air Quality Monitoring Station

136. The summary monitoring data indicates that annual and monthly average 24-hour PM10, PM2.5, SO2 and NO2 concentrations are elevated across the whole of Ulaanbaatar and frequently exceed Mongolian standards.

137. The summary monitoring data indicates that annual mean PM10, PM2.5, SO2 and NO2 concentrations are elevated across the whole of Ulaanbaatar and frequently exceed Mongolian standards. A review of previous air pollution studies shows that there a range of emission sources in Ulaanbaatar:

- In general, Ulaanbaatar’s severe air pollution problems stem from the use of mostly aging, Soviet-era coal-fired central heating and power generation stations, as well as the combustion of coal and other fuels, including waste fuels, for heating in individual homes, particularly in per-urban Ger districts.

- PM10 sources include CHPs, low pressure HOBs and Ger areas (comprising a mixture of household stoves, kiosks and open burning), and to a lesser extent unpaved road-dust, vehicle exhausts, and bricks and paved road-dust. However, CHPs have stacks between 100 m to 200 m high and therefore much more effective dispersion of pollutants than domestic heating sources, which typically have stacks less than 4 m above ground level and therefore contribute a greater proportion to the ground level pollutant concentrations.

- PM2.5 sources include Ger areas, CHPs, vehicle exhaust, and dust from roads. - SO2 is primarily emitted from coal combustion in CHPs, low pressure HOBs and

52

Ger stoves. No emission control equipment is used at HOBs and Ger stoves are typically highly polluting due to the outdated technology involved and the higher sulphur content coal that is combusted.

- The main source of NO2 is vehicle exhaust. Other sources include coal combustion (in CHPs, low pressure HOBs and domestic stoves) and to a lesser degree, biomass and/or waste burning.

Figure 30: Annual average SO2 concentrations by year (1998-2018) in Ulaanbaatar versus Mongolian air quality standard.

Source: NAMEM, 2019.

Figure 31: Average 24-hour SO2 concentrations by month (2018) in Ulaanbaatar versus Mongolian air quality standard.


05

10152025303540

mkg

/m3

SO2 Concentration

53

Figure 32: Annual average NO2 concentrations by year (1998-2018) in Ulaanbaatar versus Mongolian air quality standard.


Figure 33: Average 24-hour NO2 concentrations by month (2018) in Ulaanbaatar versus Mongolian air quality standard.


0

10

20

30

40

50

60

70m

kg

/m3

NO2 Concentration

54

Figure 34: Annual average PM10 concentrations by year (2010-2018) in Ulaanbaatar versus Mongolian air quality standard.


Figure 35: Average 24-hour PM10 concentrations by month (2018) in Ulaanbaatar versus Mongolian air quality standard.


0

50

100

150

200

250

300

mkg

/m3

PM10 Concentration

55

Figure 36: Annual average PM2.5 concentrations by year (2010-2018) in Ulaanbaatar versus Mongolian air quality standard.


Figure 37: Average 24-hour PM2.5 concentrations by month (2018) in Ulaanbaatar versus Mongolian air quality standard.


10. Noise

138. The Project site is a low noise area. Key sounds sources are the highway 1.3 km to the northeast, and the adjacent substation and fertilizer plant.

11. Water Resources

139. The Project site is located in the upper reaches of the Tuul River basin. The Tuul is the main river flowing through Ulaanbaatar area. It originates in the Khan Khentii Protected Area in

0

20

40

60

80

100

120

140m

kg

/m3

PM2.5 Concentration

56

Tuv Aimag (province) at an elevation up to 2,800 masl, and is formed by the confluence of the Namiya and Nergui streams. It flows in a generally westward direction, initially though mountain taiga and forest steppe region, west to the immediate south of Ulaanbaatar, and then northwest through a series of large meanders where it discharges to the Orkhon River. It has a catchment area of 6300 km2 to Ulaanbaatar, a total area of 49,766 km2, and a total length of 898 km.

140. The width of the Tuul River around Ulaanbaatar is about 35 m; however, it is reduced to 5−18 m in the dry season. The average depth of the river is about 1.3 m. The surface water in Ulaanbaatar is partially to completely frozen from December to February. The flow begins gradually in spring (March), and discharge increases gradually to a maximum in the rainy season (July–August).

Figure 38: Tuul River watershed map.

Source: Institute of Meteorology and Hydrology, National Agency for Meteorology, 2012.

141. On an annual basis the Tuul River runoff is comprised of 69 % rainfall, 6 % snow melt, and 25 % groundwater. Annual mean river flow at Ulaanbaatar is 26.6 m3/s, and at Songino is 25.8 m3/s. During high flow years the mean 5 % probability flow is 59.1 m3/sec and in low flow years the mean 97 % runoff of the Tuul River is 6.0 m3/sec. The maximum flow of the Tuul River occurs during summer rainfall floods and not the spring melt. For example, the estimated maximum 1% probability discharge of the spring flood at Ulaanbaatar is 480 m3/sec, but the estimated maximum 1% probability discharge rainfall flood is estimated at 1,850 m3/sec.20

142. The Project site is located 3 km from the northern bank of the Tuul River in the upper portion of the watershed, on the western side of Ulaanbaatar. The site is at an elevation of 1,350 masl. The area has desert like conditions, and there are no permanent surface water bodies or

20 Ibid.

57

streams on or adjacent to the site. The site is over 120 m higher than the adjacent Tuul River, and is reportedly not at risk from spring floods.

143. There are three small ephemeral streams on the shallow hills to the east of the Songino substation (Figure 39 to Figure 41). These are normally dry and are reported to have active flows only during high rainfall events. Watershed characteristics are presented in Table 15.

Figure 39: Ephemeral watersheds in the low hills adjacent to Songino substation.

Source: BES 2019 and Google Earth, 2019.

58

Figure 40: Looking southwest towards Songino substation. The ephemeral watersheds are in the shallow hills to the left, southeast of the substation.


Figure 41: Looking southeast towards ephemeral stream #2.


59

Table 15: Watershed characteristics of ephemeral streams adjacent to project site.

# Location Catchment Area (m2)

Length (km)

Average Elevation

(masl)

Average Slope (%)

Maximum probable discharge (m3) at various

probabilities (%)21 0.1 % 5% 10%

1 NE of Songino SS 1.23 1.79 1,434 10.3 0.22 0.08 0.05 2 E of Songino SS 0.88 1.12 1,420 11.5 0.14 0.062 0.03 3 SE of Songino SS 0.60 1.22 1,423 16.2 0.15 0.073 0.04

Source: BES 2019 and PPTA consultant.

144. Groundwater from the Tuul River valley provides an estimated 99% of the water supply for Ulaanbaatar, supplying about 80 million m3 of annual abstraction. The alluvial aquifer at Ulaanbaatar is composed of sediments forming two unconfined layers, which differ primarily in composition, porosity, and water saturation. The upper layer consists mainly of unconsolidated gravel and boulders, and coarse sand fills the voids, representing 15–30% of the sediment by volume. The thickness ranges from 2 to 30 m (average: 25 m) and generally increases toward the center of the river basin.

145. The lower layer extends down to the Neogene and Carboniferous deposits, with a thickness ranging from 3 to 20 m. Its composition is similar to that of the upper layer, with occasional clay-dominant lenses. Fine silty sand and clay fill the voids between gravel and boulder particles and, in some areas, create clay layers ranging from a few centimeters to 5–8 m thick. Although the composition of the alluvial aquifer is generally uniform, the presence of clay-dominant soil with low permeability creates semi-confined conditions locally in some strata, where the lower layer of the aquifer yields less water compared with the overlying layer. Recharge to the alluvial aquifers occurs through infiltration from snowmelt, runoff and flooding, with the largest recharge occurring from summer rains in July and August.

146. Key groundwater source areas are mapped in

21 Based on calculations in the BES, utilizing a hydrological model developed for small watersheds under 200 km2, and a maximum 1% daily probable precipitation of 125 mm.

60

147. Figure 42 and described in Table 16. Annual groundwater resources in Ulaanbaatar are assessed at 271,000 m3. As a result of ongoing urban growth and associated groundwater use (including 426 municipal wells, an estimated 1600 private wells and three CHPs), available groundwater resources in the Ulaanbaatar area are considered to be fully exploited, and in some source areas such as near the CHPs and meat factory ground water levels have decreased by 5 to 7 m.22 Establishing new wells in the region likely means that the allocation of the water to different end users will take place, not that more water will be available.23

22 Tuul River and Urbanizing Ulaanbaatar, United Movement of Mongolian Rivers and Lakes. G. Dashdemerel, Legal

Advisor. 2011. 23 CHP-5 SEIA, 2015.

61

Figure 42: Groundwater source areas in Ulaanbaatar area.

Source: Bayanzürkh District Well Inventory 2015.

12. Flood Risks

148. There are three types of floods in Mongolia:

(i) Spring or snow melt floods - water level rise and over bank flow occurs over a relatively long period due to snow and ice melt.

(ii) Rainfall floods - water level rise and over bank flow is quick and is caused by intensive rainfall.

(iii) Flash floods – high intensity turbulent flow with rocks and sediment and other surface materials occurs rapidly due to heavy rain along steep dry beds and small rivers.

149. Spring floods typically occur from mid-April until the end of May in most area of Mongolia, and depending geographical location from 20-60 % of annual runoff forms during the spring flood. The majority of annual runoff (up to 70-80%) forms during summer rains. Rainfall floods occurs when daily rainfall exceeds 40-110 mm. Summer rainfall starts from approximately mid-June to mid-September and has several peaks. Hill slope, soil and sediment type, rain intensity and degree of urbanization are key factors for flash floods. 24

24 Floods in Mongolia, D. Oyunbaatar, Hydrology section, Institute of Meteorology and Hydrology. Presented at the

3rd GEOSS Asia-Pacific Symposium, 2009.

62

Table 16: Exploitable groundwater resources in the vicinity of Ulaanbaatar.

No. Source Total

Resource m3/day

Approved Exploitable

Resource m3/day Remarks

1 Central 125,100 90,300

Ulaanbaatar city water supply source. Its resource was assessed in 1980 and it has been in use for many years. Due to a risk of groundwater pollution in the aquifer in the downstream part of the Selbe River, this portion has been removed from the Central source groundwater resources. This was confirmed by pollution found in some boreholes near the Narantuul market.

2 Upper 89,700 89,700 Ulaanbaatar city and Nalaikh District water supply source. Its resource was assessed in 1980.

3 Industrial

area 30,300 30,300

Khan-Uul District industrial and drinking water supply source. The resource was assessed in 1980. Its water might be polluted and is no longer used in drinking water.

4 CHPs (2,

3, 4) 52,300 52,300 The resource was assessed in 1980.

5 Meat

factory 8,600

8,600

West Ulaanbaatar city industrial and drinking water supply source. The resource was assessed in 1980.

Total 360,000 271,200 Source: Tuul River Basin Integrated Water Management Plan, Ministry of Environment and Green Development, 2012.

150. Ulaanbaatar is at risk from all three types of flooding, with risk areas including the Tuul, Selbe, and Uliastai Rivers.25 Ger districts are particularly at risk as a result of their location on steeper topography and poor drainage infrastructure exacerbated by inadequate waste collection which leads to clogged waterways.

151. Major flood events in Mongolia occurred in 1778, 1915, 1966, 1982, 2000, 2003, and 2004. One of the biggest rainfall floods in the modern era occurred in the Tuul River basin. Over a two-day period in July 1966, the Ulaanbaatar area received 103.5 mm of rainfall, 43% of the total annual precipitation. Flood water velocity reached 4-5 m/sec, flood discharge was 1,700 m3/s, and the water level rose 151 cm within one day, leading to property damage and loss of life.

152. A prime example of flash flooding occurred in Ulaanbaatar on August 15th, 1982, when a high intensity rainfall event deposited 44 mm (84 % percent of monthly rainfall) in just 20 minutes, leading to flash floods along the dry beds and small rivers around the city, especially in the northern area, and again leading to property damage and loss of life.26

153. As noted above, the Project site at the Songino substation is located 3 km from the northern bank of the Tuul River, is over 120 m higher than the adjacent Tuul River, and is

25 Reduction of Flood Risk in Ulaanbaatar City, Ministry of Construction and Urban Development, Mongolia. Second

East Asia regional workshop on Flood Risk Management and Urban Resilience, Global Facility for Disaster Reduction and Recovery (GFDRR), 2013.

26 Floods in Mongolia, D. Oyunbaatar, Hydrology section, Institute of Meteorology and Hydrology. Presented at the 3rd GEOSS Asia-Pacific Symposium, 2009.

63

reportedly not at risk from spring floods.

D. Ecological Resources

1. Flora

154. The Project site vegetation would likely have originally been low mountain grasslands dominated by typical species such as pasture sage (Artemisia frigida), mountain sandwort (Arenaria capillaris) and needle grass (Stipa sp). However, the site is on the outskirts of the Ulaanbaatar urban area, adjacent to an existing substation, on a valley that has already been partially developed, excavated and levelled, and heavily grazed. Site vegetation is sparse and consists of low grasses such as Stipa sp (Least Concern IUCN Red List) and plants such as silverweed (Argentina anserine, Least Concern IUCN Red List). There are no trees or larger shrubs. All species found at the project site are common to the area, and surveys found no rare, endangered or protected species, or areas of critical habitat.

2. Fauna

155. There are no known large wild mammals utilizing the site, though the area is grazed by cattle. Animals that may be found on or near the site are typical for the urban periphery of Ulaanbaatar, including the common raven (Corvus corax – Least Concern IUCN Red List status), house sparrow (Passer domesticus, Least Concern IUCN Red List status), and common unthreatened hares, marmots, mice and moles.

3. Protected Areas

156. There are no parks, protected areas, nature reserves or Key Biodiversity Areas (KBAs) within 5 km of the project site. This was confirmed through discussions with soum officials, site visits, a review of relevant Mongolian documentation, and an Integrated Biodiversity Assessment Tool (IBAT) assessment.

Figure 43: Typical sparse grasses at project site.


64

E. Socioeconomic Profile

157. The estimated population of Mongolia reached 3,238,479 in 2018, up by 60,580 or 1.91 % compared to the previous year. There were 78,444 children born in 2018. 63.77 % of the total population is under 35 years of age, 30.94 % are children aged 0-14, 62.4 % are 15-59 years old, and 6.66 % are seniors aged 60 and older.27

158. Ulaanbaatar has a population of 1.491 million. Songino Khairkhan was established as a separate administrative district in 1992, and is one of nine districts in Ulaanbaatar. The district encompasses much of Ulaanbaatar’s’ western and northern area, extending to the foothills of Songino Khairkhan mountain. It has an area of 1,200.6 km2, and a population of 322,000 (Table 17), making it the second largest district in Ulaanbaatar, both in population and size. Approximately 70% of the population lives in Ger areas.

159. In the first 5 months of 2019, 2,982 children were born in Songino Khairkhan district, and the population growth rate is 3.04%. The working age population (15 to 65) is 207,312. The district has 24 schools with 19,000 students (Table 18).

Table 17: Songino Khairkhan district demographic data.

№ Indicators Songino Khairkhan District 1 Total Area, km2 1,200.63 2 Population 322,458 3 0-4 years 39,640 4 5-14 years 56,239 5 65 years above 11,662 6 Growth Rate (%) 18.3

Source: BES, 2019.

Table 18: Songino Khairkhan district education data.

Indicator 2016 2017 Number of Schools 22 24 Number of Students 18,572 19,078 Number of Teachers 1,008 1,018 Number of Kindergartens 36 37 Number of Children in Kindergartens

8,194 8,756

Teachers for Kindergartens 329 367 Number of Universities and Colleges

3 3

Number of Students 1,738 1,395 Number of TVET 2 2 Number of Students 998 1,090

Source: BES, 2019.

160. According to the National Statistics Office (NSO) of Mongolia and the World Bank (2019),

27 National Statics Office of Mongolia, 2019.

65

the national poverty rate in Mongolia was 28.4 % in 2018, a decrease of 1.2 % from the 2016 estimate of 29.6 %. The poverty rate in Ulaanbaatar was 25.9% and is estimated to be between 25 and 30 % in Songino Khairkhan District.28

161. According to the local government, Songino Khairkhan District is one of Ulaanbaatar’s key industrial centers, home to major processing plants and construction yards. The residential infrastructure is primarily comprised of low to mid-end apartment blocks, which extend along the westerly reaches of Peace Avenue. These are bordered to the north by expansive Ger tracts. The portion of Songino Khairkhan district that extends across the railway lines to the south is home to much of Ulaanbaatar’s light industry, warehousing and manufacturing plants. Housing supply in these areas is limited and mostly comprises of workers housing which grew up around industrial and manufacturing plants during the 1960s to the 1980s.

F. Sensitive Receptors

162. There are no schools, clinics or hospitals within the Project area. The nearest residences are more than 1000 m to the northwest over the adjacent range of hills, and the nearest community is 2 km away. There is a fertilizer factory that will be immediately adjacent to the BESS, but it is not a sensitive receptor.

163. There are no known physical cultural resources at the site.

V. ANTICIPATED IMPACTS AND MITIGATION MEASURES

A. Assessment of Impacts

164. Anticipated positive and negative environmental impacts of the proposed Project were assessed based a Project domestic FSR29; DEIA report30; site visits and field surveys conducted by domestic and international environmental consultants; climate risk assessment (CRA); screenings utilizing the IBAT developed by BirdLife International, Conservation International, IUCN and UN Environment's World Conservation Monitoring Centre; screening utilizing the World Bank GFDRR hazard screening tool ThinkHazard; screening utilizing the Mongolia earthquake risk Modified Mercalli scale map produced by the United Nations OCHA; and, stakeholder and public consultation meetings.

165. Pre-construction, construction, operation and decommissioning phases were each considered separately. Potential impacts and proposed mitigation measures are discussed below,

28 The poverty line is set at the cost of acquiring a consumption bundle that provides 2100 calories per person per

day as well as the cost of other non-food essential goods and services. The national poverty line was updated only for changes in price levels between surveys and the 2018 national poverty line is estimated at MNT 166,580 per person per month.

29 Energy Storage Options for Accelerating Renewable Energy Penetration in Mongolia, 2019. Feasibility Study prepared by Mon-Energy under TA-9569 MON: Energy Storage Option for Accelerating Renewable Energy Penetration.

30 Energy Storage Options for Accelerating Renewable Energy Penetration in Mongolia, 2019. Environmental Impact Assessment Report. Prepared by Sunny Trade Co., Ltd LLC.

66

while detailed mitigation measures are presented in the project EMP (Appendix I).

B. Anticipated Pre-construction Phase Impacts and Mitigation Measures

166. Anticipated pre-construction phase negative impacts are typically associated with any permanent land acquisition and associated loss of land and/or structures. All project works will take place on government owned unoccupied land, and there will be no land acquisition, involuntary resettlement, or loss of shelter, agricultural land or productive assets.31 Thus, there are no associated impacts or mitigation measures required.

167. A number of environmental management measures will also be implemented in the pre-construction phase during detailed design, including IEE and EMP updating (if necessary); incorporation of environmental mitigation measures into the BESS Contractor’s bidding documents, technical specifications, and civil construction and equipment installation contracts; implementation of the GRM; and training and capacity building.

1. Mitigation Measures and Monitoring during Detailed Design

168. The following environmental management activities will be implemented during pre-construction.

IEE and EMP Updating

169. The IEE and EMP will be updated, if required, to take into account any design changes or new information. The environmental mitigation measures indicated in the updated IEE and EMP will be incorporated into the detailed design. ADB will review and approve any revisions to the IEE and EMP.

Bidding Documents and Contracts

170. Environmental mitigation measures indicated in the updated IEE and EMP will be included in the BESS Contractor’s bidding documents, technical specifications, and contracts.

Earthquake Risk

86. A detailed assessment of earthquake risks will be undertaken, and the results incorporated into the project detailed design as appropriate.

Project Construction Environmental Management Plan (CEMP)

171. The BESS Contractor will develop a CEMP that outlines the manner by which they will comply with the requirements of the IEE and EMP.

Grievance Redress Mechanism

172. In accordance with the GRM presented in Chapter VIII of the IEE, the PMU will be assigned overall responsibility for the GRM; GRM training will be provided for PMU, IA and GRM

31 A land possession clearance decree (No. A/949) from the City of Ulaanbaatar is presented in Appendix III.

67

access points; the PMU will issue public notices to inform the public within the project area of the GRM; and contact information (phone number, fax, address, email address) for the PMU and local entry points (e.g. contractor, bahg or soum Citizens Representative Hurals, and/or bahg or soum government representatives) will be disseminated at the construction site.

Training and Capacity Building

173. Institutional strengthening and training program will be delivered by a national Independent Environmental Consultant (IEC). The training will focus on ADB’s and Mongolia’s environmental, health and safety laws, regulations and policies; implementation of the EMP, including chance find procedures for PCRs, spill prevention and management, etc.; BESS construction safety; and, the GRM. Training will be provided to the PMU, IA staff, and the contractor.

Consultation and Outreach

174. Information disclosure and consultation activities will be continued with affected people and other interested stakeholders.

C. Anticipated Construction Phase Impacts and Mitigation Measures

175. Overall the scale of construction for the BESS is small and localized, and primarily consists of land preparation; installation of the battery containers, inverters, power transformers and control structure; construction of access roads; and other construction activities. Anticipated Project construction phase negative environmental impacts are low in magnitude, short to medium term in duration, and very localized in scale. Impacts may include soil erosion, construction noise, fugitive dust, wastewater, solid and hazardous waste, and risks to worker and community health and safety. No cultural or heritage sites will be affected nor will any critical habitat. Potential negative construction phase impacts can be effectively mitigated through the application of appropriate good international construction practices, and compliance with national laws and regulations and international guidelines including the General EHS Guidelines and the EHS Guidelines for Electric Power Transmission and Distribution.

1. Impacts on Physical Resources

a) Erosion, Borrow and Spoil

Potential Impacts

176. Construction activities such as land leveling, excavation and filling may lead to localized surface erosion and runoff and the generation of spoil. Some areas of the site will require 4+ m of fill. Soil erosion can be more serious on slopes or near water bodies, and can also occur after the completion of construction if site restoration is inadequate. However, the Project site is not steeply sloping, and not adjacent to water bodies, critical habitat or sensitive receptors such as residences, schools or hospitals. Overall, impacts will be minor in scale, short-term in duration, and localized.

Mitigation Measures

177. These potential impacts, though minor, will be effectively mitigated through good site maintenance practices including a cut and fill plan, erosion control and managing storm water

68

runoff.

b) Air Pollution

Potential Impacts

178. Anticipated sources of air pollution from construction activities include: (i) dust generated from earth excavation, filling, loading, hauling and unloading; (ii) dust generated from disturbed and uncovered construction areas, especially on windy days; (iii) dust generated from construction material storage areas, especially on windy days; (iv) dust generated by the movement of vehicles and heavy machinery on unpaved access and haul roads; (v) dust generated from aggregate preparation and concrete-mixing; and (vi) equipment emissions (gaseous CO and NO2 from transport vehicles and heavy diesel machinery and equipment).

179. Impacts at the Project site will be localized and short-term in duration, and are unlikely to impact residents as the site is not adjacent to residential areas. Impacts of vehicle emissions along access routes will not result in any predicted exceedances of air quality standards, and will be small in scale compared to other vehicle emissions.

Mitigation Measures

180. These potential impacts, though minor, can be effectively mitigated through good site and equipment management practices, including covering transportation loads, and managing construction traffic to avoid residential neighborhoods. Due to limited water resources, site spraying will only be utilized when necessary and if sufficient water resources are available.

c) Equipment Procurement

181. It is expected that BESS equipment will be sourced from outside of Mongolia. Equipment will be required to meet technical specifications including ability to withstand predicted climate changes. Once required technical specifications are met, preference will be given to regional suppliers so as to minimize transport requirements and associated greenhouse gas and other emissions.

d) Wastewater

Potential Impacts

182. Inappropriate disposal of domestic wastewater (from construction workers) or construction wastewater (from drainage of excavation and drilling, washing aggregates, washing construction equipment and vehicles, pouring and curing concrete, and oil-containing wastewater from machinery repairs) may cause soil or groundwater resources contamination. Potential impacts will be localized to the construction site.

Mitigation Measures

183. These potential impacts will be mitigated through good wastewater management practices, including provision of sanitation facilities for workers, management of construction wastewater, and off-site maintenance of construction equipment and vehicles.

69

e) Noise

Potential Impacts

184. During the construction phase noise and vibration will be generated by on site construction activities using heavy equipment such as bulldozers and excavators, and by the transport of construction materials. This is not expected to be a factor as there no nearby residential communities. Overall, potential noise and vibration impacts are anticipated to be very minor.

Mitigation Measures

185. Noise mitigation measures will only be implemented if noise complaints are received. If necessary, good practice noise construction noise management measures will include limiting working hours and using noise barriers. In addition, all equipment must have mufflers in accordance with relevant government requirements.

f) Solid Waste

Potential Impacts

186. Solid waste generated in the construction phase may include construction and domestic wastes. Construction wastes may include packaging materials for the batteries and other equipment, various building materials such as steel, timbers and rubble, and other types of waste. Domestic wastes include organic and inorganic matter, at an estimated production rate of 0.4 kg/day per worker. Inappropriate waste storage and disposal could affect soil, groundwater, and surface water resources, and hence, public health and sanitation.

Mitigation Measures

187. These potential impacts will be effectively mitigated through good waste management practices, including the adoption of the waste hierarchy, providing recycling and waste containers at all construction sites, recycling all materials to the extent possible, and collecting and disposing remaining wastes at appropriate waste disposal sites following national regulations. Waste burning on the Project site will not be allowed.

g) Hazardous and Polluting Materials

Potential Impacts

188. Inappropriate transportation, storage, use, disposal and spills of petroleum products and hazardous materials and wastes can cause soil, surface and groundwater contamination. As noted in Section II, under Mongolia’s hazardous waste classification list (2015) Li-Ion batteries are classified as hazardous waste under waste classification code “16 06 06 - other batteries and accumulators”.

Mitigation Measures

189. These potential impacts will be effectively mitigated through good practice hazardous materials management in accordance with relevant GoM regulations. This will include appropriate hazardous materials transport, storage and disposal. Battery recycling is discussed under “Operation Phase”, below.

70

2. Impacts on Ecological Resources

a) Flora and Fauna

Potential Impacts

190. Surveys indicate that there is no critical habitat, rare or endangered flora and fauna or areas of natural forest at or immediately adjacent to the project site. Therefore, construction activities, including limited vegetation clearance, are not expected to have any impact on these resources.

Mitigation Measures

191. Site and access road periphery will be revegetated with drought-tolerant native plants. The viability of planting trees on adjacent slopes will be further investigated during detailed design.

b) Parks and Protected Areas

Potential Impacts

192. The Project site is not located in or near any parks or protected areas, and no mitigation measures are required.

3. Impacts on Socio-Economic Resources

a) Traffic and Roads

Potential Impacts

193. Materials, goods and workers will be transported to and from the project site via roads. Construction has a potential to cause impacts on traffic and access roads to the Project site.

- Transport of construction materials and heavy loads can result in congestion and potential safety risks.

- Transportation of heavy equipment and loads may cause damage to roads, including surface damage and subsidence.

194. The Project is relatively small, existing road traffic in the communities is relatively low, and anticipated construction traffic is also low; Project traffic impacts are expected to be low in magnitude, scale and duration.

Mitigation Measures

195. These modest impacts can be effectively mitigated through good traffic and road management practices, including planning transportation routes and delivery schedules in consultation with relevant road management authorities.

196. Any damage caused by construction traffic will be repaired by the BESS Contractor at their own cost.

b) Workers Occupational Health and Safety

71

Potential Impacts

197. Project construction may cause physical hazards to workers from electrical shocks, noise and vibration, dust, handling heavy materials and equipment, traffic, falls and falling objects, work on slippery surfaces, fire hazards, chemical hazards such as toxic fumes and vapors, disease, and others. These health and safety hazards pose a significant risk that will be present throughout the construction period.

Mitigation Measures

198. To minimize health and safety risks the BESS Contractor will be required to develop and implement a good practice Occupational Health and Safety Plan (OHS Plan) including the use of Personal Protective Equipment (PPE) and emergency response procedures (ERP), developed in compliance with relevant GoM regulations. HIV/AIDS orientation and training will also be provided.

c) Community Health and Safety

Potential Impacts

199. Project construction has the potential to cause community disturbance such as traffic congestion or delays, and public safety risks from construction activities, heavy vehicles and machinery traffic, fires, spills of materials, and risk associated with unauthorized entry into work areas. These potential impacts are low to moderate in significance, and short term in duration during the project construction period.

200. Workers camps and an influx of migrant workers may cause social conflict or even lead to the spread of disease. However, given the site’s access to the Ulaanbaatar urban area by good quality roads, a worker camp will not be required.

Mitigation Measures

201. To mitigate these potential impacts, in addition to the traffic safety measure noted above, the BESS Contractor will implement good community health and safety practices, including outreach to local communities to disseminate knowledge about safety at or near the construction site; installation of site safety fencing and warning signs (in Mongolian language); and, on site supervision personal (including night guards) as determined by the risk, to prevent unauthorized access to construction areas.

202. With respect to workers recruitment, workers will be locally recruited to the extent practical, and will receive health examinations and education on sexually transmitted diseases. A worker camps will be avoided, and the BESS Contractor will arrange for workers to stay in locally rented houses that are equipped with power, water supply, cooking facilities and adequate sanitation facilities (at minimum, pit latrines that are not located near wells or surface waters).

d) Physical Culture Resources

Potential Impacts

203. Based on field surveys there are no known physical cultural resources (PCRs) at or near the project site. However, construction activities have the potential to disturb as yet unknown PCRs.

72

Mitigation Measures

204. A construction phase chance find procedure will be activated if any chance finds of PCRs are encountered (details in Appendix 1).

D. Anticipated Operation Phase Impacts and Mitigation Measures

205. Operation of the BESS will not produce any air pollution, significant noise, or significant solid or liquid waste. Spent battery cells will need to be recycled; due to the lack of facilities in Mongolia, this will be the responsibility of the BESS supplier. There is also a risk of fire and explosion. Potential operation phase impacts can be effectively mitigated through good design, the application of appropriate good operational management practices, development of emergency and fire response capabilities and procedures, compliance with relevant GoM standards and international good practices including the General EHS Guidelines.

1. Water Use

Potential Impacts

206. Water will be required for domestic use, washing, and fire response. A lack of adequate water supply may hamper facility operation.

Mitigation Measures

207. The BESS will be connected to the municipal water supply system.

2. Solid and Hazardous Wastes

Potential Impacts

208. Wastes generated from operation of the BESS could include transformers and other electrical components, and Li-Ion (or other chemistry) batteries. Toxic chemicals and hazardous wastes can have negative impacts on human health and the environment if not appropriately managed. Small amounts of domestic solid waste will also be generated.

Mitigation Measures

209. There are no known Li-Ion (or other chemistry) battery recycling facilities in Mongolia. Therefore, it will be a contractual requirement that faulty or waste Li-Ion batteries will be collected, transported and recycled in an appropriate facility in the region by the battery supplier (e.g. the BESS Contractor).

210. Equipment that requires replacement will be recycled by the equipment provider (if other than the BESS Contractor), either in Mongolia in licensed facilities if available, or through transport to a licensed facility in another country in the region.

211. Wastes that are considered hazardous will be disposed by the product provider (if other than the BESS Contractor), either in Mongolia in licensed facilities if available, or through transport to a licensed facility in another country in the region.

212. All exports of equipment, batteries and hazardous wastes must be with the review and approval of the MNET, and all necessary export licenses must be obtained from the Special

73

Commission for Hazardous Waste Management of MNET. A performance security will be included in the contract to ensure appropriate battery and hazardous waste management.

213. Domestic wastes will be collected and disposed at an approved local waste disposal sites following national regulations.

3. Wastewater

Potential Impacts

214. BESS operation will generate small amounts of domestic wastewater.

Mitigation Measures

215. The BESS will be equipped with sanitary facilities connected the Ulaanbaatar wastewater system (if available) or to a septic system.

4. Flooding

Potential Impacts

216. The BESS site is located 3 km from the northern bank of the Tuul River in the upper portion of the Tuul watershed, on the western side of Ulaanbaatar. The site is at an elevation of approximately 1,350 masl. The area has desert like conditions, and there are no permanent surface water bodies or stream on or adjacent to the site. The site is over 120 m higher than the adjacent Tuul River, and is reportedly not at risk from river snowmelt or rainfall floods. However, the site may be at risk from flash flooding in the small ephemeral watersheds in the low hills adjacent to Songino substation. In addition, the CRA states that climate change will likely increase the incidence of episodic and heavier rains, and thus may increase the potential for local flooding, and the risk of flood-related damage to the BESS.

Mitigation Measures

217. The BESS site will require leveling and fill of the lower lying areas up to 4 m in height. A site drainage system will be installed, and perimeter dykes will be built to protect site from flash flooding. The risk will be assessed further during detailed design.

218. The CRA notes that: “the proposed site of the BESS installation, being arid, has relatively little vegetation at present. Adding trees, if their growth can be sustained, between the nearby stream bed and the BESS site may help to reduce the impact of flooding from more intense precipitation events. Planting trees on the hillsides from which the nearby stream bed captures runoff may also help to regulate the flow of water during rain events, and to reduce the potential for flooding.” The viability of planting trees on the slopes will be further investigated during detailed design.

5. Noise and Vibration

219. Operation of the BESS will not generate significant noise and is not expected to result in any noise impacts.

6. Fire and Emergency Response

74

Potential Impacts

220. During operation there is a risk of fire and other accidents. Lithium secondary batteries contain both oxidizers (negative) and fuel (positive) within the enclosed battery space, and therefore also carry the risk of fire and explosion in case of overcharging, over-discharging, excess current, or short circuits.

Figure 44: Photos showing escalating failure from cell, cell string, and module.

Source: Doughty and Roth (2012)

Mitigation Measures

BESS Design

221. For proper battery safety, appropriate safe design is essential at the cell, module, pack, and final product level. If safety fails at one level, more severe accidents at the higher levels can quickly follow. Safety requirements will include:

- BESS Contractor’s bid will need to demonstrate that safety has been incorporated in all stages of BESS design to the highest available international standards.

- A battery protection circuit will be required to improve safety by making accidents less likely or by minimizing their severity when they do occur.

- Construction and location measures to reduce risks and provide a safety zone. - BESS design should be tested in accordance with UL 9540A, Test Method for

Evaluating Thermal Runaway Fire Propagation in Battery Energy Storage Systems. This standard evaluates thermal runaway, gas composition, flaming, fire spread, re-ignition and the effectiveness of fire protection systems. Data generated can be

75

used to determine the fire and explosion protection requirements for the BESS. - Fire protection system suitable for the chemistry of the battery and the type of

chemical fire that could result, and water supply. - Ventilation and temperature control system. - Gas detection and smoke detection system. - Maintenance plan.

222. Safety requirements are discussed in more detail in the EMP (Appendix I).

7. Occupational Health and Safety

Potential Impacts

223. Workers may contact with high-voltage power lines/equipment during operation, maintenance and repair. Other hazards include accidents, flammable gas and carbon monoxide, and fire.

Mitigation Measures

224. These risks can be mitigated through the development and implementation of an operation phase Occupational Health and Safety (OHS) Plan, in compliance with good international OHS practices as per the general EHS Guidelines, and GoM requirements.

8. Community Health and Safety

Potential Impacts

225. Operational community health and safety impacts are low, and are primarily related to risk of shock if entering the BESS without permission, and fire. The increase in local traffic caused by Project operation and maintenance will be insignificant, and there will be no air and insignificant effluent emissions.

Mitigation Measures

226. These risks can be mitigated through the implementation of good community health and safety practices, as per the general EHS Guidelines. Specifically, the BESS will be fenced and public access prohibited, and will be equipped with safety warning signs in Mongolian.

227. Fire and emergency response measures are discussed above.

9. Climate Change

Potential Impacts

228. As noted in Section IV.C, a separate Climate Risk Assessment (CRA) was undertaken. The Ulaanbaatar area has been getting progressively warmer in recent years, and projections call for trends in both maximum and minimum temperatures to continue increasing, especially in scenarios where global greenhouse gas emissions are not significantly controlled. Changes in precipitation are less pronounced and show more variability by model. Additional potential changes, though more difficult to determine, include a somewhat higher incidence of more episodic precipitation events, largely in the April to September period, and possibly increased

76

incidence of extreme cold (dzud) conditions.

229. The CRA notes the following key potential climate changes impacts on the BESS:

- Permafrost, if present at the BESS site, will likely melt during the lifetime of the Project, and that melting should be taken into account during construction.

- Average precipitation and snow and ice loading due to episodic weather events may be somewhat higher and more prevalent, respectively, than in recent years, and may require at least consideration during design, with regard to both the construction of the BESS itself and the construction and reinforcement of ancillary systems, such as the T&D systems connected to the BESS.

- Changes in temperature, including average temperatures and extreme heat and cold spells, may have an impact on the requirements for heating and cooling to keep the BESS battery components at the correct operating temperatures.

- The impacts of more intense rain events may affect the flooding potential for the Project site.

- Changes in the occurrence of extreme windstorms may require climate resilience measures for the BESS facilities and/or for the T&D systems associated with the BESS.

- The effects of climate change on solar radiation as an input to electricity generation solar PV generation seems unlikely to have a significant net impact on the operation of the BESS on an average basis.

- Electricity demand will be affected by climate change, in that the requirements for electricity use for heating may be reduced, all other factors being equal, but over the lifetime of the BESS it is likely that changes in other factors, including the way that heating is supplied and used in Ulaanbaatar, will have a much larger impact on the amount and timing of electricity demand, and thus on BESS operation.

Mitigation Measures

230. There is no known permafrost in the Project area (Figure 22). However, during detailed design a permafrost core sample survey will be undertaken, and if permafrost is discovered this will be incorporated into BESS design as appropriate. Other mitigations will be incorporated into design to address potential changes in the intensity of precipitation, changes in temperature, frequent or more violent windstorms. Operation and maintenance (O&M) adaptions will also be adopted.

231. Overall, with the adoption of these measures, the Project is anticipated to be able to effectively withstand observed and projected climate charges.

E. Project Decommissioning

Potential Impacts

232. The BESS lifespan is expected to be 15+ years, at which point it is expected that it may be decommissioned. Typical activities during the decommissioning and site reclamation phase include equipment removal and recycling, breaking up of concrete pads and foundations, removal of access roads that are not maintained for other uses, re-contouring the surface (if required), and revegetation. Associated impacts include erosion, noise, dust and vehicle exhaust, and the need

77

to properly manage large amounts of debris, batteries, wire and cabling, electronics, etc.

Mitigations – Decommissioning Plan

233. It is not possible to develop detailed decommissioning plans for events 15+ years in the future. However, it is recommended that at a minimum of 6 months prior to closure a decommissioning and site reclamation plan be developed that addresses effectively potential impacts, and is in accordance with good international practices and relevant government regulations and standards in force at that time.

F. Project Benefits

1. Benefits

234. Operation of the BESS will:

(i) absorb fluctuating renewable power which is otherwise curtailed; (ii) allow for peak shifting to reduce dependency on imports of carbon intensive energy

from Russia; (iii) enhance frequency regulation support to reduce the impact of intermittent large-


(iv) supply clean electricity to meet growing peak demand in the CES.

235. Successful completion of the proposed project will also allow the connection of an additional 350 MW of RE capacity into the CES without curtailment by 2030, thereby fully meeting the government’s RE target by 2030. Once fully operational the project will: (i) evacuate 859 GWh of renewable electricity annually; (ii) reduce sub-bituminous coal use in existing CHPs by 219,000 tons annually; and (iii) reduce annual emissions by 842,039 tons of CO2, 460 tons of SO2, 180 tons of NOx, and 723 tons of PM.

2. Project Beneficiaries

236. The Project will benefit the entire population of the CES (Figure 45). The CES grid covers Mongolia’s major load demand centers and accounted for 91% of electricity demand in the country in 2018. CES coverage includes the capital Ulaanbaatar, 16 aimags and over 300 soums and small settlements, and has an estimated population of 2.686 million32 (2019), including 535,000 households and 20,000 business. The CES grid is divided into four branches (Table 19). The CES population will benefit through stabilization of the energy system network, reduced economic burdens and losses on businesses and entrepreneurs caused by blackouts, increased opportunities for RE, and decreased emissions and associated public health improvements.

32 Based on data from the National Statistics Office of Mongolia,

78

Figure 45: Central Energy System and project location.


Table 19: Project beneficiaries in the CES.

# Area Households Businesses Unspecified customers

1 Ulaanbaatar Branch

Bagakhangai dist. 1,272

Bayangol dist. 59,536

Bayanzurkh dist. 95,714

Nalaikh dist. 10,606

Songinokhairhan dist. 84,236

Sukhbaatar dist. 38,563

Khan-Uul dist. 48,940

Chingeltei dist. 40,017

Tuv aimag Bayanchandani sum 1,315

2 Central Region Branch 45,000 7,300

3 Khangai Region Branch 109,299 10,638

4 South-East Region 73,052

Total 534,498 17,938 73,052

Central Region Energy System

Ulaanbaatar

BESS Site

79

VI. ALTERNATIVE ANALYSIS

237. An analysis of project alternatives was undertaken during the feasibility stage to determine the most financially and technically feasible way of achieving the Project objectives while minimizing environmental and social impacts and maximizing environmental and social benefits.

A. Site Locations

238. Three potential sites were considered for the BESS: the Ulaanbaatar 220/110/35 kV substation; the CHP4 plant; and the Songino 220/110/35 kV substation (Figure 46). Site selection process was carried out by consultants together with MoE, NPTG, and in consultation with ADB.

Figure 46: BESS locations considered.

Source: BESS FSR 2019; Google Earth, 2019.

239. The Ulaanbaatar 220/110/35 kV substation is located on the eastern periphery of Ulaanbaatar. The Law on Water (amended 2015) protects areas around water sources through special protection zones, and strictly regulates construction of buildings, industrial digging, and mining, clearance of trees, and other development activities (with the exception of power plants, water supply facilities, sewage treatment facilities, bridges, roads, transmission lines, drinking water pipelines). The Ulaanbaatar 220/110/35 kV substation is located in a groundwater special protection zone (SPZ) where the majority of Ulaanbaatar’s ground water is sourced from wells. As such the site was rejected due to the risk of groundwater contamination, and the likelihood that the site would be rejected by both ADB and Mongolian environmental authorities.

80

Figure 47: Ulaanbaatar 220/110/35 kV Substation. The red indicates the water source Special Protection Zone.

Source: FSR 2019; Google Earth, 2019.

240. CHP4 is the largest coal-fired CHP plant in Mongolia, with a design capacity of 540 MW later modified to 580 MW. It covers 70% of total electricity demand of the CES and 64% of total heat of the district heating system in Ulaanbaatar. The plant was built over 27 years ago and many upgrades and repairs have been made in recent years. A BESS site on the east side of the CHP4 220 kV substation was considered (Figure 48). This site was rejected in consultation with MoE and NPTG because of i) crowded site conditions and lack of suitable space; ii) potential disruptions to CHP4 production during BESS construction; iii) urban nature of the surrounding area, and potential disruptions to traffic during construction.

241. The Songino substation in Songino Khairkhan District was the third option, and was selected. It has suitable available land; good road access; and is rural in nature, with no local residents or nearby sensitive receptors. The site selection was confirmed by MoE.

81

Figure 48: CHP4, central Ulaanbaatar. The proposed BESS site is adjacent to the CHP4 2220 kV Substation.


82

Figure 49: Songino 220/110/35 kV Substation. This was selected as the preferred site option.


B. Site Options at Songino Substation

242. It should be noted that once Songino substation area had been selected for the BESS, it was still necessary to select a site location. A total of eight potential sites near the substation were considered (Figure 50). The site immediately adjacent to the substation was ultimately selected after extensive consultations with the Land Department of Songino Kkhairkhan District, MoE, ADB, and after detailed cadastral surveys (Figure 51). The site was selected on the basis of the land being unoccupied and undeveloped, of sufficient size, and being available and not privately owned. MoE formally requested the site in a letter to Ulaanbaatar City on 02 July, and approval was granted on September 17, 2019 (Appendix IV).

83

Figure 50: Sites considered at the Songino 220/110/35 kV Substation (in blue), and the selected site (in red).

Source: PPTA Consultant, 2019.

84

Figure 51: Cadastral survey at land around the Songino 220/110/35 kV substation.


Figure 52: Cadastral drawing of selected site.


C. Battery Chemistry

243. BESS battery chemistry has not yet been decided. The following section discusses battery chemistry technologies, battery costs and performance, current state of commercialization, and

85

typical power storage applications.

1. Lithium-Ion

244. Lithium-Ion (Li-Ion) batteries utilize the exchange of lithium ions between electrodes to charge and discharge the battery. Li-Ion is a highly attractive material for batteries because it has high reduction potential (a tendency to acquire electrons (- 3.04 Volt versus a standard hydrogen electrode)), and it is lightweight. Li-Ion batteries are typically characterized as power devices capable of short durations (approximately 15 minutes to 1 hour) or are stacked to form longer durations (but with increasing costs).

245. Rechargeable Li-Ion batteries are commonly found in consumer electronic products such as cell phones and laptops, and are the standard battery found in electric vehicles. In recent years this technology has developed and expanded its portfolio of applications considerably into utility-scale applications, and today Li-Ion batteries have been implemented for applications relating to ancillary services in grid connected storage. Because of its characteristics, Li-Ion technology is well suited for fast-response applications like frequency regulation, frequency response, and short-term (30-minutes or less) spinning reserve applications.

246. Li-Ion batteries do carry some safety and environmental risk. Toxic or reactive gases may be released both during creation of the battery cells, as well as in case of thermal runaway within an operating system. However, this risk is being managed across the industry. During cell manufacture, effluent gases can be scrubbed and captured, to be disposed of safely. Li-Ion batteries are classified by the US federal government as non-hazardous waste and are safe for disposal in the normal municipal waste stream.33 While other types of batteries include toxic metals such as cadmium, the metals in lithium ion batteries - cobalt, copper, nickel and iron - are considered safe for landfills or incinerators, though battery recycling is the preferred option.

247. Once fully constructed, Li-Ion battery systems come with various methods of cooling, not only to help prevent thermal runaway but also to provide the most beneficial operating temperatures for the battery cells. Care must be taken with ventilation, extinguishing, and cooling requirements to avoid battery fires, and adequate precautions have been taken in the electricity industry.

248. Figure 53 provides a schematic of a typical Li-Ion battery system. This includes monitoring, control, and management systems, power converter/inverter, and the batteries themselves.

Li-Ion Technologies

249. Li-Ion technology varies between chemistries. This discussion focuses on three of the most prominent and promising chemistries, Lithium Nickel Manganese Cobalt Oxide (LiNiMnCoO2 or NCM), Lithium Iron Phosphate (LiFePO4), and Lithium Titanate (Li4Ti5O12 or LTO), and compares and contrasts their attributes.

250. NCM is one of the most commonly used chemistries in grid-scale energy systems. This technology demonstrates balanced performance characteristics in terms of energy, power, cycle life, and cost. NCM chemistry is very common due to these features – it provides an engineering

33 Kate Krebs, National Recycling Coalition, in http://www.retrievtech.com/recycling/lithium-ion, 2017.

86

compromise.

251. LiFePO4, on the other hand, can be purchased at a low cost for a high-power density, and its chemistry is considered one of the safest available within Li-Ion batteries. Further, due to its very constant discharge voltage, the cell can deliver essentially full power to 100% depth of discharge (DOD). However, LiFePO4 batteries are typically applicable to a more limited set of applications due to its low energy capacity and elevated self-discharge levels.

252. Finally, LTO offers a stable Li-Ion chemistry, one of the highest cycle lifetimes reported, and a high-power density. Further, it is the fastest charging Li-Ion chemistry of those reviewed here. However, in balance, it has a much lower energy density and much higher average cost.

Figure 53: Cell-based Battery Energy Storage System.


253. Li-Ion battery systems are manufactured widely, but there is relatively high turn-over in manufacturers. Some of the more prominent or market-tested systems are presented in Table 20.

Table 20: Li-Ion battery manufacturers.


NCM Enerdel Hitachi LeClanche LG Chem Panasonic PBES

CE175-360, 160-365 Moxie+ Graphite/NMC JH2 NCR18650A

87


Samsung XALT Electronova

25R 31,40, 53, 75Ah HE; 31, 40, 63, 75Ah HP; 31, 37Ah UHP

LiFePO4 A123 BYD K2 Energy Microvast Saft Sony Thundersky XO Genesis

AMP20, AHP14, ANR26650, APR18650 LFP123A VL10Fe, VL25Fe IJ1001M WB-LYP, TS-LYP

LTO Altainano LaClanche Microvast Toshiba XALT

nLTO LTO LpTO (Gen 1) SCiB 2.9, 20, 23Ah 60Ah LTO


2. Sodium Sulfur Batteries (NAS)

254. Sodium-sulfur (NaS) batteries are a type of molten-salt battery. The systems have high energy density, fast response times, and long cycle lives. They also have some of the longest durations available on the market.

255. The inclusion of the term “molten” alludes to the battery operating temperature. NaS batteries store electricity through a chemical reaction which operates at 300 °C or above. At lower temperatures the chemicals become solid and reactions cannot occur. The high operating temperature makes the NaS batteries suitable for larger applications supporting the electric grid, but not personal electronic devices or vehicles. Further, due to the high temperature and natural reactivity of pure Sodium when exposed to water, the system can present a safety hazard if damaged.

256. Figure 53 above is a schematic showing what is entailed in a general NaS battery system, which is parallel in its architecture to Li-Ion systems. This includes monitoring, control, and management systems, power converter/inverter, and the batteries themselves.

257. NaS batteries are a mature technology, and the system cost has generally leveled off. Although manufactured by more than one company, the market-share, and thus proven performance, of the company listed in the Table 21 represents the majority of installations.

Table 21: NaS battery manufacturers.

Technology Manufacturer Cell or System

Product Description

NaS NGK NAS Source: PPTA Consultant, 2019.

3. Vanadium Redox Batteries

88

258. Vanadium Redox batteries (VRB), or Vanadium flow batteries, are based on the redox (reduction-oxidation) reaction between the two electrolytes in the system. These reactions include all chemical processes in which atoms have their oxidation number changed. In a redox flow cell the two electrolytes are separated by a semi-permeable membrane. This membrane permits ion flow but prevents mixing of the liquids. Electrical contact is made through inert conductors in the liquids. As the ions flow across the membrane, an electrical current is induced in the conductors to charge the battery. This process is reversed during the discharge cycle. Figure 54 below provides a schematic showing what is entailed in a general VRB system. This includes monitoring, control, and management systems, power converter/inverter, and the electrolyte tanks and stack of the batteries themselves.

Figure 54: Redox Flow Battery Energy Storage System.


259. In VRBs, the liquid electrolyte used for charge-discharge reactions is stored externally and pumped through the cell. This allows the energy capacity of the battery to be increased at a low cost. Energy and power are decoupled since energy content depends on the amount of electrolyte stored. VRB systems are unique in that they use one common electrolyte, which provides opportunities for increased cycle life. These large, liquid solution containers do however limit the VRB to stationary storage applications.

260. An important advantage of VRB technology is that it can be “stopped” without any concern about maintaining a minimum operating temperature or state of charge. This is a key point to most flow batteries in that the batteries can actually be “turned off.” This technology can be left uncharged essentially indefinitely without significant capacity degradation.

89

261. These systems are relatively new to the battery industry but are solidifying their place in the market. Some of the more prominent or market-tested systems are presented in Table 22.

Table 22: VRB manufacturers.

Technology Manufacturer Cell or System

Product Description

VRB

American Vanadium Imergy UET/UniEnergy Vionx

CellCube ESP5, 50, 250 UniSystem, ReFlex


4. Zinc Redox Batteries

262. A Zinc Bromine (ZnBr) battery utilizes similar flow battery technology as VRB. Due to this, it shares many of the same advantages: little to no claimed degradation over time (both in use and in the fully-discharged state), high energy density, 100% DOD, and easily scalable. The ZnBr consists of a zinc-negative electrode and a bromine-positive electrode, separated by a micro-porous separation. Solutions of zinc and a bromine complex compound are circulated through the two compartments. The electrodes (Zn- and Br+) serve as substrates for the reaction. During charging, the Zinc is electroplated at the anode and bromine is evolved at the cathode. When not cycled, there is a potential for the Zinc to form dendrites that can degrade capacity or damage the battery components. To prevent this, the battery must be regularly and fully discharged.

263. Figure 54 above provides a schematic showing what is entailed in a general ZnBr system, which is of similar physical structure to VRB, though differing completely in chemistry at the core of energy storage. This includes monitoring, control, and management systems, power converter/inverter, and the electrolyte tanks and stack of the batteries themselves.

264. The response time for this technology is thought to be inadequate for fast-response applications; this should be verified on a case by case basis as new system designs may be able to improve on this limitation. ZnBr is a promising technology for balancing low-frequency power generation and consumption. However, cycle life tends to be less than that of VRBs.

265. These systems are in the early stages of commercialization but are being produced by multiple manufacturers. Some of the more prominent or market-tested systems are presented in Table 23.

Table 23: ZnBr Battery Manufacturers


Description

ZnBr Enphase (Previously ZBB) Primus Power Flow RedFlow

Enerstor, Agile EnergyCell ZBM2, ZBM3


5. Battery Costs

266. Cost estimates are broken down as follow:

90

Energy Storage Equipment Power Conversion Equipment Power Control System Balance of System Installation Fixed Operation and Maintenance

267. Each of these costs components are provided as a range covering currently observed industry estimates. In addition to current cost estimates, cost trends over 10 years will be provided as graphs demonstrating a breakdown of system costs in the requested components.

268. The capital cost for an installed energy storage system is calculated for a system by adding the costs of the energy storage equipment, power conversion equipment, power control system, balance of system, and the installation costs. Each of these categories is accounted for separately because they provide different functions or cost components and are priced based on different system ratings. System component costs based on the power capacity ratings are priced in $/kW, while component costs based on the energy capacity ratings, such as the DC energy storage system, are priced in $/kWh.

a) Energy Storage Equipment Costs

269. Energy storage equipment costs are inclusive of the DC battery system which includes the costs of the energy storage medium, such as Li-Ion battery cells or flow battery electrolyte, along with associated costs of assembling these components into a DC battery system. For Li-Ion systems, battery cells are arranged and connected into strings, modules, and packs which are then packaged into a DC system meeting the required power and energy specifications of the project. The DC system will include internal wiring, temperature and voltage monitoring equipment, and an associated battery management system responsible for managing low-level safety and performance of the DC battery system. For flow batteries, the DC system costs include electrolyte storage tanks, membrane power stacks and container costs for the system along with associated cycling pumps and battery management controls. Energy storage equipment costs are provided on a $/kWh basis which is most appropriate for quantifying the cost of an energy capacity constrained resource.

b) Power Conversion System Equipment Costs

270. Power conversion system (PCS) costs are inclusive of the cost of the inverter, packaging, container, and controls. Inverters employed in energy storage systems are more expensive than the grid-tied inverters widely deployed for solar PV generation, and differentiated by their bi-directional, 4-quadrant operational capabilities. The cost of the power conversion equipment is proportional to the power rating of the system and provided in $/kW.

c) Power Control System Costs

271. Unique to energy storage systems are the required high-level controllers being deployed to dispatch and operate the systems. With dispatch becoming an ever more important part of storage system design, controllers have to combine multiple functions – from forecasting the load, to understanding the tariff structure and factoring in the type of charge management required for a specific application and technology. The energy industry is currently seeing a number of software companies emerging which are focused solely on control and management of energy storage systems.

91

272. System integrators and battery storage vendors themselves are also producing controls to operate their systems. For systems owned or operated by a utility, these controllers must additionally be integrated with utility monitoring and control systems such as Supervisory Control and Data Acquisition Systems (SCADA), Energy Management Systems (EMS), and Distribution Management Systems (DMS), among others.

273. At present, the costs for the power control systems have been observed to vary widely and are provided here based on the power capacity of a plant as $/kW. The trend graphs show conservative reduction in costs over ten years; as controls grow more prevalent and efficiencies are found, the control requirements and designs will likely increase in intricacy.

d) Balance of System

274. The equipment cost of the storage system will further depend on ancillary equipment necessary for the full storage system interconnection. The balance of system cost here includes wiring, interconnecting transformer, and additional ancillary equipment. For some technologies, this may include the cost of centralized HVAC systems which is required for maintaining acceptable environmental equipment. The balance of system cost is proportional to the power rating of the system and provided in $/kW.

e) Installation

275. Installation cost accounts for associated Engineer-Procure-Construct (EPC) costs inclusive of installation parts and labor, permitting, site design, and procurement and transportation of all equipment.

f) Fixed O&M Costs

276. Yearly operation and maintenance costs is currently a debated issue for storage projects employing the technologies discussed in this report, as the industry does not yet have longer term operating experience with the technologies. O&M requirements for Li-Ion systems are generally assumed to be light and include maintenance of HVAC system, tightening of mechanical and electrical connections, cabinet touch up painting and cleaning, and landscaping maintenance. Further, the majority of projects being developed for utilities applications include some type of capacity maintenance agreement. This capacity maintenance agreement guarantees some fixed level of available energy capacity in the system over the term of the project. The cost of the capacity maintenance agreement can be accounted for in the Fixed O&M or as part of the upfront capital costs of the system. For flow battery systems, maintenance services include power stack and pump replacements, tightening of plumbing fixtures, tightening of mechanical and electrical connections, as well as semi-annual chemistry refresh and full discharge cycles to refresh capacity. Further, while many technologies are developing third party training and qualification programs for O&M services, at present many of vendors technology companies themselves are providing O&M services.

g) Variable O&M Costs

277. Variable O&M costs, while typical to conventional generation sources, are generally assumed negligible for most energy storage systems. It is noted that systems operators can use a variable O&M cost as one means of including the capacity degradation within an energy storage dispatch model. However, there is not currently a uniform or industry acceptable methodology for quantifying variable O&M in this manner. For the purposes of this report, energy storage variable

92

O&M is considered to be negligible.

6. Battery Chemistry Selection

278. Storage battery performance is compared in Table 24. It should be noted that no decision has been made yet on battery chemistry selection. It is a best practice not to specify the battery chemistry when tendering for a BESS. This allows for greater flexibility during the BESS selection process. The selection will be made after all tenders have been received, on the basis of power capability, recharge rates, round trip efficiency, availability, energy capacity degradation, expected life, safety and environmental considerations, and cost.

Table 24: Storage battery performance comparison.

Parameter/ Technology Li-Ion NCM

Li-Ion LiFePO4

Li-Ion LTO

NaS VRB ZnBr Zinc-

air

Power capability

Available down to 1 MW Capacity

Yes Yes Yes Yes Yes Yes Yes

Maximum MW 35 35 40 50 20 20 15

Power capability SOC upper limit 90% 85% 98% 90% 95% 98% 98%

SOC lower limit 10% 15% 10% 10% 5% 5% 10%

Recharge rates 1C 2C-1C 3C-1C 1C-0.5C

1C-0.25C

1C-0.25C

2C-1C

Round trip efficiency 77 - 85%

78 - 83%

77 - 85%

77 - 83%

65 - 78%

65 - 80%

72 - 75%

Availability Up-time 97% 97% 96% 95% 95% 95% 96%

Carve Outs 72

hr/yr 72 hr/yr

72 hr/yr

72 hr/yr

1 wk/yr

1 wk/yr

72 hr/yr

Energy Capacity Degradation

Energy Applications 30-

40% 20-40%

15-25%

15-30%

5-10%

5-10%

15-25%

Power Applications 10-

20% 15-25% 5-15%

5-15%

5-10%

5-10%

5-15%

Expected life Years 10 10 10 15 10 10 10

Cycles 3,500 2,000 15,000 4,500 5,000 3,000 5,000

Environmental effect upon disposal? Yes Yes Yes Yes Yes Yes Yes


D. No Project Alternative

279. The “no project” alternative addresses the likely consequences of not undertaking the proposed action. The Project is expected to result in significant CES operational, environmental and social benefits as described in Chapters III and V. Based on the important of the anticipated Project benefits, the “no project” alternative was rejected.

E. Overall Alternative Analysis

280. Based on the analysis of alternatives, the Project has selected the most appropriate locations and technologies.

93

VII. INFORMATION DISCLOSURE AND PUBLIC CONSULTATION

A. Mongolian and ADB Requirements for Public Consultation

1. Mongolian Requirements

281. Mongolian public consultation requirements are related to the DEIA process, described in Chapter II of this report. The Law on Environmental Impact Assessment (2012) requires that:

- Development plans and programs assessed as part of the DEIA process will be publicly disclosed on the website of the State Administrative Central Organization in charge of nature and environment.

- There will be a 30-working day period for submittal of verbal or written public input, and the DEIA consultant should organize community consultations that include local government and local residents within the area of influence.

- The DEIA should include meeting minutes, comments by local government, and community consultation that has been conducted with local communities in the area of influence.34

2. ADB Requirements

282. ADB’s SPS 2009 has specific requirements for information disclosure and public consultation.

283. Information disclosure involves delivering information about a proposed project to the general public and to affected communities and other stakeholders, beginning early in the project cycle and continuing throughout the life of the project. Information disclosure is intended to facilitate constructive engagement with affected communities and stakeholders over the life of the project. In order to make key documents widely available to the general public, the SPS 2009 requires submission of a final IEE for Category B projects to ADB for posting on the ADB website.

The SPS 2009 requires that borrowers take a proactive disclosure approach and provide relevant information from environmental assessment documentation directly to affected peoples and stakeholders.

284. The SPS 2009 also requires that the borrower carry out meaningful consultation with affected people and other concerned stakeholders, including civil society, and facilitate their informed participation in project decision making.

B. ADB Stakeholder Consultations

285. The proposed Project was initially identified in the discussion with MoE during an ADB country programming mission in 2018, and was officially requested by the Ministry of Finance (MoF) in April 2019. ADB has conducted a number of project preparation missions, and consulted extensively with key stakeholders such as MoE, MoF, National Power Transmission Grid (NPTG),

34 Law on Environmental Impact Assessment (2012), Articles 8 and 18.

94

National Dispatching Center (NDC), and Energy Regulatory Commission (ERC).

C. Public Consultation During DEIA Preparation

286. As part of the DEIA preparation a public consultation meeting was held on 21 October 2019 at the 32 Khoroo Public Hall, Songino Khairkhan district (Figure 55). The meeting was led by environmental and social specialists from MonEnergy, the PPTA consultant, and Sunny Trade Co., Ltd LLC, the company that prepared the DEIA. The meeting was attended by 30 participants, though not all participants signed the attendance list (Appendix VI).

287. The meeting agenda is presented below:

i. Opening. ii. Purpose of meeting. iii. Proposed project description, including information hand-out. iv. Environmental assessment process, potential environmental issues and

mitigation measures. v. Social safeguards, land issues and social survey. vi. Question and answers.

Figure 55: Project public consultation meeting, held 21 October 2019 at the 32 Khoroo Public Hall.

Project description presentation. Distribution of project information hand-out.

95

Meeting participants. Meeting participants. Source: PPTA consultant, 2019.

288. The public meeting concluded with a request from the Chairman of Representative Khural for participants to disseminate project information to others who could not attend, and a wish for a success project implementation.

289. All presentations, materials and discussions where in Mongolian. Table 25 presents a summary of the questions and answers.

Table 25: Summary of public consultation meeting question and answer.

Question Response Female participant: We know that the substation construction work started 2 years ago. When will the current project be commissioned?

Adiyasuren (Environmental team): The project will kick off in 2020 and be commissioned in 2021.

Female participant: According to the presentations, it seems that it would be used only for power storage. Would it be capable for power distribution?

Adiyasuren (Environmental team): Power storage is like a battery. First, it stores power and then it can distribute the power.

Female participant: I thought it stores power, and it is used when there is black out.

Adiyasuren (Environmental team): It is in constant operation supporting the grid operation.

Female participant: Ok. I have another concern. You know mobile phones are considered to be harmful for health. Are these big batteries harmful for human health?

Adiyasuren (Environmental team): Mobile phones discharge electromagnetic waves. Today, waves are everywhere. Mostly children are vulnerable to such waves. Batteries don’t discharge such waves. You know motorcycle batteries. They don’t have hazardous effects unless it is exploded.

Participant: I know how the substation looks like. Too many electric wires. This project is going to put batteries just next to the substation. Will it be protected from lightning? Does it have any negative impact on human health?

Adiyasuren (Environmental team): Yes, lightning prevention measures will be implemented. Batteries are expensive. Nobody wants batteries to be damaged by lightning. Furthermore, as I said previously, there is no harm from batteries during operation. We have small size alkaline batteries at home, they don’t affect us. Batteries are not harmful to human unless they are broken up and chemical substances inside are spilled out, or they catch on fire. Batteries don’t discharge electromagnetic waves.

Chairman of Representative Khural): How about the wastes. Empty gas cans need to be holed. Also, deodorant cans need to be holed before disposal. What should we know about the battery disposal?

Adiyasuren (Environmental team): I am very appreciative of the good questions. First soil erosion, the project site will occupy about 16 ha of land. It will have green facilities such as trees and a small control house. Only a small percent will be occupied by battery placement. We will advise to plant trees round batteries. About the harmful effects of the batteries, it doesn’t have any negative impact when it is in operation. As I said previously, it would have hazardous impact if it is unsealed or if there is a fire. After 15 years or sooner if they fail they will be brought back by the supplier. I

Female Participant: As I understand, it will have impact on soil condition. Furthermore, it should have negative impact on environment. Vehicle batteries are becoming a problem. We need to think how to dispose them. Which country would be the origin of the batteries? Will any kind of contract be done between buyer and

96

Question Response

supplier of batteries? Also, there is a big earthquake crevice in Emeelt area. Where do the batteries be placed?

don’t know which country would be the supplier. Next year, procurement procedures will be carried out during the first phase of the project. Furthermore, with respect to the lightning issue, we will include a recommendation to put some lightning prevention kits to protect the BESS. About the earthquake zone, there are two earthquake faults; Gunj faults and Emeelt faults. MOE selected substation site. They know where the Emeelt faults is located. It is far from our site. In general, Ulaanbaatar city is in the earthquake zone of 7-8 magnitude. Old buildings are fragile to earthquakes. About the agreement on used batteries, of course we will do recommendation to do a contract with supplier to take back those batteries for disposal. I will promise to include the question and recommendation in the report. I am very happy that you are very concerned. Purpose of the public consultation is to know what local residents think and perceive about the project.

Female participant: This area has regular power failures. Sometimes it takes long time to recover. My question is to know the scope of area BESS project covers. Would it improve power supply only this Songino area? Or would it have impact on neighboring khoroos or whole Ulaanbaatar area?

Bilguun (Social safeguards team): The BESS project aims to capacity of Central Energy System that covers Ulaanbaatar area and more than 300 settlements. About the land issue, the Songino site was not selected casually. 3 candidate sites were examined by experts from MOE, consulting firm and ADB. Bilguun showed slides about the Amgalan sub-station and CHP#4 sites. Some residents didn’t know the exact location of the site. He used slides to disclosure information on site location and surrounding area. He talked about the barriers to getting the land permission, and noted that MOE and the UB municipality helped solve the land acquisition issues. Information disclosure actions have been taken at every stage. In May, we organized an inception workshop for stakeholders. Today, we are doing public consultation for khoroo residents. As it covers whole Ulaanbaatar area, similar project information dissemination activity is going to done in other area of Ulaanbaatar, in Khan Uul district. The other big part is social survey. Your involvement in social survey is tremendous. Mostly woman and elderly people spend the most time at home, and are the most affected by blackouts. We are going to carry out focus group discussions among woman.

Female participant: I hope the project will improve power supply stability in this area.

Bilguun (Social safeguards team): Yes, power stability will be improved.

Bilguun (Social safeguards team): asks question about cattle use in the area.

Audience: There are some people who have cattle in 32 khoroo but not in this area.

97

Question Response

Chairman of Representative Khural: There are some residents who possess livestock. Bilguun (Social safeguards team): Will the project affect them? Chairman of Representative Khural: No, they don’t live in this area. This is not a residential area. There is a cattle bone processing factory to produce oil in this area. Otherwise there are no cattle and no residents in this area because it is industrial zone, not residential. Only there are 20 people working at the bone factory.

D. Future Disclosure and Consultation Activities

290. The IA will continue to conduct regular community liaison activities during the construction and operation phases, including the implementation of the grievance redress mechanism (GRM, see Chapter VIII). Ongoing consultation will ensure that public concerns are understood and dealt with in a timely manner.

291. Environmental monitoring reports will be disclosed on ADB’s website semi-annually during construction and annually during operation.

98

VIII. GRIEVANCE REDRESS MECHANISM

A. Introduction

87. A project grievance is defined as an actual or perceived project related problem that gives ground for complaint by an affected person (AP). As a general policy, the EA and IA will work proactively toward preventing grievances through the implementation of impact mitigation measures and community liaison activities that anticipate and address potential issues before they become grievances. In addition, as the Project will not involve any involuntary land or property acquisition or resettlement, significant grievances are unlikely. Nonetheless, during construction and operation it is possible that unanticipated impacts may occur if the mitigation measures are not properly implemented, or unforeseen issues arise. In order to address complaints if or when they arise, a Project GRM will be developed in accordance with ADB requirements and Government practices. A GRM is a systematic process for receiving, recording, evaluating and addressing an AP’s project-related grievances transparently and in a reasonable period of time.

B. ADB’s GRM Requirements

88. The ADB SPS 2009 requires the EA and IA to establish a GRM to receive and facilitate resolution of AP’s concerns and complaints about the Project’s environmental performance during the construction and operation phases. The GRM should i) be scaled to the risks and adverse impacts of the project; ii) address affected people’s concerns and complaints promptly using an understandable and transparent process; iii) be readily accessible to all sections of the community at no cost and without retribution; and iv) not impede access to the Mongolian judicial or administrative remedies and ADB’s Compliance Review Panel.

C. Current GRM Practice in Mongolia

89. Residents' complaints or concerns in Mongolia are generally taken directly to contactors or to bahg or soum Citizens Representative Hurals and/or bahg or soum government representatives. This approach focusses on taking complaints to lower administrative levels so mitigation actions can be taken quickly without delay, and elevating to higher levels if required.

D. Project GRM

1. Objective

90. The objective of the GRM is to prevent or address community concerns, reduce environmental and social risks, and assist the Project to maximize environmental and social benefits. In addition to serving as a platform to resolve grievances, the GRM has been designed to: i) provide open channels for effective communication, including the identification of new social and environmental issues of concern arising from the project; ii) demonstrate concerns about community members and their social and environmental well-being; and iii) prevent and mitigate any adverse environmental and social impacts on communities caused by project implementation and operations. The GRM will be accessible to all members of the community.

2. GRM Stages and Timeframe

91. The five GRM stages and associated timeframes for the grievance redress process are presented below and illustrated in Figure 56.

99

Stage 1: Resolution at Local Level. If a concern arises, the AP may try to resolve the issue of concern directly with the BESS Contractor (during construction) or operator (during operation). If the concern is resolved successfully, no further action is required. Nonetheless, the BESS Contractor (during construction) and/or the operator (during operation) shall record any complaint and actions taken to resolve the issues and report the results to the PMU. If no solution is found within 10 working days, the complainant is not satisfied with the suggested solution under Stage 1, or the AP does not wish to resolve the concern directly with the BESS Contractor or operator, proceed to Stage 2. Stage 2: Complaint Eligibility Assessment and PMU Resolution. The AP will submit the grievance to the PMU directly or via local entry points, either verbally or in writing. Local entry points will include bahg or soum Citizens Representative Hurals, and/or bahg or soum government representatives. The PMU will make a written record of each complaint and assess its eligibility. If the complaint is deemed ineligible, e.g. related to an issue outside the scope of the Project, the PMU will provide the AP a clear written explanation of the decision within 5 working days. If the complaint is deemed eligible the PMU will register the complaint and inform the relevant entry point, BESS Contractor or operator, the IA and EA. The PMU will take steps to investigate, communicate with all relevant stakeholders and identify a resolution within 10 working days of receipt of the complaint. This may involve instructing the BESS Contractor or operator to take corrective actions. Within 10 working days of the redress solution being agreed upon, the BESS Contractor or operator should implement the redress solution and convey the outcome to the EA, IA, ADB and the AP.

Stage 3: Multi-stakeholder Meeting Complaint Resolution. If no solution can be identified by the PMU or if the AP is not satisfied with the suggested solution under Stage 2, within two weeks of the end of Stage 2 the PMU will organize a multi-stakeholder meeting including relevant local government authorities, the EA, IA and ADB (optional). The meeting should result in a solution acceptable to all, and identify responsibilities and an action plan. The BESS Contractor or operator will implement the agreed redress solution and convey the outcome to the PMU, EA, IA, ADB, AP and other stakeholders within 10 working days. Stage 4: Higher Authority Resolution. If the multi-stakeholder meeting cannot resolve the problem, and the AP is unsatisfied, the PMU will set up a meeting with the relevant Aimag Governor’s office to identify a solution, which should be then implemented within 7 days. Stage 5: If the complainants are not satisfied with the suggested solution under Stage 4, the AP can access ADB’s OSPF or CRP, or seek local legal address.

92. The PMU will be the key contact point for locals who may require information about the Project or who would like to submit a grievance. The PMU will issue public notices to inform the public within the Project area of the GRM and contact information (phone number, fax, address, email address) for the PMU and other local entry points (e.g. local bagh, soum or district officials, and the BESS contractor).

100

Figure 56: Proposed Project GRM.

Stage 2: Complaint Eligibility Assessment and Resolution by PMU

Complaint submitted to PMU either directly by AP or via focal points, either verbally or in writing.

Complaint eligibility is assessed by PMU within 5 days.

If complaint is eligible, PMU registers it and informs

stakeholders, has 10 days to investigate and develop solution, and has 10 days to implement the

solution.

Stage 3: Multi-stakeholder Meeting PMU investigates and organises multi- stakeholder meeting within 10 days of Stage 3 and then has 10

days to implement solution.

Stage 4: Higher Authority Resolution

Refer to relevant Aimag Governor for solution, which should then be implemented with 10 days.

Stage 1: Resolution at Local Level AP tries to resolve issue directly with the

BESS Contractor or operator within 10 days.

If complaint not addressed, AP may seek legal redress through court

system, or access ADB’s OSPF or CRP.

.

Complaint Redressed

Complaint Not Redressed or AP wishes to submit directly PMU

Complaint Redressed

Complaint Not Redressed

AP Informed Complaint Not Eligible.

Complaint Redressed

Complaint Not Redressed

Complaint Redressed

101

3. Reporting

93. The PMU will record the complaint, investigation, and subsequent actions and results, and report this information to the EA and IA. The PMU will include this information in the environmental monitoring reports to the ADB.

94. The tracking and documenting of grievance resolution will include: i) tracking forms and procedures for gathering information from project personnel and complainant(s); ii) periodic reviews of complaints so as to recognize grievance patterns, identify any systemic causes of grievances, and periodically evaluate the overall functioning of the mechanism; iii) processes for informing stakeholders about the status of a case; and iv) procedures to retrieve data for reporting purposes, including the periodic reports to the EA and ADB.

IX. CONCLUSIONS

95. This is the initial environmental examination (IEE) report for the proposed Energy Storage Option for Accelerating Renewable Energy Penetration in Mongolia. The proposed Project will i) install a 125 MW/160 MWh battery energy storage system (BESS) in the central energy system (CES) of Mongolia, the country’s first utility scale BESS; and ii) strengthen the institutional and organizational capacity of the national dispatching center (NDC) and the national power transmission grid (NPTG).

96. The Project will benefit the entire population of the CES, an estimated 2.686 million35 (2019) through improvements to the energy system operation, increased opportunities for RE, and decreased emissions and public health improvements.

97. Operation of the BESS will:

(i) absorb fluctuating renewable power which is otherwise curtailed; (ii) allow for peak shifting to reduce dependency on imports of carbon intensive energy

from Russia; (iii) enhance frequency regulation support to reduce the impact of intermittent large-


(iv) supply clean electricity to meet growing peak demand in the CES.

98. Successful completion of the Project will also allow the connection of an additional 350 MW capacity into the CES without curtailment, thereby fully meeting the government’s RE target by 2030. Once fully operational the Project will: (i) evacuate 859 GWh of renewable electricity annually; (ii) reduce sub-bituminous coal use in existing CHPs by 219,000 tons annually; and (iii) reduce annual emissions by 842,039 tons of CO2, 460 tons of SO2, 180 tons of NOx, and 723 tons of PM.

99. The Project environmental assessment process has: i) identified potential negative environment impacts and appropriately established mitigation measures; ii) received public

35 Based on data from the National Statistics Office of Mongolia,

102

support from the project beneficiaries and affected people;(iii) established an effective project GRM procedure; and iv) prepared a comprehensive Project EMP including environmental management and supervision structure, environmental mitigation and monitoring plans, and capacity building and training.

100. Based on the analysis conducted it is concluded that overall the Project will result in significant positive environmental and socioeconomic benefits, and will not result in significant adverse environmental impacts that are irreversible, diverse, or unprecedented. Any minimal adverse environmental impacts associated with the Project can be prevented, reduced, or minimized through the appropriate application of mitigation measures. It is therefore recommended that:

(i) the Project’s categorization as ADB environment category B is confirmed; (ii) this IEE is considered sufficient to meet ADB’s environmental safeguard requirements

for the Project, and no additional studies are required; and (iii) the Project be supported by ADB, subject to the implementation of the commitments

contained in the EMP and allocation of appropriate technical, financial and human resources by the EA and IA to ensure these commitments are effectively and expediently implemented.

101. To ensure that the mitigation measures will be properly implemented, the EA and IA shall:

(i) Ensure that the preparation, design, construction, implementation, operation and decommissioning of all Project facilities comply with (a) all applicable laws and regulations of Mongolia relating to environment, health and safety; and (b) all measures and requirements set forth in the IEE, the EMP, and any corrective or preventative actions (i) set forth in a Safeguards Monitoring Report, or (ii) as subsequently agreed between ADB and the Borrower.

(ii) Make available necessary budgetary and human resources to fully implement the EMP.

(iii) Ensure that all bidding documents and goods contracts which involve any civil works contain provisions that require the BESS contractor to: (a) comply with the measures set forth in the IEE and the EMP, and any corrective or preventative actions (i) set forth in a Safeguards Monitoring Report, or (ii) as subsequently agreed between ADB and the Borrower; (b) make available a budget for all such environmental and social measures; and (c) provide the Borrower or the Project Implementing Agency, as the case may be, with a written notice of any unanticipated environmental risk or impact that arise during construction, implementation or operation of the Project that were not considered in the IEE and the EMP.

(iv) Reporting: (a) submit Safeguards Monitoring Reports to ADB semi-annually during construction and the implementation of the Project and the EMP, and thereafter annually during operation, until the issuance of ADB’s Project completion report unless a longer period is agreed in the EMP, and disclose relevant information from such reports to respective affected people under Environmental Safeguards promptly upon submission; (b) if any unanticipated environmental and/or social risks and impacts arise during construction, implementation or operation of the Project that were not considered in the IEE and the EMP, promptly inform ADB of the occurrence of such risk or impact, with detailed description of the event and proposed corrective action plan; and (c) report any actual or potential breach of compliance with the measures and requirements set forth in the EMP promptly after becoming aware of the breach.

103

(v) Ensure, that no proceeds of the Loan are used to finance any activity included in the list of prohibited investment activities provided in Appendix 5 of the SPS.

(vi) Ensure that the core labor standards and the applicable laws and regulations of Mongolia are complied with during Project implementation.

(vii) Include specific provisions in the bidding documents and contracts financed by ADB under the Project requiring that the BESS contractor, among other things: (a) complies with the applicable labor law and regulations of Mongolia and incorporates applicable workplace occupational safety norms; (b) does not use child labor; (c) does not discriminate workers in respect of employment and occupation; (d) does not use forced labor; (e) allows freedom of association and effectively recognizes the right to collective bargaining; and (f) disseminates, or engages appropriate service providers to disseminate, information on the risks of sexually transmitted diseases, including HIV/AIDS, to the employees of the contractor engaged under the Project and to members of the local communities surrounding the Project area, particularly women.

104 Appendix 1

APPENDIX I: PROJECT ENVIRONMENTAL MANAGEMENT PLAN (EMP)

A. Introduction

1. This is the Environmental Management Plan (EMP) for the proposed Energy Storage Option for Accelerating Renewable Energy Penetration Project in Mongolia. The proposed Project will i) install a 125 MW/160 MWh battery energy storage system (BESS) in the central energy system (CES) of Mongolia, the country’s first utility scale BESS; and ii) strengthen the institutional and organizational capacity of the national dispatching center (NDC) and the national power transmission grid (NPTG). The Project will be located in Songino Khairkhan district in western Ulaanbaatar. Project operation will i) absorb fluctuating renewable power which is otherwise curtailed; ii) allow for peak shifting to reduce dependency on imports of carbon intensive energy from Russia; iii) enhance frequency regulation support to reduce the impact of intermittent large-scale wind, and to a lesser extent solar PV farms, on the stability of the CES grid; and, iv) supply clean electricity to meet growing peak demand in the CES.

B. Objectives

2. The objectives of the EMP are to ensure i) implementation of identified mitigation and management measures to avoid, reduce, mitigate, and compensate for anticipated adverse environment impacts; ii) implementation of monitoring and reporting; and iii) Project compliance with the Mongolia’s relevant environmental laws, standards and regulations, and ADB’s SPS 2009. The EMP also defines organizational responsibilities and budgets for implementation, monitoring and reporting for pre-construction, construction, operation and decommissioning phases.

C. Implementation Arrangements

3. The Ministry of Energy (MoE) will be the executing agency (EA) for the project. A project steering committee, comprised of MoE, Ministry of Finance (MoF), and the implementing agency (IA), will be established to provide overall guidance in project management and implementation. A project management unit (PMU) under MoE will be responsible for managing, coordinating, and supervising the project implementation. The National Power Transmission Grid (NPTG), a state-owned joint stock company mandated to transport bulk power in the CES, will be the IA, and will be responsible for day-to-day management of the Project.


5. After Project completion, there will be a 2-year hand-over period, and a 3 to 5-year warranty, details to be dependent on the BESS Contractor. During and after this period NPTG will be responsible for BESS operation and maintenance (O&M). The NDC will determine the operating regime of the BESS, including how much power will be dispatched in any given hour or under grid emergency conditions where there is a supply shortfall.

6. The implementation arrangements for the Project are illustrated in Figure 1.

Appendix 1 105

Figure 1: Project Implementation Arrangements.

D. Responsibilities for EMP Implementation

Steering Committee

7. Chaired by the MoE and including the MoF and the IA (NPTG), the Steering Committee will provide overall guidance to the Project implementation.

Ministry of Energy (MoE) - Executing Agency

8. The MoE will be the EA for the Project and the primary point of contact with ADB. It will appoint environmental and social safeguards staff to its Project Management Unit (PMU), and will be responsible for overall project planning and management, coordination, and monitoring and supervision. In relation to environment safeguards, the PMU will:

- Have overall responsibility for ensuring the implementation of the EMP. - Ensure allocation of sufficient budget for EMP implementation and monitoring. - Ensure compliance with loan assurances, including all the requirements specified in the

EMP.

106 Appendix 1

- Ensure that the necessary environmental clearances and permits are secured for the project.

- Provide coordination and supervision support to the IA. - Coordinate resolution of complaints under the GRM. - Liaise with ADB on the implementation of the EMP and corrective actions. - Review the environmental monitoring reports submitted by the IA. - Submit environmental monitoring reports to ADB for disclosure. - Incorporate the results of the environmental monitoring reports into progress reports

submitted to ADB. National Power Transmission Grid (NPTG) - Implementing Agency

9. The IA will have direct day-to-day responsibility for ensuring the implementation of the EMP, including:

- Revising the IEE and EMP (if required) during detailed design. - Ensuring that the (revised) IEE/EMP requirements are included in the bidding documents

and civil works contracts. - Obtaining all necessary environmental clearances and permits for the project. - Coordinating delivery of the training program described in this EMP. - Requiring the BESS Contractor to develop a CEMP in compliance with the EMP, and

reviewing and approving the CEMP. - Ensuring that the BESS Contractor implements the CEMP properly and in compliance with

the requirements of the EMP. - Ensuring that the BESS Contractor complies with the relevant environmental management

and protection requirements and regulations of Mongolia and the ADB, and with any Project environmental or social loan covenants and assurances.

- Identifying any environmental issues during implementation and propose necessary corrective actions.

- Undertaking ongoing outreach and communications with project stakeholders and affected persons (APs).

- Ensuring implementation of the GRM such that complaints from affected persons are efficiently and effectively resolved.

- Ensuring implementation of the environmental monitoring presented in the EMP environmental monitoring plans.

- Reviewing and consolidating quarterly environmental monitoring reports submitted by the contractor.

- Preparing and submitting consolidated semi-annual/annual environmental monitoring reports to PMU for onward submission to ADB. BESS Construction Contractor

10. A BESS construction contractor will be recruited through an Engineer-Procure-Construct (EPC) contract to construct the BESS, including detailed design, permitting, and procurement, supply and installation of all equipment including batteries, and implementation of the EMP mitigation measures. The BESS Contractor will be required to respond to the environmental specifications in the bidding documents in their proposal, develop a Construction Environmental Management Plan (CEMP) which outlines the way in which they will comply with the EMP, and assign a person responsible for environment, health and safety.

11. The BESS Contractor will also submit quarterly environmental reports to the IA on EMP

Appendix 1 107

implementation, and will be required to report any spills, accidents, fires and grievances received and take appropriate action.

Independent Environmental Consultant (IEC)

12. A qualified independent environmental consultant (IEC) will be recruited to support the EA and IA in environmental monitoring, reporting, GRM implementation, and delivery of the training program.

Ministry of Nature, Environment and Tourism (MNET)

13. The MNET may undertake inspections and monitoring at their discretion.

ADB

14. ADB will conduct environment safeguard due diligence during Project review missions. ADB will review the semi-annual/annual environmental monitoring reports submitted by the PMU and will disclose the reports on its website. If the PMU fails to meet safeguards requirements described in the EMP, ADB will seek corrective measures and advise the EA on items in need of follow-up actions.

E. Potential Impacts and Mitigation Measures

15. The potential impacts of the Project during construction and operation have been identified and appropriate mitigation measures developed (see Chapter V of the IEE). Impacts and detailed mitigation measures are presented in Table 1.

16. The mitigation measures will be incorporated into project detailed design, bidding documents, construction contracts and operational management manuals. The effectiveness of these measures will be evaluated based on environmental inspections and monitoring to determine whether they should be continued, improved or adjusted.

F. Environment Monitoring Plan

17. An environment monitoring plan (EMoP) to monitor the environmental impacts of the Project and assess the effectiveness of mitigation measures is presented in Table 2. The EMoP is focused on compliance inspections undertaken by the PMU supported by the IEC. The results will be used to assess: (i) the extent and severity of actual environmental impacts against the predicted impacts and baseline data collected before Project implementation; (ii) performance or effectiveness of environmental mitigation measures or compliance with pertinent environmental rules and regulations; (iii) trends in impacts; (iv) overall effectiveness of EMP implementation; and (v) the need for additional mitigation measures and corrective actions if non-compliance is observed.

108 Appendix 1

Table 1: Project EMP

Item Potential

Impacts and Issues

Mitigation Measures and/or Safeguards

Responsibility Source of

Funds Implemented By

Supervised By

A. Preconstruction Phase

Detail Design Stage

Environmental Management Readiness

− This EMP will be updated as required and incorporated into the detailed design.

− The updated EMP requirements will be incorporated into tender and contract documents.

− A detailed assessment of earthquake risks will be undertaken and the result incorporated into the Project designs as appropriate.

− The viability of planting trees on adjacent hills will be assessed.

− The BESS Contractor will develop a project CEMP that outline the manner by which they will comply with the requirements of the IEE and EMP.

− In accordance with the GRM presented in Chapter VIII of the IEE, the EA Project Management Unit (PMU) will be assigned overall responsibility for the GRM; GRM training will be provided for the IA and GRM access points; the PMU will issue public notices to inform the public within the project area of the GRM; and contact information (phone number, fax, address, email address) for the PMU and local entry points (e.g. contractor, bahg or soum Citizens Representative Hurals, and/or bahg or soum government representatives) will be disseminated at the construction site.

− Residents and key stakeholders in will be informed and consulted.

− Institutional strengthening and training program will be delivered.

PMU and IA

IEC

EA and ADB

PMU and IA

Included in EA and IA

operations budget

Included in EMP Budget

Appendix 1 109

Item Potential

Impacts and Issues




Supervised By

B. Construction Phase

Topography and Soils

Erosion, borrow and spoil

Good soil maintenance practices (where applicable): − Develop cut and fill plan. − Minimize the area of soil clearance. − Maintain slope stability at cut faces by implementing

erosion protection measures. − Use temporary berms or other appropriate temporary

drainage provisions to prevent stormwater runoff. − Ensure that borrow areas are located away from

residential areas, water bodies, dry river beds and valuable pasture/grazing land.

− Dispose of spoil (if any) at spoil disposal sites identified in consultation with soum/district authorities.

− After use, grade borrow and spoil areas to ensure drainage and visual uniformity.

BESS Contractor

PMU and IA, supported by IEC

Included in the construction

contract

Ambient Air Fugitive dust generated by construction activities, gaseous air pollution (SO2, CO, NOx) from machinery

Good site maintenance practices implemented: − Manage stockpiles to reduce problematic fugitive dust

emissions, including covering if necessary. Water spraying is to be used only if other techniques are unsuccessful.

− Locate stockpiles downwind of sensitive receptors (if applicable).

− Construction site management: spray water on construction sites and material handling routes if monitoring indicates fugitive dust is impacting residents.

− Transport of materials: trucks carrying earth, sand or stone will be covered with tarpaulins or other suitable cover. Construction vehicles and machinery will be maintained to a high standard to minimize emissions.

− Manufacturing plants: site any plants for the production of concrete at least 500 m downwind from the nearest dwelling.

BESS Contractor



contract

110 Appendix 1

Item Potential

Impacts and Issues




Supervised By

Equipment Procurement

It is expected that BESS equipment will be sourced from outside of Mongolia. Equipment will be required to meet technical specifications including ability to withstand predicted climate changes. Once required technical specifications are met, preference will be given to regional suppliers so as to minimize transport requirements and associated greenhouse gas and other emissions.

BESS Contractor



contract

Noise Impacts on residential areas

Noise mitigation measures will only be implemented if noise complaints are received. If necessary, good practice and noise management measures will include limiting working hours and using noise barriers. In addition, all equipment must have mufflers in accordance with relevant government requirements.

BESS Contractor



contract

Surface and Ground Water

Construction and domestic wastewater

Good wastewater practices implemented: − Temporary drainage provision will be provided during

construction to ensure that any storm water running off construction areas will be controlled.

− ConstruМtion sitОs аill bО ОquippОН аitС aНОquatО potablО аatОr anН tОmporary sanitation faМilitiОs.

BESS Contractor



contract

Waste Waste management and resource use

Good waste management practices and the adoption of the waste hierarchy: − The preference is for prevention of waste at source.

Procurement options will play a role in waste prevention as the procurement of materials which has less packaging will be selected over other options where possible.

− Waste minimization is the second preferred option. This means the effective management of materials on site through good house-keeping and work planning, in order to generate less waste. Reuse or recycling options should be considered prior to disposal, and separate containers for recyclables shall be used if there is a market for the materials. Excavated soil will be used for backfilling to the maximum extent

BESS Contractor



contract

Appendix 1 111

Item Potential

Impacts and Issues




Supervised By

practical. Disposal of waste which cannot be reused or recycled shall take place at sites authorized by authorities.

− Storage and containment: Provide appropriate waste storaРО МontainОrs for аorkОr’s МonstruМtion аastОs, regularly haul to an approved disposal facility.

− General Management: Prohibit burning of waste at all times.

Hazardous and polluting materials

Good waste management practices implemented:

− StoraРО faМilitiОs for fuОls, oil, МСОmiМals anН otСОr СazarНous matОrials аill bО аitСin sОМurОН arОas on impОrmОablО surfaМОs proviНОН аitС НikОs, anН at lОast 300 m from НrainaРО struМturОs, important аatОr boНiОs anН otСОr sОnsitivО rОМОptors.

− StoraРО faМilitiОs for СazarНous matОrials аill bО plaМОН on impОrmОablО surfaМОs аitС a storaРО МapaМity of at lОast 110% of tСО МapaМity of tСО СazarНous matОrials storОН.

− SiРns аill bО plaМОН at МСОmiМals anН СazarНous matОrials storaРО sitОs to proviНО information on typО anН namО of МСОmiМals anН СazarНous matОrials.

− Spill rОsponsО proМОНurОs аill bО НОvОlopОН (inМluНinР provision of absorbОnts at СazarНous matОrials storaРО faМilitiОs), anН all spills аill bО МlОanОН immОНiatОly.

− Providers of hazardous materials will be responsible for removing and or recycling them if they become wastes, either in Mongolia in licensed facilities, or through transport to a licensed facility in another country in the region. All exports of hazardous wastes must be with the review and approval of the Special Commission for Hazardous Waste Management MNET, and all necessary export licenses must be obtained. A pОrformanМО sОМurity аill bО inМluНОН in tСО МontraМt to ОnsurО appropriatО battОry anН

BESS Contractor



contract

112 Appendix 1

Item Potential

Impacts and Issues




Supervised By

СazarНous аastО manaРОmОnt. TСО borroаОr sСall ОnsurО tСat biННinР НoМumОnts stipulatО tСat tСО battОry suppliОr аill bО rОsponsiblО for Нisposal of НamaРОН anН usОН battОry МОlls, inМluНinР obtaininР Обport pОrmits.

Vehicles and equipment will be properly maintained and

refueled either off-site in local garages or other similar

facilities. Washing or repair of machinery in or near surface

waters is prohibited.

Biological Resources

Flora − SitО anН aММОss roaН pОripСОry аill bО rОvОРОtatОН аitС НrouРСt-tolОrant nativО plants.

AНjaМОnt Сills may bО plantОН аitС trООs НОpОnНinР on rОsult of assОssmОnt НurinР НОtailОН НОsiРn.

BESS Contractor



contract

Socio-economic Resources

Traffic Impacts Good traffic and road management practices:

− Transportation routОs anН НОlivОry sМСОНulОs plannОН in Мonsultation аitС rОlОvant roaН manaРОmОnt autСoritiОs.

− Any НamaРО МausОН by МonstruМtion traffiМ аill bО rОpairОН by tСО BESS ContraМtor.

Vehicles transporting construction materials or wastes will be

required to slow down when passing through or nearby

sensitive locations.

BESS Contractor



contract

Worker Occupational Health and Safety (OHS)

Construction OHS Plan developed and implemented in compliance with the general EHS Guidelines and GoM regulations:

− All rОlОvant MonРolian safОty rОРulations аill bО striМtly ОnforМОН.

− All аorkОrs аill bО аill bО ОquippОН аitС appropriatО pОrsonal protОМtivО ОquipmОnt (PPE), suМС as СarН Сats, insulatinР anН/or firО rОsistant МlotСОs, appropriatО РrounНinР, Сot linО anН insulatОН tools, safОty РlovОs, safОty РoРРlОs, fall protОМtion systОm inМluНinР safОty bОlts anН otСОr МlimbinР РОar (for

BESS Contractor



contract

Appendix 1 113

Item Potential

Impacts and Issues




Supervised By

аork at СОiРСts), Оar protОМtion, ОtМ. PPE аill bО maintainОН anН rОplaМОН as nОМОssary.

− Work at СОiРСt аill bО proСibitОН НurinР non-НayliРСt Сours, НurinР pОrioНs of foР, anН НurinР pОrioНs of stronР аinН.

− ConstruМtion sitОs аill bО ОquippОН аitС aНОquatО potablО аatОr anН tОmporary sanitation faМilitiОs.

− TraininР аill bО proviНОН to аorkОrs in all aspОМts of OHS, inМluНinР prОvОntion of МommuniМablО НisОasОs (inМluНinР HIV/AIDS) prior to tСО start of МonstruМtion anН on a rОРular basis (О.Р. montСly briОfinРs).

Construction Emergency Response Procedures (ERP):

− EmОrРОnМy rОsponsО proМОНurОs аill bО НОvОlopОН anН implОmОntОН in МoorНination аitС tСО loМal firО НОpartmОnt anН in МomplianМО аitС tСО РОnОral EHS GuiНОlinОs anН GoM rОРulations, inМluНinР МommuniМation protoМols for intОraМtion аitС loМal anН rОРional ОmОrРОnМy rОsponsО proviНОrs, protoМols for sСuttinР Нoаn poаОr, firОfiРСtinР rОsponsО proМОНurОs, provision of appropriatО firОfiРСtinР ОquipmОnt, traininР for аorkОrs on firО rОsponsО, anН rОМorН kООpinР.

− MОНiМal ОmОrРОnМy rОsponsО proМОНurОs аill bО НОvОlopОН МovОrinР botС аorkОrs anН Мommunity mОmbОrs (аСОn affОМtОН by projОМt rОlatОН aМtivitiОs), inМluНinР МommuniМation protoМols for intОraМtion аitС loМal anН rОРional ОmОrРОnМy rОsponsО proviНОrs, first aiН ОquipmОnt on sitО, МontaМt information for tСО nОarОst ambulanМО anН mОНiМal faМilitiОs, traininР for аorkОrs on initial on-sitО ОmОrРО rОsponsО, protoМols for informinР anН transfОrrinР injurОН аorkОrs to loМal or provinМial СОaltС МОntОrs, anН rОМorН kООpinР. At lОast onО trainОН first-aiН аorkОr аill bО availablО at tСО МonstruМtion sitО.

114 Appendix 1

Item Potential

Impacts and Issues




Supervised By

Training will be provided to workers in all aspects of the ERP.

Community health and safety risks

Good community health and safety practices, including: − Outreach to local communities to disseminate

knowledge about safety at or near the construction sites, installation of site safety fencing and warning signs (in Mongolian language).

− On site supervision personal (including night guards), as determined by the risk, to prevent unauthorized access to construction areas.

− Signs will be placed at construction sites in clear view of the public. All sites will be made secure to avoid public access to the construction site.

No worker camp. BESS Contractor will arrange for workers to stay in locally rented houses that are equipped with power, water supply, cooking facilities and adequate sanitation facilities (at minimum, pit latrines that are not located near wells or surface waters).

BESS Contractor



contract

PCRs If any chance finds of PCRs are encountered: − construction activities will be immediately suspended; − destroying, damaging, defacing, or concealing PCRs

will be strictly prohibited in accordance with Mongolian regulations;

− the local Cultural Heritage Bureau will be promptly informed and consulted; and,

construction activities will resume only after thorough investigation and with the permission of the local Cultural Heritage Bureau.

BESS Contractor



contract

C. Operation Phase

Water Water Consumption

− BESS connected to municipal water supply system. Water supply will be adequate to meet firefighting needs, and fire hydrants will be installed (see below).

BESS Contractor establishes connection

during construction

MoE


contract

Appendix 1 115

Item Potential

Impacts and Issues




Supervised By

phase.

Municipality maintains

connections up to site boundary.

Operator maintains

connections on site.

Municipal Government

MoE

Municipal budget

Project operating budget

Waste Solid and Hazardous Wastes

− Equipment that requires replacement will be recycled by the BESS Contractor or equipment provider, either in Mongolia in licensed facilities, or through transport to a licensed facility in another country in the region.

− Batteries will be replaced by the BESS Contractor, and recycled at a facility in Mongolia, or if not available, at a licensed facility in another country in the region.

− Wastes that are considered hazardous will be disposed by the provider, either in Mongolia in licensed facilities, or through transport to a licensed facility in another country in the region.

− All exports of equipment, batteries and hazardous wastes must be with the review and approval of the MNET, and all necessary export licenses must be obtained.

Domestic wastes will be collected and disposed at approved local waste disposal site following national regulations.

BESS Contractor or Equipment/

Product Supplier

Operator through local

waste management

company

Operator, MoE, MNET

MoE


Project operating

budget

Wastewater Pollution The BESS will be equipped with sanitary facilities connected to the Ulaanbaatar wastewater system (if available) or an international standard septic system.

BESS Contractor

during design and construction

IA, MoE Included in the construction

contract

116 Appendix 1

Item Potential

Impacts and Issues




Supervised By

Flooding Flash flood damage

− The BESS site will be leveled and the lower lying areas filled up to 4 m in height.

− A site drainage system will be installed, and perimeter dykes will be built to protect site from flash flooding. The risk will be assessed further during detailed design.

The viability of planting trees on the slopes will be further investigated during detailed design.

BESS Contractor


IA, MoE Included in the construction

contract

Battery Safety

Thermal runaway, fire

Overall Design: − BESS ContraМtor’s bid will need to demonstrate that

safety has been incorporated in all stages of BESS design to the highest available international standards.

− A battery protection circuit will be required to improve safety by making accidents less likely or by minimizing their severity when they do occur.

− BESS design should be tested in accordance with UL 9540A, Test Method for Evaluating Thermal Runaway Fire Propagation in Battery Energy Storage Systems. This standard evaluates thermal runaway, gas composition, flaming, fire spread, re-ignition and the effectiveness of fire protection systems. Data generated can be used to determine the fire and explosion protection requirements for the BESS.

Construction and Location:

− Install BESS outdoors a minimum of 20 m (safety zone) from important buildings or equipment. Maintain a minimum of 3 m separation from lot lines, public ways and other exposures.

− Within the module, maintain a minimum of 1 m separation distance between enclosures for all units up to 50 kWh when not listed, or up to 250 kWh when listed.

BESS Contractor


BESS Operator during operation

IA, MoE

MoE


contract


Appendix 1 117

Item Potential

Impacts and Issues




Supervised By

− Install a thermal barrier where the minimum space separation cannot be provided.

− If the BESS is located indoors, install in a 2-hour fire rated cut-off room, which is accessible directly outdoors for manual firefighting.

− Restrict the access to competent employees or sub-contractors.

− Ensure enclosures are non-combustible. − Place capacitor, transformer, and switch gear in

separate rooms, or at distance from the BESS, according to best engineering practices.

Ventilation and Temperature Control

− Install adequate ventilation or an air conditioning system to control the temperature. Maintaining temperature control is vital to battery longevity and proper operation as they degrade exponentially at elevated temperatures.

− Ensure ventilation is provided in accordance with the manufaМturОr’s rОМommОnНations.

− Ensure ventilation maintain will be maintained during all stages of a fire. Ventilation is important since batteries will continue to generate flammable gas as long as they are hot. Also, carbon monoxide will be generated until the batteries are completely cooled through to their core.

Gas Detection and Smoke Detection

− Install a very early warning fire detection system, such as aspirating smoke detection.

− Install carbon monoxide (CO) detection within the container or BESS room.

Fire Protection and Water Supply

− Install sprinkler protection within BESS rooms or within BESS containers suitable to the battery

118 Appendix 1

Item Potential

Impacts and Issues




Supervised By

chemistry. The sprinkler system should be designed to provide 12.2 l/min/m² over 232 m² (0.30 gpm/ft2 over 2500 ft²). Water has been proven to be the best agent to fight a fire involving lithium-Ion batteries. It is important to note that other extinguishing agents, such as aerosols or gaseous extinguishing systems, will extinguish the fire, but they do not provide cooling like water. Insufficient cooling allows a hot and deep-seated core to remain. The heat will rapidly spread back through the battery and reignite remaining active sections.

− Implement a procedure for battery submersion in the pre-emergency plan performed by the fire department. Submerging batteries in water (preferably outdoors) after they burn has proven to be effective at cooling the batteries and neutralizing the thermal threat. They will continue to release gases, mostly carbon monoxide, but also flammable gas such as hydrogen. Therefore, never submerge several batteries in a confined space without adequate ventilation.

− Ensure that sufficient water is available for manual firefighting. The ability of the fire department to control a fire involving a BESS depends on the presence of an adequate water supply and their knowledge of the hazards. In addition:

− An external fire hydrant should be located within 100 m of the BESS room or containers.

− The water supply should be able to provide a minimum of 1,900 liters / min for at least 2 hours.

Maintenance

− Follow original equipment manufacturer recommendations for the inspection, testing and

Appendix 1 119

Item Potential

Impacts and Issues




Supervised By

maintenance of BESS. In addition, ensure that the following are completed:

− Measure the internal resistance of the cells. Replace the cells when a dramatic drop is detected. Internal resistance is mainly independent of the state of charge, but increases as the battery ages. Therefore, it is a good gauge of predictable life.

− Perform infrared scanning at least once per year.

− Check for fluid leakage. − Implement electric terminal torqueing procedures to

maintain connection integrity.

Emergency Response

Fire, Accidents Occupational Health and Safety (OHS) Plan Operation OHS Plan developed and implemented in compliance with the general EHS Guidelines and GoM regulations:

− All аorkОrs аill rОМОivО a СОaltС assОssmОnt by a МompОtОnt mОНiМal praМtitionОr anН bО НООmОН suffiМiОntly СОaltСy to unНОrtakО tСОir job bОforО МommОnМinР СazarНous sitО aМtivitiОs.

− ElОМtriМal safОty risks аill bО assОssОН anН safОty protoМols НОvОlopОН. Only trainОН staff аill bО alloаОН to аork in НanРОrous МonНitions suМС as arounН СiРС voltaРОs.

− All аorkОrs аill bО ОquippОН аitС appropriatО pОrsonal protОМtivО ОquipmОnt (PPE), inМluНinР СarН Сats, insulatinР anН/or firО rОsistant МlotСОs, appropriatО РrounНinР, Сot linО anН uninsulatОН tools, safОty РlovОs, safОty РoРРlОs, fall protОМtion systОm inМluНinР safОty bОlts anН otСОr МlimbinР РОar (for аork at СОiРСts), Оar protОМtion, ОtМ. PPE аill bО maintainОН anН rОplaМОН as nОМОssary.

− All МonstruМtion ОquipmОnt, tools, МlimbinР РОar, ОtМ., аill bО inspОМtОН bОforО usО to ОnsurО propОr anН

Operator MoE, ADB Project operating budget

120 Appendix 1

Item Potential

Impacts and Issues




Supervised By

safО opОration. − All rОlОvant safОty rОРulations аill bО striМtly ОnforМОН. − WСОn tОstinР ОlОМtriМal ОquipmОnt, all unrОlatОН аorks

in tСО НanРОr zonО аill bО stoppОН anН unrОlatОН аorkОrs аill lОavО tСО НanРОr zonО.

− All stООl struМturОs anН ОquipmОnt аill bО appropriatОly ОartСОН anН ОquippОН аitС liРСtninР protОМtion.

− FaМility ОquippОН аitС aНОquatО potablО аatОr anН sanitation faМilitiОs.

− TraininР аill bО proviНОН to аorkОrs in all aspОМts of tСО OHS plan prior to tСО start of МonstruМtion anН on a rОРular basis (О.Р. montСly).

Emergency Response Plan (ERP) Operation ERP developed and implemented in in coordination with the local fire department and in compliance with the general EHS Guidelines and GoM regulations:

− Develop Fire Emergency Response procedures, including communication protocols for interaction with local and regional emergency response providers, protocols for shutting down power, firefighting response procedures, provision of appropriate firefighting equipment, training for workers on fire response, and record keeping.

− Provide training to local fire department on lithium-ion battery fire risks. Note that some fire fighters may not fully understand the hazards and may assume that lithium-ion batteries are the same as lithium batteries. Cover the difference between extinguishing and cooling, how to handle a damaged battery, and how to manage flammable and toxic gases. Plan training exercises with the fire department when the system is commissioned.

Appendix 1 121

Item Potential

Impacts and Issues




Supervised By

− DОvОlop MОНical EmОrgОncy RОsponsО proМОНurОs МovОrinР botС аorkОrs anН Мommunity mОmbОrs (аСОn affОМtОН by projОМt rОlatОН aМtivitiОs), inМluНinР МommuniМation protoМols for intОraМtion аitС loМal anН rОРional ОmОrРОnМy rОsponsО proviНОrs, first aiН ОquipmОnt on sitО, МontaМt information for tСО nОarОst ambulanМО anН mОНiМal faМilitiОs, traininР for аorkОrs on initial on-sitО ОmОrРО rОsponsО, protoМols for informinР anН transfОrrinР injurОН аorkОrs to loМal or provinМial СОaltС МОntОrs, anН rОМorН kООpinР. At lОast onО trainОН first-aiН аorkОr аill bО availablО at tСО МonstruМtion sitО.

Training will be provided to workers in all aspects of the ERP.

Climate Risk Adaptation to Observed and Projected Climate Change

Mitigations will be incorporated during detailed design, and will be dependent on the final BEES design selected. There is no known permafrost in the project area. However, a detailed core survey will be undertaken during detailed design. If discovered, mitigations will be assessed and incorporated as appropriate. Mitigations could include:

− UtilizinР a moНular approaМС аitС parallОl bloМks of battОriОs in МontainОrs, ratСОr tСan onО sinРlО builНinР (tСis is tСО МurrОnt НОsiРn approaМС). TСО aМtual arranРОmОnt аill НОpОnН on tСО BESS suppliОr anН aНviМО sСoulН bО takОn from tСО manufaМturОr аitС rОРarН to tСО sizО of bloМks anН tСО НОsiРn of tСО BESS.

− ConstruМtinР builНinРs (if any) on pilinРs ОбtОnНinР tСrouРС a pОrmafrost layОr to bОНroМk, or on pilinРs tСat Мan bО aНjustОН ovОr timО.

− RОloМatinР (if possiblО) to avoiН МonstruМtion ovОr ОбistinР poМkОts of pОrmafrost.

− KООpinР tСО pОrmafrost frozОn.

BESS Contractor


BESS Operator during operation

IA, MoE

MoE


contract


122 Appendix 1

Item Potential

Impacts and Issues




Supervised By

− RОplaМinР tСО pОrmafrost layОr аitС soil tСat Сas tСО riРСt pСysiМal propОrtiОs to proviНО support for tСО builНinР as МlimatО МСanРОs.

WСiМС of tСОsО options is ultimatОly usОН аill НОpОnН on a НОtailОН pСysiМal assОssmОnt of tСО sitО (anН prОsОnМО or absОnМО of pОrmafrost), anН ОМonomiМ analysis of tСО НiffОrОnt options НurinР НОtailОН НОsiРn. PotОntial МСanРОs in tСО intОnsity of prОcipitation НuО to МlimatО МСanРО Мan bО aНaptОН to in МonstruМtion of tСО BESS by assurinР tСat tСО МontainОrs (or builНinР) usОН Мan aММommoНatО snoа loaНinРs РrОatОr tСan tСО maбimum loaНinРs ОбpОriОnМОН НurinР rОМОnt yОars. InМrОasОН high-intОnsity rainfall ОvОnts Мan bО aНaptОН to by assurinР tСat tСО BESS sitО is prОparОН аitС a Мombination of propОr НitМСinР, pipinР, anН bОrms to МСannОl anН/or НОflОМt runoff (alrОaНy inМluНОН in sitО НОsiРn), to assurО tСat аatОr from storms or from a possiblО ovОrfloаinР of tСО aНjaМОnt strОam bОН Мan bО aММommoНatОН. AНaptation to morО frОquОnt or morО violОnt winНstorms МoulН inМluНО usinР stronРОr or bОttОr-sОМurОН roofinР matОrials on builНinРs, НОsiРninР tСО builНinРs or ОnМlosurОs to avoiН МatМСinР tСО аinН, МonstruМtion of ОartСОn bОrms to НОflОМt prОvailinР аinНs, anН ImplОmОnt morО riРorous struМtural stanНarНs, for ОбamplО, for transmission toаОrs anН substation ОquipmОnt, anН/or implОmОntinР porous matОrials for bОttОr аinН floа tСrouРС struМturОs. EnСanМОН gooН maintОnancО anН managОmОnt practicОs inМluНinР: − FrОquОnt inspОМtions of founНations anН struМturОs

for Оarly НОtОМtion of any problОms assoМiatОН аitС

Appendix 1 123

Item Potential

Impacts and Issues




Supervised By

mОltinР pОrmafrost or tСО impaМts of runoff, anН prompt intОrvОntion to ОliminatО problОms.

− MaintaininР opОn МСannОls for аatОr floаs, kООpinР РuttОrs anН Нoаnspouts МlОar, anН maintaininР bОrms arounН aММОss roaНs to ОnsurО tСat tСО BESS sitО is aММОssiblО.

− RОmovinР snoа aММumulations promptly from roofs of struМturОs anН possibly, if tСО BESS struМturОs arО supportОН abovО tСО РrounН, МlОarinР snoа from unНОrnОatС tСОm to СОlp maintain tСО intОРrity of tСО pОrmafrost bОloа (if prОsОnt).

− CСanРinР tСО sОttinРs of tСО СОatinР anН МoolinР systОms as nООНОН to botС kООp tСО battОriОs at suitablО tОmpОraturОs anН usО outsiНО air for МoolinР аСОn ambiОnt tОmpОraturОs pОrmit. TypiМally, tСОsО aНjustmОnts аoulН bО maНО automatiМally, but sОttinРs may СavО to bО МСОМkОН pОrioНiМally.

− ContinuО to folloа МСanРОs in tСО аay tСat tСО CОntral EnОrРy SystОm РriН is МonfiРurОН anН opОratОН, as МlimatО МСanРОs anН МСanРОs in ОnОrРy tОМСnoloРiОs anН builНinРs affОМt tСО amount anН timinР of ОlОМtriМity НОmanН, so as to maintain BESS opОrations аitСin НОiРn paramОtОrs anН for tСО maбimum impaМt on supportinР rОnОаablО ОlОМtriМity РОnОration.

Improve forecasting of electricity demand, including incorporating the use of climate modeling results, to anticipate the timing and need for energy storage services from the BESS, as well as for deployment of new or expanded battery energy storage systems.

Note: ADB = Asian Development Bank; EA = Executing Agency; IA = Implementing Agency; PMU = Project Management Unit.

124 Appendix 1

Table 2: Environmental Monitoring Plan (EMoP)

Subject Parameter Location Frequency Implemented

by Supervised

by Source of Funds

A. Pre-construction Phase

Air Pollution PM10, PM2.5 Construction site Once before construction commences

3rd party monitoring company contracted by PMU

MoE, local environmental authority at its

discretion

EMP Budget

Noise Noise level Construction site Once before construction commences



discretion

EMP Budget

B. Construction Phase

Erosion and Spoil

Compliance inspection of soil erosion management measures.

Construction site, spoil disposal sites

Monthly during construction; and once after completion of spoil disposal

PMU environmental and social staff, supported by IEC

PMU, local environmental authority at its

discretion

PMU Budget, IEC Budget in EMP

Air Pollution Compliance inspection of site maintenance measures.

Construction site, spoil disposal sites

Monthly during construction; and once after completion of spoil disposal



discretion

PMU Budget, IEC Budget in EMP, EMoP Budget in EMP

PM10, PM2.5 Construction site Quarterly during construction



discretion

EMP Budget

Appendix 1 125


by Supervised

by Source of Funds

Noise Noise level Construction site Quarterly during construction



discretion

EMP Budget

Flooding Review of works scheduling to ensure works are not undertaken during risk times for flooding.

BESS Contractor’s work plan

Review works schedule prior to start of construction, and periodically as required, especially prior to spring melts and summer rains.



discretion


Solid Waste Compliance inspection of domestic and construction waste collection and disposal

Waste collection and disposal sites.

Monthly PMU environmental and social staff, supported by IEC


discretion


Hazardous and Polluting Materials

Compliance inspection of hazardous materials management and recycling.

Storage facilities for fuels, oil, chemicals and other hazardous materials. Vehicle and equipment maintenance areas.



discretion


126 Appendix 1


by Supervised

by Source of Funds

Socioeconomic Impacts

Visual inspection of construction site to check construction site safety, community safety, implementation of GRM, accidents involving public and workers, public complaints, etc.

Working sites near sensitive receptors



discretion


All near miss, no lost time, lost time and fatal accidents recorded and reported against a performance standard of zero incidents

Construction sites Monthly IA EA, local environmental authority and MNET at their

discretion

IA budget

Compliance inspection to determine workers have appropriate PPE

All construction sites

Monthly PMU safeguard staff supported by IEC


discretion


C. Operation Phase

Solid and Hazardous Wastes

Compliance inspection of hazardous materials management and recycling.

Storage facilities for fuels, oil, chemicals and other hazardous materials. Vehicle and equipment maintenance areas.

Semi-annually IA EA, local environmental authority and MNET at their

discretion

IA operating budget

Wastewater Compliance inspection Sanitary facilities Semi-annually IA EA, local environmental authority and MNET at their

discretion

IA operating budget

Appendix 1 127


by Supervised

by Source of Funds

Health and Safety

All near miss, no lost time, lost time and fatal accidents recorded and reported against a performance standard of zero incidents

BESS Semi-annually IA EA, local environmental authority and MNET at their

discretion

IA operating budget

Fire, ventilation and safety systems

BESS Semi-annually Fire Department, other relevant authorities

EA, local environmental authority and MNET at their

discretion

IA operating budget

Note: ADB = Asian Development Bank; EA = Executing Agency; IA = Implementing Agency; PMU = Project Management Unit.

128 Appendix 1

G. Performance Indicators

18. Performance indicators (Table 3) have been developed to assess the implementation of the EMP. These indicators will be used to evaluate the effectiveness of environmental management.

Table 3: Performance Indicators

No. Description Indicators

1 Staffing

(i) PMU established with appropriately qualified staff. (ii) IA appoints appropriately qualified staff. (iii) Appropriately qualified IEC recruited. (iv) 3rd party environmental monitoring station/company engaged.

2 Budgeting

(i) Environment mitigation cost during construction and operation is sufficiently and timely allocated.

(ii) Environment monitoring cost is sufficiently and timely allocated. (iii) Budget for capacity building is sufficiently and timely allocated.

3 Monitoring (i) Compliance monitoring is conducted by PMU and IEC as per EMoP. (ii) Ambient and noise monitoring is conducted by 3rd party

environmental monitoring company as per EMoP.

4 Supervision

(i) ADB mission to review EMP implementation at least once a year during the construction phase.

(ii) Local environmental authorities to supervise monitoring at their discretion.

5 Reporting (i) Semi-annual (during construction period) and annual (during

operation) environmental monitoring reports prepared by PMU with the support of IEC, and are submitted to ADB.

6 Capacity Building

(i) Training on ADB safeguard policy, EMP implementation and best international practices, and GRM is provided to at the beginning of project implementation.

(ii) CEMP developed and in place before substantive construction activities begin.

7 Grievance Redress Mechanism

(i) GRM contact persons are designated at PMU and IA, and GRM contact information disclosed to the public before construction.

(ii) All complaints are recorded and processed within the set time framework in the GRM of this IEE.

8 Compliance with Mongolian standards

(i) Project complies with the Mongolian environmental laws and regulations and meets all required standards.

H. Environment Reporting

Internal Reporting

19. During construction periods the BESS Contractor will be responsible for conducting internal reporting on construction activities, including compliance with the EMP. Results will be

Appendix 1 129

reported through quarterly reports to the IA.

20. The IA will submit semi-annual reports to the PMU on EMP implementation based on BESS Contractor internal reporting and the results of compliance inspection and ambient monitoring.

Reporting to ADB

21. The PMU with support from the IEC will submit environmental monitoring reports semi-annually during construction and annually during operation on EMP implementation to the ADB. The semi-annual/annual environmental monitoring reports will include (i) progress made in EMP implementation; (ii) overall effectiveness of EMP implementation (including public and occupational health and safety); (iii) environmental monitoring and compliance; (iv) institutional strengthening and training; (v) public consultation, information disclosure and GRM; and (vi) any problems encountered during construction and operation, and the relevant corrective actions undertaken. ADB will disclose the English version of the reports on its website. An environmental monitoring report template is presented in Appendix VI of the IEE.

I. Training and Capacity Building

22. To ensure effective implementation of the EMP, the capacity of the PMU, IA and BESS Contractor will be strengthened. The main training emphasis will be to ensure that the PMU, IA and BESS Contractor are well versed in environmentally sound practices and are able to undertake all construction and operation with the appropriate environmental safeguards. The training will focus on both construction and operation phases of the Project. The training program is summarized in Table 4. Ongoing assessment of training effectiveness will be conducted to ensure full compliance with EMP and EMoP commitments.

J. Estimated EMP Budget

23. The estimated budgets for environmental mitigation and monitoring are summarized in Table 5.

K. Mechanisms for Feedback and Adjustment

24. Based on environmental inspection and monitoring reports, the PMU with the assistance from the IEC shall decide whether (i) further mitigation measures are required as corrective actions, or (ii) some improvements are required for environmental management practices.

25. The effectiveness of mitigation measures and monitoring plans will be evaluated by a feedback reporting system. Adjustment to the EMP will be made, if necessary. The need to update and adjust the EMP will be reviewed when there are design changes, changes in construction methods and program, negative environmental monitoring results or inappropriate monitoring locations, and ineffective or inadequate mitigation measures. The PMU will inform ADB promptly on any changes to the project and needed adjustments to the EMP. The updated EMP will be submitted to ADB for review and approval, and will be disclosed on the ADB project website.

130 Appendix 1

Table 4: Institutional strengthening and training.

Topic Attendees Contents Frequency Cost USD

EMP Implementation

PMU, IA, BESS Contractor

EMP contents, EMP adjustment if needed, prepare CEMPs, roles and responsibilities, monitoring, supervision and reporting procedures

Once prior to project

construction

5,000

Grievance Redress Mechanism (GRM)

PMU, IA, BESS Contractor

GRM procedures; roles and responsibilities

Environmental Protection

PMU, IA, contractor

Pollution control on construction sites (air, noise, wastewater, solid waste)

Environmental Monitoring Plan (EMoP)

PMU, IA, contractor

Monitoring methods, data collection and reporting requirements

BESS Safety Training

PMU, IA, contractor

Traffic safety, construction safety, electrical safety, fire and explosion occupational safety, PPE use

Table 5: EMP budget. Construction Phase

Mitigation Measures CostInspection & Monitoring Monthly Cost 1,000$ 6 6,000$

Training Program Cost 2,500$ 1 2,500$ Public Consultation Costs 2,000$ 2 4,000$

IEC - National Monthly Cost 4,000$ 6 24,000$

Subtotal 36,500$

Operation Phase

Mitigation Measures Annual CostInspection & Monitoring Monthly Cost 1,000$ 6 6,000$

Training Program Cost 2,500$ 1 2,500$ Public Consultation Costs 2,000$ 1 2,000$

IEC - National Monthly Cost 4,000$ 4 16,000$

Subtotal 26,500$

TOTAL 63,000$

Included in Construction Costs

Appendix 2 131

APPENDIX II: DEIA APPROVAL

132 Appendix 2

Appendix 2 133

Translation of DEIA approval:

APPROVED: CHIEF ANALYST OF THE MINISTRY OF ENVIRONMENT AND TOURISM /stamp and signature/ P.TSOGTSAIKHAN CRITICS: ANALYST OF THE MINISTRY OF ENVIRONMENT AND TOURISM / signature/ DETAILED ENVIRONMENTAL IMPACT ASSESSMENT OF “BATTERY ENERGY STORAGE SYSTEM INSTALLATION PROJECT” NEAR THE SONGINO SUB-STATION IN THE VICINITY OF SONGINOKHAIRKHAN DISTRICT OF ULAANBAATAR CITY. ORGANIZATION SPECIALIZED IN ASSESSMENT: GENERAL DIRECTOR “SUNNY TRADE”

Stamp and signature

PROJECT EXECUTIVE ORGANIZATION: CEO OF “MON-ENERGY CONSULT” Stamp and signature

134 Appendix 2

Translation of EMP approval: APPROVED: CHIEF ANALYST OF THE MINISTRY OF ENVIRONMENT AND TOURISM /stamp and signature/ P.TSOGTSAIKHAN

CRITICS: ANALYST OF THE MINISTRY OF ENVIRONMENT AND TOURISM / signature/ ENVIRONMENTAL MANAGEMENT PLAN AND ITS MONITORING-ASSESSMENT PROGRAM OF “BATTERY ENERGY STORAGE SYSTEM INSTALLATION PROJECT” NEAR THE SONGINO SUB-STATION IN THE VICINITY OF SONGINOKHAIRKHAN DISTRICT OF ULAANBAATAR CITY. ORGANIZATION SPECIALIZED IN ASSESSMENT: GENERAL DIRECTOR OF “SUNNY TRADE” LLC

Stamp and signature

PROJECT EXECUTIVE ORGANIZATION: CEO OF “MON-ENERGY CONSULT” LLC

Stamp and signature

Appendix 3 135

APPENDIX III: SONGINO SUBSTATION DUE DILIGENCE COMPLIANCE AUDIT

The Songino 220/110/35 kV substation is an associated facility of the project battery energy storage system (BESS). Associated facilities are those which are not funded as part of a project but whose viability and existence depend exclusively on the project. The SPS (2009) requires an environmental compliance audit of associated facilities to identify past or present concerns related to impacts on the environment. Where noncompliance is identified, a corrective action plan should be prepared. This compliance audit has been undertaken by PPTA environmental specialists through site visits and consultation with the substation developer, the Investment Department of Ulaanbaatar Municipality.

Substation Site. Songino substation is located 3 km from the northern bank of the Tuul River in Khoroo 32, Songino Khairkhan district, on the western side of Ulaanbaatar (Figure 1). The geographic coordinates of the substation are 47°51'52.47"N and 106°36'21.82"E. It has an area of 5.8 ha, not including a 25 m safety buffer around the perimeter (Figure 2).

Figure 1: Location of Songino 220/110/35 kV substation.

The substation area is characterized by shallow grassland and shrublands, and shallow rolling valleys (Figure 3). The site itself is located at approximately 1,350 meters above sea level on a valley sloping shallowly to the southwest, with the low hills of Songino Mountain to the east. The substation is built on a raised platform to provide flood protection. The substation is sited on what was previously vacant government owned land, and there are no known land issues associated with the substation site. Based on site visits and studies undertaken for the BESS environmental assessment, there are no known large wild mammals utilizing the site. Wildlife that may be found on or near the site are typical for the urban periphery of Ulaanbaatar, including the common raven (Corvus corax – Least

136 Appendix 3

Concern IUCN Red List status), house sparrow (Passer domesticus, Least Concern IUCN Red List status), and common unthreatened hares, marmots, mice and moles.

Figure 2: Overhead view of Songino 220/110/35 kV substation.

Appendix 3 137

Figure 3: Songino 220/110/35 kV substation.

Songino substation looking from the northwest.

Songino substation looking from the southeast.

There are no parks, protected areas, nature reserves or Key Biodiversity Areas (KBAs) within 5 km of the substation site. This was confirmed through discussions with soum officials, site visits, a review of relevant Mongolian documentation, and an Integrated Biodiversity Assessment Tool (IBAT) assessment. Substation Development. The Songino substation is being developed by the Investment Department of Ulaanbaatar Municipality as part of the “Big Circle”, 110 and 220 kV transmission lines that will encircle Ulaanbaatar (Figure 4). The Big Circle and its associated substations are part of the Ulaanbaatar Master Plan 2020. The substation will be connected to the Big Circle 110 kV transmission line, and will also provide power to the western and southern urban area of Ulaanbaatar, and the new international airport area in Khushig Valley, Sergelen Soum. Land Certificate of Songino Substation is shown in Figure 5.

138 Appendix 3

Figure 4: Illustration of 110 and 220 kV transmission lines to encircle Ulaanbaatar.

Appendix 3 139

Figure 5 Land Certificate of Songino Substation

140 Appendix 3

(translation)

MONGOLIA

FOR STATE ORGANIZATIONS

LAND CERTIFICATE

Reference No.000434505

Based on the Governor decision (ref. #607) of Songinokhairkhan District of

Ulaanbaatar Municipality dated November 10, 2009,

this Land Certificate is titled to the “National Power Transmission Grid” State

Owned Company for land possession right of a 830000 m2/ha land plot with

number 188029/0021 for for the period of 5 years to construct a 110 kW sub-

station construction in 20th khoroo of Songinokhairhan District.

LAND MANAGEMENT OFFICIAL

OF SONGINOKHAIRHAN DISTRICT OF ULAANBAATAR

STAMP SIGNARTURE /Sh. Tumurbaatar/

APRIL 19, 2013

Appendix 3 141

Construction started in 2011, but was delayed as a result of disagreements between the developer and the contractor. These issues have now been resolved, and the substation now only requires the installation of two 125 kV transformers before it is operational, expected in January 2020.

Once commissioned responsibility for operation will be transferred to the National Power Transmission Grid (NPTG), a state-owned joint stock company mandated to transport bulk power in the Central Energy System (CES). At the outset NPTG will only be the operator, but it is expected that the Mongolian State Property and Coordination Agency will formally transfer ownership to NPTG in March or April, 2020. Substation Environmental Assessment. A general environmental impact assessment (GEIA), including a baseline environment study (BES) and a feasibility study were prepared for the substation in 2010. The review of the GEIA, undertaken by the Ministry of Energy and Ulaanbaatar Municipality, in consultation with the Ministry of Environment and Tourism, concluded that the project could proceed without the need for a detailed EIA (DEIA).36

There are no known environmental or health and safety issues with the construction of the substation, and based on studies undertaken for the BESS, there are no sensitive receptors at or near the site. The Chief Engineer of the Ulaanbaatar Investment Department reports that the construction of the substation has been undertaken in accordance with all relevant Mongolian environmental and health and safety standards, and that there have been no accidents, hazardous spills or environment-related public complaints. Health and Safety. The mission met with the Head of Control and Monitoring Department (CMD) of NPTG, who is in charge of technical control and occupational health and safety (OHS) of the company. There are eight staff in CMD with one safety officer. NPTG has five branches in Mongolia and there are two safety staff in each branch. Currently, there are 73 substations in operation throughout the country. Apart from following national applicable OHS regulations, NPTG also has its internal safety operation rules on how to handle electrical equipment safely and the requirements for personal protective equipment for operation staff, maintenance staff, drivers, etc. NPTG has an emergency response plan and it conducts emergency drills at the central level and each branch once a year jointly with UB and District Emergency Management Office. NPTG also provide OHS training to its staff, including substation staff regularly. In recent years, there have been no incidents such as fire or electric shock that have occurred in the substations. Once NPTG assumes ownership, it will follow national and its own OHS regulations and policies during the operation of the Songino substation It should be noted however, that these may not be to the same standard as the BESS, which will require OHS, community safety and emergency response procedures in compliance with good international practices as per the World Bank EHS Guidelines and other relevant international good practices. Conclusion. Overall, the due diligence review of the Songino substation indicates that is has been developed in accordance with relevant Mongolian environmental laws and standards, and is expected to be operated in accordance with relevant Mongolian requirements. NPTG has

36 According to Orgil-Erdene.T, Chief Engineer of the Ulaanbaatar Investment Department, 12 November 2019.

142 Appendix 3

existing OHS policy in place. However, there may be a gap between operational, OHS and emergency response standards of the substation compared to the good international practices to be adopted at the BESS. In addition, given the close proximity of the BESS to the substation, it is imperative that operational, OHS and emergency response of both facilities be harmonized to avoid duplication and improve performance. Therefore, it is recommended that:

a) Occupational health and safety, community safety and emergency response procedures at the Songino Substation should be harmonized with, and to the same standard as, occupational health and safety, community safety and emergency response procedures at the BESS.

b) As the BESS will be developed after the Songino Substation becomes operational, this will require upgrading of the Songino Substation occupational health and safety, community safety and emergency response procedures in due course.

Appendix 4 143

APPENDIX IV: LAND CLEARANCE LETTERS FROM ULAANBAATAR GOVERNMENT

144 Appendix 4

Unofficial Translation:

Appendix 5 145

APPENDIX V: PUBLIC CONSULTATION ATTENDANCE LIST

146 Appendix 6

APPENDIX VI: ENVIRONMENTAL MONITORING REPORT TEMPLATE

Environmental Monitoring Report

Semi-annual Report {Month Year}

MON: Energy Storage Option for Accelerating

Renewable Energy Penetration

Prepared by the Ministry of Energy for the Asian Development Bank for the Asian Development

Bank.

Appendix 6 147

CURRENCY EQUIVALENTS (as of {Day Month Year})

Currency unit – Mongolian Tugrik

MNT1.00 = $ $1.00 = MNT

ABBREVIATIONS

WEIGHTS AND MEASURES

NOTES

(i) The fiscal year (FY) of the Ministry of Energy ends on 31 December.

(ii) In this report, "$" refers to US dollars. This environmental monitoring report is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

TABLE OF CONTENTS

Executive Summary

• Brief description of the Project 1.0 Introduction

1.1 Description of scope of report, reporting period, and overall project implementation progress

2.0 Compliance to National Regulations

148 Appendix 6

2.1 Environmental Impact Assessment Law, etc.

3.0 Compliance to Environmental Covenants from the ADB Loan Agreement 3.1 Schedule x Environment (prepare a matrix to show how compliance was

achieved) 4.0 Progress in Implementing the Environmental Management Plan/Environmental Monitoring Plan 5.0 Significant Events or Issues Encountered, Changes in Project Scope, and Corresponding Safeguard Measures Undertaken, if Applicable 6.0 Implementation of Grievance Redress Mechanism and Complaints Received from

Stakeholders (Summary of any complaint/grievance and the status of action taken) 7.0 Conclusion and Recommendations



Poverty and Social Analysis Final Report

Prepared for


by

INTEGRATION Environment & Energy GmbH

in association with

Mon-Energy

January 2020

TA-9569 MON: Energy Storage Option for Accelerating Renewable Energy PSA Report

i

ABBREVIATIONS




CHP – Combined Heat & Power CO2 – Carbon Dioxide


FGD – Focused Group Discussion

GAP – Gender Action Plan

GDP – Gross Domestic Product HOB – Heat Only Boiler kW – Kilowatt (1,000 watts)

kWh – kilowatt-hour (1,000 watts-hour)

MoE – Ministry of Energy

NGO – Non-Governmental Organization


NDC – National Dispatching Center PSA – Poverty and Social Analysis

SME – Small and medium size enterprises

SOJSC – State-Owned Joint Stock Company

SPRSS – Summary Poverty Reduction and Social Strategy



UB – Ulaanbaatar

NOTE


CURRENCY EQUIVALENTS FOR HOUSEHOLD SURVEY PERIOD

(October 2019)

MNT 1.00 = $0.000373

$1.00 = MNT 2,679.03


ii

GLOSSARY

Aimag In Mongolia, an aimag is a first-level administrative subdivision, equivalent to an administrative province or region. The country currently has 21 aimags. The capital Ulaanbaatar is administrated as an independent municipality.

Bag Administrative subdistrict, the lowest level of administrative subdivision in Mongolia. While soums always have a permanent settlement as administrative centers, many bags don't.

Ger A traditional portable dwelling of nomads, a round tent covered

with skins or felt. In Mongolia many households frequently use

gers even having an apartment or a private house.

Soum Soum is a second level administrative subdivision of Mongolia, equivalent to an administrative district. Soums are further subdivided into bags. The country currently has 331 soums.


iii

CONTENTS


II. INTRODUCTION 8

A. Brief Description of the Project and Its Impact Area 8

B. Land Acquisition & Resettlement 8

C. Social Assessment Methodology 10

D. Survey of Households & Businesses 10

III. POVERTY SITUATION IN THE CES 13

E. Poverty Statistics 13

F. Household Income 16

G. Household Consumption 17

H. Gender & Poverty 18

IV. SOCIAL CONDITIONS IN THE IMPACT AREA 20

I. Households in the Impact Area 20

J. Characteristics of the Surveyed Households 20

K. Characteristics of the Surveyed Businesses 22

V. HOUSEHOLD ELECTRICITY SUPPLY 23

L. Dwelling Types 23

M. Household Attitudes Towards Power Failure 24

N. Household Appliance Ownership 26

O. Coping Strategies for Power Failure 27

P. Costs of Power Restriction to Households 27

VI. BUSINESS ELECTRICITY SUPPLY 28

Q. Businesses & Use of Electricity 28

R. Power Failure Experience of Businesses 28

S. Businesses & Back-Up Power Facilities 29

T. Cost of Power Failures to Businesses 30

VII. PROJECT IMPACT 31

U. Household Impact 31

V. Business Poverty Reduction Impact 32

W. Gender Impacts & Households 33

X. Women & Power Failures Affecting Business 34

APPENDICES

Appendix 1: Summary Poverty Reduction and Social Strategy (SPRSS)

Appendix 2: Household Survey Questionnaire


iv

List of Tables

Table 1: Poverty Rate (%) .................................................................................................................. 13

Table 2: Poverty Indicators 2016 – 2018 ......................................................................................... 14

Table 3: Poverty Indicators, by Aimags, 2018 ................................................................................ 15

Table 4: Poverty Line by Region (tugrugs per capita per month) ................................................ 16

Table 5: Monthly Average per Capita real Income, 2018 constant prices tugrugs .................... 16

Table 6: Monthly Average per Capita Income, 2019 price tugrugs .............................................. 17

Table 7: Monthly Average per Capita real Consumption, 2018 constant prices tugrugs ......... 17

Table 8: Female Headed Households in regions of Mongolia (%) .............................................. 18

Table 9: CES Households by District ............................................................................................... 20

Table 10: Children by Income Level ................................................................................................... 20

Table 11: Education Level of Head of Household ............................................................................ 21

Table 12: Education Level of Head of Household by % .................................................................. 21

Table 13: Employment of Head of Household .................................................................................. 21

Table 14: Household Income per Capita per Month ........................................................................ 22

Table 15: Surveyed Businesses .......................................................................................................... 22

Table 16: Household Characteristics by Dwelling ............................................................................ 23

Table 17: Monthly Average per Capita Income by Dwelling, 2019 price tugrugs ........................ 23

Table 18: Number of Power Failures & Duration Reported by Households ................................. 24

Table 19: Least Preferred Household Season for Power Failure .................................................. 25

Table 20: Least Preferred Household Day of the Week for Power Failure ................................... 25

Table 21: Appliance Penetration (% by Type) ................................................................................... 26

Table 22: Response of HHs when Power Failure Occurs ............................................................... 27

Table 23: Putting Up Without Power by % Dwelling Type ............................................................... 27

Table 24: Business Type & End-Uses of Electricity ......................................................................... 28

Table 25: Duration & Frequency of Black Outs Reported by Business ........................................ 28

Table 26: Sensitivity of Business to Power Failure by Season, Month and Days ....................... 29

Table 27: Use of Back-Up Power ........................................................................................................ 29

Table 28: Primary Indicators of Impacts of BESS ............................................................................ 31

Table 29: Willingness to Pay for Improved Reliability ...................................................................... 32

Table 30: Willingness to Pay for Improved Reliability ...................................................................... 33

Table 31: Women’s Participation in Business ................................................................................... 34

List of Figures

Figure 1: BESS Location Near Ulaanbaatar ....................................................................................... 9

Figure 2: BESS Site ............................................................................................................................... 9

Figure 3: Sampling Sites in Greater Ulaanbaatar Area ................................................................... 12

Figure 4: Least Preferred Household Hour of the Day for Power Failure .................................... 26

Figure 5: Least Preferred Business Hours of the Day for Power Failure ..................................... 29

Figure 6: Income level per capita as % of MSL by Head of Household ....................................... 33


5


1. Energy security is a major challenge in Mongolia. The peak demand of consumers

supplied by the Central Energy System (CES) has exceeded the capacity of the Mongolian

power system and, in the absence of new capacity, the risk of severe power restriction will

increase rapidly. Such power restriction will affect all households and businesses within the

CES, with poor households dis-proportionately impacted as coping costs are the same for all

households.

2. Renewable Energy (RE) is the only viable solution that can boost power system capacity

in the short term but this is infeasible without utility-scale energy storage. To this end it is

proposed to establish a 125 MW / 160 MWh Battery Energy Storage System (BESS) in the

CES.

3. The project is fully aligned with the Government of Mongolia’s State Energy Policy (RE targets of 20% of total installed capacity by 2023 and 30% by 2030). The project is fully aligned

with the GoM’s Sustainable Development Vision 2030, its priority to improve natural resource management and to mitigate climate change. The project is also fully aligned with the ADB’s Country Partnership Strategy (2017- 2020) and Country Operation Business Plan (2018 -

2020).

Key poverty and social issues. In the household sector of the CES the poverty rate is 25%

(~80,000 households). The poverty level in the CES is set at an average monthly income per

capita of 199,767 MNT (average household income of 75 c per day). The all CES household

average monthly income per capita is ~1,400,000 MNT, average monthly household

expenditure ~300,000 MNT, and average monthly expenditure on utilities ~30,000 MNT, i.e.

10% of total expenditure.

In the household sector, electricity is mainly used for lighting and television. Electricity is rarely

used for cooking, particularly in the Ger households where traditional wood- or coal-stoves are

used. In the winter months, around 6% of households use electric heaters. The risk of power

restriction is highest in the evening hours when household demand is at its peak; conversely,

households report that the evening hours are the least preferred time for power loss.

In the business sector, electricity is used to power production equipment, office and building

facilities. The least preferred time for power supply loss is during the business day. At the

present time most businesses rely on electricity supply from the grid and do not use back-up

generators. If power restriction increases in frequency and duration, all businesses will be

forced to resort to back-up generators with higher operating costs, or to put up with the

restrictions and suffer a loss of revenue.

The risk of power restriction is increasing rapidly due to the emergence of an imbalance

between demand and supply. The power system reserve margin is below the minimum

acceptable level of 15% and falling. It is estimated that, without the BESS project, the total


6

hours of power system loss will increase from 0 to ~70 hours per annum by 2022. With the

BESS project, the total hours of power system loss will be maintained at the current low level.

The willingness to pay for reliability improvement is estimated at $1.31 per kWh comprising

$0.96 per kWh for households, and $0.36 per kWh for business (WTP has been assessed

based on a peak-hourly income method for households and according to GDP contribution for

business).

Beneficiaries. Poor households will benefit most if power restriction is avoided. The BESS will

positively impact 80,000 poor households by reducing the cost of coping with power

restrictions. All of the 319,000 households in the CES will be spared from the need to cope

with power loss, in particular the need to use candles for lighting. Moreover, the well-

established social benefits of a stable electricity supply will be maintained.

There are ~120,000 businesses registered in the CES with an average revenue of ~80,000

MNT per month (US$3,000). According to the business survey, the average number of

employees per private business is 33 (minimum 4, maximum 130). On average, female

employees are equal in number to male employees. Avoidance of power restriction will have

beneficial impacts for business owners and employees.

Impact channels. Mongolians will develop skills in the deployment of advanced technology.

The BESS will require an operating staff of 10 full-time employees. The project will require

training of staff of the Ministry of Energy and the National Power Grid Transmission company.

Other social and poverty issues. The government has encouraged Ger households to use

electric heating in winter to reduce air pollution. The household survey shows a low penetration

of electric heating at only 6%. If power restrictions increase in frequency and duration it will

likely slow the demand for electric heaters.

Participation & Empowerment of the Poor. A survey was taken of 100 households and 50

businesses in the CES. The objectives of the household survey were to collect demographic

information (including income and poverty rate) and to understand how households cope when

power supply is lost. The objectives of the business survey were to collect information

concerning the types of private businesses operating in the CES, how the businesses use

electricity, and how they cope when power supply is lost. The information has been used to

assess the impact of power restrictions on households and businesses in the CES and to

assess their willingness to pay.

Public consultations were carried out with the 32nd khoroo Citizens Representative Khural.

The consultations explained the nature of the project and gave reasons why the community

can expect minimal impacts. No objections were tabled by the citizens representatives.

Civil society organizations. The project land requirements were discussed with the municipal

authority of the 32nd khoroo of Songinokhairkhan district as the responsible authority for land

management. Joint site visits were undertaken to identify suitable land plots. The authority

worked with the Ministry of Energy and a land decree was issued covering the project site.

Gender & Development. The household survey showed that women are affected by power

restriction equally to men in terms of coping actions. Similarly, it was found that the numbers


7

of women business are the same as for men and will be equally affected by power restrictions.

In the absence of the project, the worsening power of restrictions will dis-proportionately affect

poor households of which 6.6% are headed by women.

The project will require additional human resources to carry out operations and maintenance

of the BESS. There are no reasons that women should be excluded from consideration for any

of the newly created roles. As the National Power Transmission Grid company has a non-

discriminatory recruitment policy this issue does not warrant a specific action plan.

Involuntary Resettlement. No involuntary resettlement required. The 32nd khoroo

administration has advised that the project will not affect residents in the area because the

allocated land falls in an industrial zone. On the advice of the 32nd khoroo administration, a

land decree based on Land Possession Decree Ordinance No. A/949, was issued by the Mayor

and Governor of Ulaanbaatar City on 17 September 2019. This decree provides a clear and

un-encumbered title for development of the project.

Impacts on Indigenous Peoples. The project will have no impacts.

Affordability. It is estimated that the retail electricity tariff will need to increase by 2% for full

cost recovery. This increase is small in comparison to the total monthly household expenditure

on utilities. It will be offset by the avoidance of the cost of coping with power restriction, notably

expenditure on candles for lighting.

Monitoring & Evaluation. Targets and indicators. The targets and indicators for the project

are 1. Zero incidents of power system restriction due to forced outage of a Mongolian power

plant unit in the years 2022 to 2025, 2. Renewable energy penetration of 20% by 2025. These

targets and indicators will be monitored according to the Ministry of Energy’s annual report of the performance of the power system, and by analyzing the operations logs of the BESS at

those times when forced outage events occur.

Required human resources. A Project Implementation Consultant will be recruited to support

the Ministry of Energy’s Project Management Unit and together these organizations will monitor and evaluate project effectiveness. As the local social impacts of the project are

minimal, social and environmental assessments will be combined and carried out by a single

suitably qualified expert.

Information in the Project Administration Manual. The Design & Monitoring Framework

summarises the program design and includes core indicators that focus on the overall project

results. The PAM describes all program review and M&E and reporting inputs and

requirements.

Monitoring tools. No specific monitoring tools are envisaged for poverty and social impact

assessment. So long as the BESS performs as expected then the social impact on poor

households and businesses will be positive. Performance in meeting the proposed indicators

will be reported in the quarterly progress reports, the two environmental reports every year

during construction and the annual environmental report during operation, and/or the annual

report on resettlement and social objectives, as suitable.


8

II. INTRODUCTION

A. Brief Description of the Project and Its Impact Area

4. The Government of Mongolia is pursuing a series of policies to increase the share of

renewables in the energy mix. A State Policy on Energy 2015-2030 was approved by

parliament in 2015, intending to achieve energy independence and increasing the share of

renewable energy to 20% of total installed capacity by 2023 and 30% in 2030. The project is

fully aligned with the Government of Mongolia’s Sustainable Development Vision 2030 and its priority to improve natural resource management and the response to climate change. The

project is also fully aligned with ADB’s Country Partnership Strategy (2017- 2020) and the

Country Operation Business Plan (2018 -2020) vital for Mongolia to develop sustainable

energy infrastructure and achieve energy independence.

5. There are four independent energy systems in Mongolia: the Central Energy System,

the Western Energy System, the Altai-Uliastai Energy System, and the Eastern Energy

system. The Central Energy System is the largest system covering northern, central, and

southern Mongolia. The Central region of the CES, where the capital city of Ulaanbaatar is

located, dominates in terms of economic activities. The Northern region has the second largest

economy, contributing around one-fifth of the nominal gross domestic product of Ulaanbaatar

in 2014. The Southern region has the smallest population but significant mining development

activities.

6. In response to the government’s energy policy, it is proposed to install a 125 MW / 160MWh battery energy storage system (BESS) in the Central Energy System (CES) to 1)

absorb fluctuating renewable energy, which would otherwise to be curtailed in the early

morning, and to shift this energy to reduce peak demand in the evenings, 2) to support

increased penetration of renewable energy by stabilizing the grid frequency, and 3) to increase

the reliability of the power supply by providing an emergency reserve source of power in the

event a power plant unit is forced out of service.

7. The BESS will be connected to the CES high voltage electricity transmission system. It

will not provide benefits directly to communities surrounding the BESS site, rather it will

improve reliability to the power supply of the CES as a whole. All households and businesses

can expect fewer supply interruptions and, if interruptions do occur, shorter restoration times.

As supply loss dis-proportionately affects the poor, because coping costs are the same for all

households, a BESS will be beneficial for the poor residing in the CES.

B. Land Acquisition & Resettlement

8. The land requirement for a 125 MW / 160 MWh BESS is approximately 2 hectares, with

1 hectare set aside for the battery field. The Ministry of Energy (MoE) has allocated 16 hectares

of land near the Songino Switching sub-station, sited in the 32nd khoroo of Songinokhairkhan

district. A land decree dated 17 September 2019, based on Land Possession Decree

Ordinance No. A/949, was issued by the Mayor and Governor of Ulaanbaatar City. Due


9

diligence has revealed that the titled land is State land and that there are no records that the

land was previously assigned before; and that there were no occupants. Accordingly, no

resettlement is required.

Figure 1: BESS Location Near Ulaanbaatar

Figure 2: BESS Site


10

9. A consultation was undertaken with residents of the 32nd khoroo of Songinokhairkhan

district on 21 October 2019. The 32nd khoroo is located around 5 km from the BESS project

site. There are 1,300 households in the khoroo of which two are ethnic minority Kazakh

households. Some households possess cattle, horses and goats. There is a “Tsetsen Khuu” kindergarten and a “Jargal Ulzii” clinic in the khoroo.

C. Social Assessment Methodology

10. The data used in the poverty and social impact assessment has been drawn from primary

and secondary sources.

• The primary data are from a social survey carried out in October 2019. The survey

covered 100 households and 50 small-to-medium size businesses as a sample of the

380,199 households in the CES. The survey questionnaire administered to surveyed

households by trained interviewers is attached as Appendix 2.

• Secondary sources are government documents and past studies. The government

documents include results of 2005 and 2015 census and 2011/2012 survey on

agriculture. The past studies are published ethnographic works, academic journal

articles and documents from regional and international organizations.

D. Survey of Households & Businesses

11. A survey was administered to households and businesses operating within the CES. The

primary objective of the survey was to establish the willingness to pay to avoid future power


11

restrictions. A secondary objective was to understand the coping strategies of households and

businesses when power failures occur.

12. Ger residents were sampled in 3 ger areas of Ulziit (Khan Uul district – 14 khoroo),

Yarmag area (Khan Uul District - 6,7 khoroos) and the ger area near to the Project site in the

Songinokhairkhan district – 32 khoroo. Ger residential areas are spread around the city centers

where traditional gers and self-built houses are common types of dwellings that are not yet

connected to the central heating, sewage and water supply systems.

13. Apartment residents were sampled mainly in 120 myangat and 19th residential blocks of

Khan Uul district. Fieldwork started on September 25, 2019 and was completed on October

25, 2019. A total of 130 households were surveyed to ensure a minimum sample size of 100

households.


12

Figure 3: Sampling Sites in Greater Ulaanbaatar Area


13

III. POVERTY SITUATION IN THE CES

E. Poverty Statistics

14. According to the 2018 Household Socio-Economic Survey these estimates, the national

poverty rate in Mongolia stood at 28.4 percent in 2018 – a decrease of 1.2 percentage points

from the 2016 estimate of 29.6 percent.

Table 1: Poverty Rate (%)

2010 2012 2014 2016 2018

Poverty Headcount (%)

National 38.8 27.4 21.6 29.6 28.4

Urban 33.2 23.3 18.8 27.1 27.2

Rural 49.0 35.4 26.4 34.9 30.8

Region

Western 52.7 32.3 26.0 36.0 31.8

Khangai 51.9 38.5 25.3 33.6 30.8

Central 29.9 28.2 22.2 26.8 26.1

Eastern 42.3 33.4 31.4 43.9 37.4

Ulaanbaatar 31.2 19.9 16.4 24.8 25.9

Location

Ulaanbaatar 31.2 19.9 16.4 24.8 25.9

Aimag center 37.3 30.4 23.8 31.8 30.1

Soum center 39.7 27.5 24.7 32.3 28.9

Rural area 56.1 39.6 27.9 38.0 32.9

Source: National Statistics Office of Mongolia

15. In 2018, the poverty gap—which measures the depth of poverty by estimating how far

off households are from the poverty line—was estimated at 7.2 percent, a decrease by 0.5

percentage point from 2016. Poverty severity, which measures the degree of inequality among

the poor by putting more weight on the position of the poorest, has decreased to 2.7 percent

from 2.9 percent in 2016.

16. Poverty concentration is growing in urban areas. During the period between 2016 and

2018, the poverty rate declined by 4.1 percentage points in rural areas but increased by 0.1

percentage point in urban areas. While poverty rate remains high in rural areas, with two-thirds

of the total population of Mongolia living in urban cities, poverty has become concentrated in

urban areas. The share of the poor population in urban areas has increased from 62.1 percent

in 2016 to 63.5 percent in 2018, and more than 40 percent of the poor lived in Ulaanbaatar in

2018.

17. Regional poverty estimates show the decline in poverty rate by 6.6 percentage points in

Eastern region, 4.3 percentage points in Western region, 2.7 percentage points in Khangai


14

region, and by 0.7 percentage points in Central region. However, in Ulaanbaatar city the

poverty rate increased by 1.1 percentage points.

Table 2: Poverty Indicators 2016 – 2018

Poverty

Headcount Poverty Gap

Poverty

Severity

Number of the

Poor ('000)

Share of the

Poor (%)

2016 2018 2016 2018 2016 2018 2016 2018 2016 2018

National

average 29.6 28.4 7.7 7.2 2.9 2.7 907.5 904/9 10% 100%

Urban 27.1 27.2 7.2 7.2 2.8 2.8 563.8 574.6 62% 63%

Rural 34.9 30.8 8.8 7.2 3.2 2.4 343.7 330.3 38% 37%

Region

Western 36 31.8 9.7 7.8 3.7 2.8 150.1 133.2 17% 15%

Khangai 33.6 30.8 8.2 7.3 2.9 2.5 189.6 179.6 21% 20%

Central 26.8 26.1 7 6.6 2.7 2.4 127.6 131 14% 14%

Eastern 43.9 37.4 12.5 10 4.8 3.7 97.1 82.8 11% 9%

Ulaanbaatar 24.8 25.9 6.4 6.7 2.5 2.6 343.1 378.2 38% 42%

Location

Ulaanbaatar 24.8 25.9 6.4 6.7 2.5 2.6 343.1 378.2 38% 42%

Aimagcenter 31.8 30.1 8.8 8.2 3.4 3.2 220.7 196.4 24% 22%

Soum

center 32.2 28.9 8.5 7 3.2 2.4 173.4 166.6 19% 18%

Rural area 38 32.9 9.2 7.4 3.2 2.4 17.4 163.6 19% 18%


18. At the aimag level, Govisumber in Central region has the highest poverty rate, where

more than a half of the people are poor (51.9 percent), followed by Govi-Altai (45.1 percent),

Dornod (42.5 percent) and Khovd (40.9 percent). On the other hand, Umnugovi has the lowest

poverty incidence of 11.8 percent in Mongolia. In terms of number of the poor, Ulaanbaatar

has by far the largest poor population (378.2 thousand) – nearly 10 times more than in

Uvurkhangai, the aimag with the second highest number of the poor (40.9 thousand). Despite

its highest incidence of poverty, Govisumber has one of the lowest numbers of the poor (8.2

thousand) due to its small population size.


15

Table 3: Poverty Indicators, by Aimags, 2018

Poverty Headcount Poverty Gap Poverty

Severity

No. of the Poor

(thous.)

National Average 28.4 7.2 2.7 904 .9

Western 31.8 7.8 2.8 133.2

Bayan-Ulgii 24.3 5.2 1.8 30.7

Gov-iAltai 45.1 13.4 5.1 25.3

Zavkhan 25.7 5.0 1.8 17.5

Uvs 29.6 7.2 2.5 24.2

Khovd 40.9 10.9 4.1 35.6

Khangai 30.8 7.3 2.5 179.6

Arkhangai 38.2 9.9 3.5 34.8

Bayankhongor 29 .6 4.3 1.1 25.6

Bulgan 36.8 11.3 4.4 20.1

Orkhon 25.1 6.5 2.5 25 .9

Uvurkhangai 34.1 7.6 2.4 40.9

Khuvsgul 25.3 6.1 2.1 32 .2

Central 26.1 6.6 2.4 131.0

Govisumber 51.9 12 .2 4.2 8 .2

Darkhan-Uul 32.8 9.6 4.1 33.2

Oornogovi 23.4 5.2 1.7 17.2

Dundgovi 21.7 6.3 2.5 11.1

Umnugovi 11.8 2.2 0.7 7.6

Selenge 34 .0 7.9 2.7 33.6

Tuv 20.5 5.4 2.0 20.2

Eastern 37.4 10.0 3.7 82.8

Dornod 42.5 12.0 4.6 34.9

Sukhbaatar 30.2 6.6 2.4 19.6

Khentii 38.0 10.8 4.0 28.3

Ulaanbaatar 25.9 6.7 2.6 378.2


The poverty headcount index is the share of the population whose consumption is below the poverty line.

The poverty gap measures the depth of poverty. It is obtained by taking the mean distance below the poverty line

as a proportion of the poverty line, with the non-poor being given a distance of zero.

The severity of poverty measures the inequality (severity) among the poor. It is obtained by squaring the poverty

gap, which means higher weights are placed on those who are further away from the poverty line.


16

19. The latest official revision of the poverty line of the population was made on February 1,

20191. The poverty line was derived from the 2010 Household Socio-Economic Survey using

the cost of basic needs approach. The poverty line was set at the cost of acquiring a

consumption bundle that provides 2100 calories per person per day as well as the cost of other

non-food essential goods and services. The national poverty line was updated only for changes

in price levels between surveys, and the 2019 national poverty line, estimated at MNT

189,925 per person per month.

Table 4: Poverty Line by Region (tugrugs per capita per month)

Regions 2015 2017 2019

National Average 164,125 167,975 189,925

Western Region 164,200 166,500 190,700

Khangai Region 167,200 173,500 194,300

Central Region 164,300 166,200 187,100

Eastern Region 160,800 165,700 187,600

Ulaanbaatar (capital) 185,400 185,300 217,900

CES area (Khangai, Central and Ulaanbaatar) 172,300 175,000 199,767


20. The poverty line (MSL) of the CES is 199,767 tugrugs per person per month. This is

equivalent to an household income of 75 cents per day.

F. Household Income

21. The main source of income is wage labor (Table 5). At a national level, in 2017 wage

labor contributed 90.4% to household income (95% urban, 80% rural).

Table 5: Monthly Average per Capita real Income, 2018 constant prices tugrugs

Total

Income

Monetary

Income -

Total

Wages &

Salaries

Pensions

&

Allowanc

es

Income

from HH

Business

es

Other

Received

from

others

free of

charge

Food

consump

tion from

own

business

National average

2000 108 011 101 375 31 004 7 916 32 270 30 185 1 120 5 516

2005 172 421 150 208 66 679 17 745 52 443 13 341 6 672 15 541

2010 448 027 387 099 200 167 67 131 82 855 36 946 19 356 41 572

2015 1 047 255 945 118 503 714 163 776 182 810 94 818 50 508 51 629

2016 944 153 863 259 477 742 165 621 131 723 88 173 43 022 37 872

2017 1 035 506 936 187 517 121 182 497 153 270 83 299 54 724 44 595

Urban

1 According to Order A/12 of Chairperson of National Statistics Office of Mongolia, dated on January 1, 2019.


17

Total

Income

Monetary

Income -

Total

Wages &

Salaries

Pensions

&

Allowanc

es

Income

from HH

Business

es

Other

Received

from

others

free of

charge

Food

consump

tion from

own

business

2000 113 644 111 787 44 791 10 402 22 565 34 029 1 379 478

2005 176 560 165 981 97 438 19 828 33 328 15 387 7 863 2 716

2010 498 172 476 690 286 554 71 830 70 030 48 276 16 032 5 450

2015 1 120 699 1 069 564 659 279 174 966 119 052 116 267 45 286 5 849

2016 1 007 145 965 455 590 005 175 287 98 499 101 664 36 928 4 762

2017 1 117 921 1 062 245 658 001 195 318 106 186 102 740 49 829 5 847

Rural

2000 102 666 90 118 16 109 5 226 42 759 26 024 799 11 749

2005 163 122 131 334 23 321 14 410 84 930 8 673 4 744 27 044

2010 386 605 277 354 94 345 61 376 98 566 23 067 23 429 85 822

2015 911 424 714 963 216 006 143 080 300 728 55 149 60 165 136 296

2016 816 297 655 829 249 875 146 003 199 162 60 789 55 391 105 077

2017 885 891 707 345 261 373 159 222 238 744 48 006 63 610 114 936


22. The monthly average per capita income by region is given by the following table.

Table 6: Monthly Average per Capita Income, 2019 price tugrugs

Type of dwelling Monthly Average Income per

capita tugrugs

West Region 1,132,936.0

Khangai Region 1,171,145.0

Central Region 1,283,972.0

East Region 1,240,142.0

Ulaanbaatar Region 1,555,549.0


G. Household Consumption

23. In 2018, the monthly average consumption per capita was MNT 279,912, which was 3.9

percent higher than the price-adjusted real consumption per capita of MNT 269,328 in 2016.

The growth of monthly per capita consumption during the period of 2016 to 2018 was higher

in rural areas (5.4 percent) than in urban areas (3.7 percent).

Table 7: Monthly Average per Capita real Consumption, 2018 constant prices tugrugs

2010 2012 2014 2016 2018 Change

(2016-2018)

National average 238 287 290 853 304 501 269 328 279 912 3.9


18

2010 2012 2014 2016 2018 Change

(2016-2018)

Urban 256 887 314 744 329 553 283 934 294 377 3.7

Rural 204 453 244 039 260 657 238 520 251 438 5.4

Region

Western 190 208 252 402 264 264 226 325 245 355 8.4

Khangai 195 991 231 985 265 714 243 769 251 806 3.3

Central 263 386 284 392 297 957 279 637 278 150 -0.5

Eastern 221 167 248 441 255 029 211 121 248 860 17.9

Ulaanbaatar 266 206 336 989 346 882 298 437 306 373 2.7

Location

Ulaanbaatar 266 206 336 989 346 882 298 437 306 373 2.7

Aimag center 237 657 268 542 294 035 254 967 267 552 4.9

Soum center 232 925 273 136 272 877 249 889 257 563 3.1

Rural area 182 800 228 582 249 600 224 914 244 330 8.6


H. Gender & Poverty

24. Female-headed household statistics are given by the following table.

Table 8: Female Headed Households in regions of Mongolia (%)

Aimags and the capital % Female

Headed HH's

Total 8.7%

Western region 12.0%

Bayan-Ulgii 8.0%

Govi-Altai 15.4%

Zavkhan 14.6%

Uvs 8.8%

Khovd 14.2%

Khangai region 12.4%

Arkhangai 9.9%

Bayankhongor 15.5%

Bulgan 9.5%

Orkhon 10.5%

Uvurkhangai 10.9%

Khuvsgul 16.3%

Central region 10.7%

Govisumber 12.0%

Darkhan-Uul 11.9%


19

Aimags and the capital % Female

Headed HH's

Dornogovi 10.9%

Dundgovi 13.0%

Umnugovi 12.6%

Selenge 10.9%

Tuv 6.5%

Eastern region 10.8%

Dornod 11.8%

Sukhbaatar 13.3%

Khentii 8.2%

Ulaanbaatar 4.9%


25. The percentage of female-headed households in the CES (Ulaanbaatar and Central

Region combined) is 6.6%.


20

IV. SOCIAL CONDITIONS IN THE IMPACT AREA

I. Households in the Impact Area

26. According to the 2019 census there were 380,199 households in the Districts that will be

impacted by the project.

Table 9: CES Households by District

Item Total Households

Bagakhangai 1,272

Bayangol 59,536

Bayanzurkh. 95,714

Nalaikh 10,606

Songinokhairhan 84,236

Sukhbaatar 38,563

Khan-Uul 48,940

Chingeltei 40,017

Tuv aimag Bayanchandani 1,315

Bagakhangai 1,272

Bayangol 59,536

Bayanzurkh 95,714

Total 380,199


J. Characteristics of the Surveyed Households

Children in Poor Households

27. The surveyed households have, on average, 3.5 members; of these 1.6 are male, 2.05

are female; 2.22 are adults and 1.56 are children. This household size is much bigger than the

national average of 5.3 members registered in the 2019 census. In these households, men are

numerically dominant. There are 91 women per 100 men on average.

28. The survey showed that poor households have more children compared to households

with higher income.

Table 10: Children by Income Level

Poor Non-poor

Less than

50% of

MSL

50%-

100% of

MSL

100%-

150% of

MSL

150%-

200% of

MSL

200%-

300% of

MSL

More than

301% of

MSL

Average children number 2.3 2.0 1.5 1.2 1.3 0.8


21

Source: October 2019 Survey

Education of Household Members

29. Male household heads with a university degree accounted for 46.8% of the survey

population; by comparison the proportion of female household heads with a university degree

was found to be 36.3%. According to the survey responses, male household heads prefer

going either to high school or university.

Table 11: Education Level of Head of Household

University

Professional

school or

college

High

school

Primary

school

Male 37 (46.8%) 6 (7.5%) 33 (41.7%) 3 (3.7%)

Female 8 (36.3%) 7 (31.8%) 5 (22.7%) 2 (9.1%)


30. Female headed households comprise 57.1% of pensioners. It may suggest that the

major reason for being a female head of household is the death of a husband, not due to

divorce or other reason. In Mongolia, life expectancy for males is much lower than females.

National statistics taken in 2018 shows that life expectancy for males is 66 years and for

females it is 76 years.

Table 12: Education Level of Head of Household by %

Educational Attainment Head of Household

(%) None 30

Primary 48

Secondary 17

High School 1

University Level 4

Total 100


Occupation of Household Members

31. On employment, 37.9% of males and 23.8% of females work for an employer. Employers

vary from public organization and businesses to NGOs. 40.5% of male and 19% of female

work in a private business to maintain their livelihood. The business activities range from

licensed companies to individuals who have private taxi or sew at home.

Table 13: Employment of Head of Household

Employed by

others

Have own

business Pension Disabled Unemployed

Male 30 (37.9%) 32 (40.5%) 11 (13.9%) 4 (5.1%) 2 (2.5%)


22

Female 5 (23.8%) 4 (19%) 12 (57.1%) 0 0


Household Income & Expenditures

32. The household income of the surveyed households is given by the following table.

Table 14: Household Income per Capita per Month

Tugrugs %

Above 654,001 20

436,001 - 654,000 19

327,001 - 436,000 19

218,001 - 327,000 23

109,001-218,000 15

Below 109,000 3

Unclassified 1

Total 100


33. The poverty line (MSL) of the CES is 199,767 tugrugs per person per month. Table 14

shows that around 20% of the households in the survey sample have an income that falls

below the poverty line. This compares to the poverty rate reported by Table 1 at around 25%

meaning that the survey sample is broadly representative of the CES as a whole.

K. Characteristics of the Surveyed Businesses

34. The survey targeted more than 70 randomly-selected businesses in the Ulaanbaatar

area to obtain 56 valid samples for social analysis.

Table 15: Surveyed Businesses

Type of business activities No.

businesses

Total number

of employees

Finance, property, business or insurance services 12 552

Retail trade 9 218

Food, beverages, or tobacco products 7 386

Café, restaurant or pub 5 77

Machinery or equipment manufacturing 4 32

Textiles, clothing, footwear, or leather products 3 66

Non-metallic mineral product manufacturing 2 258

Medical care, Nursery 2 24

Petroleum, coal, chemicals, or associated products 1 15

Metal products 1 65

Wood or paper product manufacturing 1 4

Others (research, consulting, IT, training, hair dresser) 9 166



23

V. HOUSEHOLD ELECTRICITY SUPPLY

L. Dwelling Types

35. The reliability of household electricity supply varies according to the dwelling type. In the

Ger area the supply system is an overhead distribution network of poor-quality construction

that is exposed to the weather and 3rd-party interference. Self-built houses and apartments

are supplied by an underground cable distribution network; while some cables are aged, and

suffer frequent failures, the quality of supply is nevertheless of a higher standard than for the

overhead distribution networks in Ulaanbaatar. Accordingly, the attitudes of households to the

power supply has been categorized by dwelling type.

36. Ger area respondents accounted for 51% of dwellings in the survey sample; apartments

45%, other2 types of dwellings 3%, and unclassified 1%. The composition of household

members in these dwellings is given by the following table.

Table 16: Household Characteristics by Dwelling

Type of dwelling Number of

households

Average

number

of HH

members

Average

male

number

Average

female

number

Average

adult

number

Average

children

number

Traditional ger 21 3.52 1.95 1.66 2.2 1.56

Self-built houses 30 3.5 1.78 1.83 2.1 1.53

Apartments 45 3.51 1.85 1.77 2.5 1.25

Others 3 4 1.5 3 2.3 2.5

Unclassified 1 3 1 2 2 1

Average 3.5 1.6 2.0 2.2 1.6


37. It is also noted that the Ger area households in the sample are generally poorer than is

the case for self-built houses and apartments.

Table 17: Monthly Average per Capita Income by Dwelling, 2019 price tugrugs

Type of dwelling Household Average Income per

capita tugrugs

Traditional ger 974,761.9

Self-built houses 1,113,766.6

Apartments 1,919,355.6

Others 1,203,333.3

Not answered 1,600,000.0

2 The ‘other’ category of households included semi-detached houses, renting or sharing rooms in a self-built house or apartment. A family who possesses both a self-built house in an Ulaanbaatar suburb, and an apartment in the UB city center, says they switch between the dwellings regularly. They spend workdays in the downtown and weekends in the suburb.


24

Type of dwelling Household Average Income per

capita tugrugs

Average 1,362,243.5


M. Household Attitudes Towards Power Failure

38. Power failures were characterized by severity in terms of duration of the supply

interruption as 1 hour, 4 hours, 8 hours and 24 hours, and statistics collected for the 3 months

period prior to the survey.

Table 18: Number of Power Failures & Duration Reported by Households

No of Incidents Reported

by HHs in 3 months

Power

failure

in last 3

months

up to 1h

more

than 1h

and up

to 4h

more

than 4h

and up

to 8h

more

than 8h

and up

to 24h

more

than

24h and

up to

48h

more

than 48

1 12 7 19 18 15 0 0

2 20 8 11 6 3 0 0

3 11 1 5 6 1 0 0

4 7 2 2 7 0 0 0

5 11 1 5 7 3 0 0

6 5 0 0 0 0 0 0

7 3 0 0 0 0 0 0

8 1 0 0 0 0 0 0

9 0 0 0 0 0 0 0

10 4 0 0 0 0 0 0

Total 74 19 42 44 22 0 0


39. Cross-tabulation results by dwelling show that Ger households reported 83 power

failures, 128 for self-built houses, and 47 for apartments. Furthermore, the average power

failure time was 4.3 hours for Gers, 4.2 hours for self-built houses and 1.1 hours for

apartments. Power failures are more frequent and of longer duration in the Ger areas where

there are more households with low income.

40. The surveys captured the attitudes of households towards the seasonal impacts of power

failure, the power failure frequency in the last three months, the most unwanted times of power

failure, power failure impacts on the use of electric appliances.


25

Table 19: Least Preferred Household Season for Power Failure

Season F M Reasons

Winter 29 21

Having less natural light and using more power, heating relies on

power, use of a boiler relies on power, consuming hot drinks and hot

meals because it is cold, inconvenient for outdoor activity etc.

No season is

worse 22 14

Everything depends on power – cooking, watching TV, using internet,

refrigerator can’t stand no power, using electric heater, using electric

appliances during the day, having an infant, having a handicapped

member, running household business relied on electricity (sewing

shop), pensioner spends most time at home, etc.

Summer 8 6

Children’s summer holiday, they spend most time at home, difficulties

to keep meat and food fresh, inconvenient to use fire stoves because

hot.


41. People have more concern if power failures occur on weekends (56), followed by ‘no weekday is worse’ (34) and workdays (10).

Table 20: Least Preferred Household Day of the Week for Power Failure

Weekday F M Reason

Weekend 34 22

Manage all household work at weekends, prepare for new week, wash

with washing machine, take bath, have visitors, spend time at home,

uses power a lot, uses power for cooking, watches TV, having

business

No day is

worse 19 15

Every evening uses power for cooking, at weekends want more

convenient time at home, pensioner who spends most time at home,

need lighting every day, have electric heating, uses mobile phones,

electric cooker, washing machine every day, works at home, have

computer work at home, have handicapped member, need regular

phone and internet communication, run household sewing shop

Workday 6 4

Working day, children have schools, children do homework, have

limited time at home after work, prepare children’s meal, at weekends

spend time outdoors, preparing breakfast and dinner.


42. The evening hours between 6 p.m. – 9 p.m. are the least preferred hours of the day for

power failure (68), followed by hours between 9 p.m. – midnight (25) and morning hours

between 6 a.m. – 9 a.m. (24) accordingly. These hours are mostly for cooking meals and

watching TVs and having rest at home.


26

Figure 4: Least Preferred Household Hour of the Day for Power Failure


N. Household Appliance Ownership

43. All households report the use of electricity for lighting. Other appliances that use

significant amounts of electricity are electric cookers (65% ownership), electricity water boiler

(95%), and refrigerator (79%). Ownership of electric heaters is low at 6%.

Table 21: Appliance Penetration (% by Type)

Lighting Electric

Cooking

Electric water

boiler TV Internet

100% 65% 95% 61% 68%

Mobile phone

charger Refrigerator

Clothes

washer

Electric

heater

Air

conditioner

84% 79% 77% 6% 0%

Iron Hair fan Computer Others

77% 1% 1% 5%


44. The energy sources for cooking and heating are predominantly coal, firewood and LPG.

All households reported ownership of either a traditional coal stove or a gas stove or both. As

a general rule electricity is not used, or used sparingly, for cooking and heating.


27

O. Coping Strategies for Power Failure

Table 22: Response of HHs when Power Failure Occurs

% of Households 1h 4h 8h 24h

Hire emergency generator 1 2

Light candles 52 80 75 69

Torches or mobile phone flashes 18 24 23 19

Buy and put ice in the refrigerator 0 0 1 1

Go to the home of a relative or friend 1 4 21 31

Cook with gas stove 22 52 50 40

Cook with traditional stove 17 31 36 37

Buy battery backup power supply 0 1 1 1

Buy one meal 7 53 65 55

Buy two meals 0 24

Put up without electricity 47 7 1 0


Table 23: Putting Up Without Power by % Dwelling Type

Type of dwellings by % 1 hour 4 hours 8 hours 24 hours

Gers 9 1 0 0

Self-built house 15 3 0 0

Apartment 22 3 1 0

Others 1 0 0 0


45. Cross tabulation with dwelling types suggested that apartment dwellers tend to put up

without power compared to other type of dwellings. Apartments have central heating, public

water supply and sewage systems and are less inconvenienced by power failures. It follows

that poor households are more inconvenienced by power failures.

P. Costs of Power Restriction to Households

46. The cost of power restriction to households is mainly reflected in the cost of candles for

lighting. Electricity is rarely used for cooking, particularly in the Ger households where

traditional wood- or coal-stoves are used and so coping costs are minimal.

47. In the winter months, around 6% of households use electric heaters. When electric

heating is used by Ger households it comes with the benefit of reduced air pollution and

reduced risk of respiratory disease. Power restrictions are likely to adversely affect further take-

up of electric heaters.


28

VI. BUSINESS ELECTRICITY SUPPLY

Q. Businesses & Use of Electricity

48. The type of building and end-use of electricity of businesses that responded to the survey

is given by the following table.

Table 24: Business Type & End-Uses of Electricity

Electricity Use

Types of Premises Air

conditioning Heating

Water

Supply Elevator Parking

Enclosed shopping

center 6 4 6 3 0 4

Multi-level office (more

than 5 floors) 14 7 13 8 12 6

Multi-level retail (more

than 5 floors) 0 0 0 0 0 0

Multi-level combined

office/retail (more than 5

floors)

0 0 0 0 0 0

Building of one to four

floors 25 11 24 19 0 13

Others 11 3 10 7 0 5


R. Power Failure Experience of Businesses

49. Seven businesses reported experiencing a power failure in the 3 months period prior to

the survey. During the 3 months, 49 businesses experienced 137 black-outs. The most

frequent power failure duration was for 1-4 hours (58% incidence).

Table 25: Duration & Frequency of Black Outs Reported by Business

0-1h 01-4h 4-8h 8-24h 24-48h 48 and

more Total

No. of

Incidents 24 79 26 8 0 0 137

18% 58% 19% 6% 0% 0% 100%


50. The impacts of power failure vary by time of day, day of the month and by season - 10

companies reported different seasonal power failure impacts, 7 had different monthly power

failure impacts, and 20 reported different power failure impacts according to the day of the

week.


29

Table 26: Sensitivity of Business to Power Failure by Season, Month and Days

Season Month Day

Yes 10 7 20

No 46 49 36


51. For businesses, the hours between 6 a.m. and 6 p.m. was the least preferred time for

power failures.

Figure 5: Least Preferred Business Hours of the Day for Power Failure


S. Businesses & Back-Up Power Facilities

52. Some businesses install power back-up equipment to maintain power supply during the

power failures. The survey revealed that 15 businesses in Ulaanbaatar have installed standby

generators, 2 have installed a UPS, and 1 has a battery system. The average back-up time

provided by standby generators was 23 hours. The battery system was designed to provide a

back-up supply for 40 minutes duration.

Table 27: Use of Back-Up Power

Backup electrical

equipment No.

Standby

generator

Uninterruptible

power supply

(UPS)

Battery system

Installed 20 15 2 1

Not Installed 36

Average Back-Up

Time 23h 40m


morning 6-

99-noon noon-3

3-6

afternoon

6-9

evening9-midnight

midnight-6

morning

Datenreihen1 29 35 35 38 8 3 0

29

35 35

38

8

3

00

5

10

15

20

25

30

35

40


30

T. Cost of Power Failures to Businesses

53. The cost of power failure affecting business is reflected in loss of revenue and an

increase in operating costs.

• Revenue is affected when production depends on electricity

• Operating costs increase if back-up electricity supply is required to operate.

54. The surveyed businesses could not provide specific details of the revenue loss or

operating cost increase sufficient to quantify the cost of power failure to businesses operating

in the CES.


31

VII. PROJECT IMPACT

U. Household Impact

Reduction in Household Poverty

55. The BESS will play a role in enhancing supply reliability which will have an impact on

electricity consumers in the CES, particularly on poor households and home businesses.

56. The positive impacts of greater supply reliability are accepted as consensus in scientific

literature.3 These impacts, based on studies carried out since 1998, are summarized in 17

indicators characterized by duration in the following table.

Table 28: Primary Indicators of Impacts of BESS

Term, Aspect and Indicators of Impact Nature of Impact Gender Differentiation

Immediate Impacts

A. Service coverage and Access

Cost of electricity Sight Increase None

Reliability of electric service Increase None

B. Coping Cost

Number of Energy Sources Used Decrease None

Consumption of electricity Increase None

Energy collection time use Decrease None

Coping expenses in other energy sources Decrease None

C. Health

Indoor pollution Decrease None

Incidence of respiratory diseases among vulnerable Decrease None

Short-term Impacts

A. Education, Leisure and Information

Hours in education and home study Increase None

Hours spent in child care None None

Hours spent on leisure and entertainment Increase Larger impact on women

B. Productivity

Total hours of work Increase Larger impact on women

Percentage of hours of farm work Decrease Larger impact on women

Percentage of hours of non-farm work Increase Larger impact on women

Home business revenue Increase Larger impact on women

Medium-term Impacts

A. Economic Growth

Change in total income and expenditure Increase Larger impact on women

Percentage of poor households Decrease Larger impact on women

3 Torero, M. 2014. The Impact of Rural Electrification: Challenges and Way Forward. Paper prepared for the 11th Conference AFD PROPARCO/EUDN: Energy for Development. 24 November. https://www.researchgate.net/publication/269096141


32

57. The BESS impacts are positive for 16 out of the 17 indicators. The cost of electricity is

not positive but is only expected to rise by around 2% at the consumer level.

Estimate of Willingness to Pay at the Household Level

58. The household survey did not assess willingness to pay to avoid power restrictions as

previous surveys have been unsuccessful in making what is a sophisticated assessment.

Instead a peak-hour income method has been used to assess WTP based on the household

information collected during the survey and from the Statistics Office of Mongolia.

59. The peak-hour income method assesses how much income a household earns on hourly

basis. The method proceeds by assuming that a household will be willing to one hour of income

in full to avoid the energy restriction that would occur if the power supply was interrupted for

one hour at the time of the peak demand (in the CES the peak demand time is in the evening

which the surveyed households reported as the least preferred time for power loss).

Table 29: Willingness to Pay for Improved Reliability

CES Households Unit Quantity

Total income billion MNT 6,384

No. of households 000's 380

Income per HH per year MNT million per HH 16.8

Estimated working hours / HH / year hours 2,500

Income per HH per hour MNT/h 6,720

Energy per HH in peak hour peak hour kWh / HH 1.0

Income/kWh peak MNT/kWh 6,737

Income/kWh peak US$/kWh 2.51

Source: October 2019 Survey, Statistics Office of Mongolia

60. The analysis in Table 29 shows that households should be willing to pay $2.51 per kWh

for improved reliability.

V. Business Poverty Reduction Impact

Reduction in Business Operating Costs

61. In the business sector, electricity is used to power production equipment, office and

building facilities. The least preferred time for power supply loss is during the business day. At

the present time most businesses rely on electricity supply from the grid and do not use back-

up generators. If power restriction increases in frequency and duration, all businesses will be

forced to resort to back-up generators with higher operating costs, or to put up with the

restrictions and suffer a loss of revenue. The project will allow businesses to avoid increased

operating costs or loss of revenue.

Estimate of Willingness to Pay at the Business Level

62. The estimate of business willingness to pay is based on a simple comparison of GDP

versus electricity consumption.


33

63. method assesses how much income a household earns on hourly basis. The method

proceeds by assuming that a household will be willing to one hour of income in full to avoid the

energy restriction that would occur if the power supply was interrupted for one hour at the time

of the peak demand (in the CES the peak demand time is in the evening which the surveyed

households reported as the least preferred time for power loss).

Table 30: Willingness to Pay for Improved Reliability

CES Non-Residential Unit Quantity

Total income billion MNT 9,655

Energy sales GWh 6,222

Income/kWh peak US$/kWh 0.58

Source: October 2019 Survey, Statistics Office of Mongolia

64. The analysis in Table 30 shows that business should be willing to pay $0.58 per kWh for

improved reliability. The electricity sales-weighted average of the results in Table 29 and Table

30 is $1.31 per kWh.

W. Gender Impacts & Households

Head of Household

65. The survey indicated that heads of household comprised 79% male and 21% female.

Woman-Headed Households & Poverty

66. The survey revealed that 13.9% of male-headed households were poor, compared to

33.3% of female-headed households.

Figure 6: Income level per capita as % of MSL by Head of Household



34

Women’s Involvement in Coping with Power Failure at Home

67. The survey results show that women are slightly more affected by power failure at home

in terms of coping actions. However, the difference is not significant.

X. Women & Power Failures Affecting Business

68. The business survey revealed that an equal number of females and males were

employed in the sample. Accordingly, the impact of power failure on women in a business

setting can be considered to be equal to the impact on men. There is no evidence that women

bear additional burdens in coping with power failures in a business setting. Nevertheless, a

reduction in power failure can be expected to benefit women in the workforce.

Table 31: Women’s Participation in Business

Type of business activities

Employees

with

disability

Employees Directors

M F M F

Finance, property, business or insurance

services

2 190 360 5 7

Retail trade 0 95 123 3 6

Food, beverages, or tobacco products 4 202 180 2 5

Café, restaurant or pub 0 31 46 2 3

Machinery or equipment manufacturing 0 31 1 4 0

Textiles, clothing, footwear, or leather products 0 28 38 1 2

Non-metallic mineral product manufacturing 0 219 39 0 2

Medical care, Nursery 0 3 21 0 2

Petroleum, coal, chemicals, or associated

products

0 10 5 1 0

Metal products 0 50 15 1 0

Wood or paper product manufacturing 0 4 0 1 0

Others (research, consulting, IT, training, hair

dresser)

0 70 96 7 2

6 933 924 27 29



35

APPENDICES


36

APPENDIX 1: SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

Country: Mongolia Project Title: First Utility-Scale Energy Storage Project

Lending/Financing Modality:

Project Loan Department/

Division:

EARD/EASI

I. POVERTY AND SOCIAL ANALYSIS AND STRATEGY

Poverty targeting: General intervention

A. Links to the National Poverty Reduction and Inclusive Growth Strategy and Country Partnership Strategy

Energy security is a major challenge in Mongolia. The peak demand of consumers supplied by the Central Energy

System (CES) has exceeded the capacity of the Mongolian power system and, in the absence of new capacity, the risk

of severe power restriction will increase rapidly. Such power restriction will affect all households and businesses within

the CES, with poor households dis-proportionately impacted as coping costs are the same for all households.

Renewable Energy (RE) is the only viable solution that can boost power system capacity in the short term but this is

infeasible without utility-scale energy storage. To this end it is proposed to establish a 125 MW / 160 MWh Battery

Energy Storage System (BESS) in the CES. The project is fully aligned with the Government of Mongolia’s State Energy

Policy (RE targets of 20% of total installed capacity by 2023 and 30% by 2030). The project is fully aligned with the

GoM’s Sustainable Development Vision 2030, its priority to improve natural resource management and to mitigate

climate change. The project is also fully aligned with the ADB’s Country Partnership Strategy (2017- 2020) and Country

Operation Business Plan (2018 -2020). B. Results from the Poverty and Social Analysis during PPTA or Due Diligence

1. Key poverty and social issues. In the household sector of the CES the poverty rate is 25% (~80,000 households).

The poverty level in the CES is set at an average monthly income per capita of 199,767 MNT (average household

income of 75 c per day). The all CES household average monthly income per capita is ~1,400,000 MNT, average

monthly household expenditure ~300,000 MNT, and average monthly expenditure on utilities ~30,000 MNT, i.e. 10%

of total expenditure.

In the household sector, electricity is mainly used for lighting and television. Electricity is rarely used for cooking,

particularly in the Ger households where traditional wood- or coal-stoves are used. In the winter months, around 6% of

households use electric heaters. The risk of power restriction is highest in the evening hours when household demand

is at its peak; conversely, households report that the evening hours are the least preferred time for power loss.

In the business sector, electricity is used to power production equipment, office and building facilities. The least

preferred time for power supply loss is during the business day. At the present time most businesses rely on electricity

supply from the grid and do not use back-up generators. If power restriction increases in frequency and duration, all

businesses will be forced to resort to back-up generators with higher operating costs, or to put up with the restrictions

and suffer a loss of revenue.

The risk of power restriction is increasing rapidly due to the emergence of an imbalance between demand and supply.

The power system reserve margin is below the minimum acceptable level of 15% and falling. It is estimated that, without

the BESS project, the total hours of power system loss will increase from 0 to ~70 hours per annum by 2022. With the

BESS project, the total hours of power system loss will be maintained at the current low level.

The willingness to pay for reliability improvement is estimated at $1.31 per kWh comprising $0.96 per kWh for

households, and $0.36 per kWh for business (WTP has been assessed based on a peak-hourly income method for

households and according to GDP contribution for business).


37

2. Beneficiaries. Poor households will benefit most if power restriction is avoided. The BESS will positively impact

80,000 poor households by reducing the cost of coping with power restrictions. All of the 319,000 households in the

CES will be spared from the need to cope with power loss, in particular the need to use candles for lighting. Moreover,

the well-established social benefits of a stable electricity supply will be maintained.

There are ~120,000 businesses registered in the CES with an average revenue of ~80,000 MNT per month (US$3,000).

According to the business survey, the average number of employees per private business is 33 (minimum 4, maximum

130). On average, female employees are equal in number to male employees. Avoidance of power restriction will have

beneficial impacts for business owners and employees.

3. Impact channels. Mongolians will develop skills in the deployment of advanced technology. The BESS will require

an operating staff of 10 full-time employees. The project will require training of staff of the Ministry of Energy and the

National Power Grid Transmission company.

4. Other social and poverty issues. The government has encouraged Ger households to use electric heating in winter

to reduce air pollution. The household survey shows a low penetration of electric heating at only 6%. If power

restrictions increase in frequency and duration it will likely slow the demand for electric heaters.

II. PARTICIPATION AND EMPOWERING THE POOR

1. Participatory approaches and project activities. A survey was taken of 100 households and 50 businesses in the

CES. The objectives of the household survey were to collect demographic information (including income and poverty

rate) and to understand how households cope when power supply is lost. The objectives of the business survey were

to collect information concerning the types of private businesses operating in the CES, how the businesses use

electricity, and how they cope when power supply is lost. The information has been used to assess the impact of power

restrictions on households and businesses in the CES and to assess their willingness to pay.

2. Public consultations were carried out with the 32nd khoroo Citizens Representative Khural. The consultations

explained the nature of the project and gave reasons why the community can expect minimal impacts. No objections

were tabled by the citizens representatives.

3. Civil society organizations. The project land requirements were discussed with the municipal authority of the 32nd

khoroo of Songinokhairkhan district as the responsible authority for land management. Joint site visits were undertaken

to identify suitable land plots. The authority worked with the Ministry of Energy and a land decree was issued covering

the project site.

4. The following forms of civil society organization participation are envisaged during project implementation, rated as

high (H), medium (M), low (L), or not applicable (NA): LOW (L).

☑ Information gathering and sharing Consultation Collaboration Partnership

5. Participation plan.

☑ Yes. Describe key features, responsibilities and allocated resources No. Explain why

Follow up meetings will be held with the 32nd khoroo Citizens Representative Khural, during and on completion of

construction activities at the project site, to confirm that residents have not experienced any adverse impacts. The

meetings will also be used to address local environmental impacts.

III. GENDER AND DEVELOPMENT

Gender mainstreaming category: some gender elements

A. Key issues. The household survey showed that women are affected by power restriction equally to men in terms

of coping actions. Similarly, it was found that the numbers of women business are the same as for men and will be


38

equally affected by power restrictions. In the absence of the project, the worsening power of restrictions will dis-

proportionately affect poor households of which 6.6% are headed by women.

The project will require additional human resources to carry out operations and maintenance of the BESS. There are no reasons that women should be excluded from consideration for any of the newly created roles. As the National Power Transmission Grid company has a non-discriminatory recruitment policy this issue does not warrant a specific action plan.

B. Key actions.

Gender action plan Other actions or measures ☑ No action or measure

IV. ADDRESSING SOCIAL SAFEGUARD ISSUES

A. Involuntary Resettlement Safeguard Category: A B ☒ C FI 1. Key Impacts. There is no involuntary resettlement required. The 32nd khoroo administration has advised that the

project will not affect residents in the area because the allocated land falls in an industrial zone. On the advice of the

32nd khoroo administration, a land decree based on Land Possession Decree Ordinance No. A/949, was issued by

the Mayor and Governor of Ulaanbaatar City on 17 September 2019. This decree provides a clear and un-

encumbered title for development of the project.

2. Strategy to Address the impacts. Not required.

3. Plan or other Actions.

Resettlement plan

Resettlement framework

Environmental and social management system arrangement ☒ No action

Combined resettlement and indigenous peoples plani

Combined resettlement framework and indigenous peoples

planning framework

Social impact matrix

B. Indigenous Peoples Safeguard Category: A B ☑ C FI

1. Key impacts. The project will have no impacts on indigenous peoples.

Is broad community support triggered? Yes ☒ No

If yes, briefly describe the process and outcomes of ascertaining that such support exists.

2. Strategy to address the impacts. No actions are required.

3. Plan or other actions. Indigenous peoples plan

Indigenous peoples planning framework

Environmental and social management system arrangement

Social impact matrix

☒ No action

Combined resettlement plan and indigenous

peoples plan

Combined resettlement framework and

indigenous peoples planning framework

Indigenous peoples plan elements integrated in

project with a summary

V. ADDRESSING OTHER SOCIAL RISKS

A. Risks in the Labor Market

1. Relevance of the project for the country’s or region’s or sector’s labor market, indicated as high (H), medium (M), and low or not significant (L). NOT SIGNIFICANT (L)

unemployment underemployment retrenchment core labor standards

2. Labor market impact. The BESS will have positive impacts on employment.

B. Affordability

It is estimated that the retail electricity tariff will need to increase by 2% for full cost recovery. This increase is small in comparison to the total monthly household expenditure on utilities. It will be offset by the avoidance of the cost of coping with power restriction, notably expenditure on candles for lighting.

C. Communicable Diseases and Other Social Risks 1. The impact of the following risks are rated as high (H), medium (M), low (L), or not applicable (NA):


39

Communicable diseases Human trafficking Others (please specify) _____NA______

2. Risks to people in project area. There are no social risks to people in the project area.

VI. MONITORING AND EVALUATION

1. Targets and indicators. The targets and indicators for the project are 1. Zero incidents of power system restriction due to forced outage of a Mongolian power plant unit in the years 2022 to 2025, 2. Renewable energy penetration of 20% by 2025. These targets and indicators will be monitored according to the Ministry of Energy’s annual report of the performance of the power system, and by analyzing the operations logs of the BESS at those times when forced outage events occur. 2. Required human resources. A Project Implementation Consultant will be recruited to support the Ministry of Energy’s Project Management Unit and together these organizations will monitor and evaluate project effectiveness. As the local social impacts of the project are minimal, social and environmental assessments will be combined and carried out by a single suitably qualified expert. 3. Information in the Project Administration Manual. The Design & Monitoring Framework summarises the program design and includes core indicators that focus on the overall project results. The PAM describes all program review and M&E and reporting inputs and requirements. 4. Monitoring tools. No specific monitoring tools are envisaged for poverty and social impact assessment. So long as the BESS performs as expected then the social impact on poor households and businesses will be positive. Performance in meeting the proposed indicators will be reported in the quarterly progress reports, the two environmental reports every year during construction and the annual environmental report during operation, and/or the annual report on resettlement and social objectives, as suitable.


40

APPENDIX 2: HOUSEHOLD SURVEY QUESTIONNAIRE

HOUSEHOLD SURVEY

Purpose of this survey

INTEGRATION GbmH and Mon-Energy Consult (“the Project Team”) are conducting a social survey for the Project “Energy Storage Option for Accelerating Renewable Energy Penetration” on behalf of the Asian Development Bank and the Government of Mongolia.

The results of the survey will be used for analysis of general information concerning the characteristics of businesses, experience of businesses with power failures in the recent past, impacts of power failures on your businesses, the value of reliability improvement and some gender elements of the project. Your cooperation and participation is essential to ensure the accuracy of the information collected. All of the information that you provide about your household will be kept strictly confidential by the research company who will be collecting and processing the data on behalf of ADB.

Person issuing the survey form:

Date:

HH number or name of respondent:


41

Options for dealing with future power failures

Suppose you have been told that more frequent unplanned and widespread power failures can be expected in future years. The next 4 questions ask about the sorts of actions you, or your household, might take if these power failures were to occur at the worst time for you or your household. Each question relates to a power failure of a differing number of hours of duration – 1 hour, 4 hours, 8 hours and 24 hours.

1. Which of these actions would you take if your household were to experience a 1 HOUR power failure AT THE WORST TIME over the next year and who is mostly involved?

cost

MNT

Who pays? Extra time

(min)

Who does?

Husband Wife Husband Wife Son Daughter Other

Use light candles to provide

some lighting for up to 1 hour in

the evening

Use a torch or mobile phone

flashes to provide some

lighting for up to 1 hour in the

evening

Buy some ice and put it in your

refrigerator

Drive or go to a relative or

friend’s home and stay with

them (incur petrol or public

transport costs)

Buy a portable gas stove for

cooking & boiling water

Buy a traditional coal stove

Cook with gas stove

Cook and or heat with

traditional stove

Buy a battery backup power

supply to allow you to operate

your computer for up to 30

minutes and allow you to

properly shut it down without

losing information

Go to a restaurant for one meal

or buy one meal

Put up with having no electricity

Others


42


cost

MNT

Who pays? Extra

time

(min)

Who does?




the evening


flashes to provide some lighting

for up to 1 hour in the evening


refrigerator


friend’s home and stay with them

(incur petrol or public transport

costs)




Cook with gas stove

Cook and or heat with traditional

stove






losing information


or buy one meal


Others

[Tick as many actions as you like but do CONSIDER THE COSTS OF THE DIFFERENT CHOICES]


43


cost

MNT

Who pays? Extra

time

(min)

Who does?


Hire a small emergency

generator so that you can run a

few appliances such as a couple

of lights, your refrigerator, a

hotplate and your TV

Use light candles to provide some

lighting for up to 1 hour in the

evening


flashes to provide some lighting for

up to 1 hour in the evening


refrigerator

Drive or go to a relative or friend’s

home and stay with them (incur

petrol or public transport costs)




Cook with gas stove


stove

Buy a battery backup power supply

to allow you to operate your

computer for up to 30 minutes and

allow you to properly shut it down

without losing information

Go to a restaurant for one meal or

buy one meal

Go to a restaurant for two meals or

buy two meals


Others

[Tick as many actions as you like but do CONSIDER THE COSTS OF THE DIFFERENT CHOICES]


44


cost

MNT

Who pays? Extra

time

(min)

Who does?


Hire a small emergency

generator so that you can run a

few appliances such as a couple

of lights, your refrigerator, a

hotplate and your TV



the evening


flashes to provide some lighting

for up to 1 hour in the evening


refrigerator


friend’s home and stay with them

(incur petrol or public transport

costs)




Cook with gas stove


stove






losing information


or buy one meal

Go to a restaurant for two meals

or buy two meals

Stay in a hotel for the night

Stay in others home for the night


Others


45

Impacts of power failures on your household

5. Thinking about your household’s day to day activities, which season(s) in the year would a power failure cause the most inconvenience for you and your household?

[Tick no season is worse, or one season]

Summer Winter No season is worse

Why? ............................................................................................................................................

6. What days of the week would be the worst possible time for a power failure to occur in your household? [Tick no day is worse than any other, or one or more days]

Monday to Thursday

Friday

Saturday

Sunday

No day is worse than any other

Why? ............................................................................................................................................

7. What would be the worst possible time(s) for a power failure to occur? [Tick no time is worse than any other, or one or more times]

6am to 9am

9am to noon

Noon to 3pm

3pm to 6pm

6pm to 9pm

9pm to midnight Midnight to 6am

No time is worse than any other

Why? ............................................................................................................................................

Power Failures in your Home

8. To the best of your memory, how many times has your household experienced a power failure in the last 3 months?

[Only include power failures that affected yours and other homes in your area]

………………………………………………..


46

9. Thinking about how long those power failures lasted, how many of them lasted. [Enter the number in each box; if none, enter “0”] Up to 1 hour ……

For more than 1 hour and up to 4 hours ……

For more than 4 hours and up to 8 hours ……

For more than 8 hours and up to 24 hours ……

For more than 24 hours and up to 48 hours……

For more than 48 hours ……

Don’t know ……

10. In the event of a power failure, how long could your household cope WITHOUT each of the appliances listed below, before it becomes a major inconvenience?

[Enter the hours in each box. If you do not have the specified appliances insert N/A (not applicable)]

Lighting …… Refrigerator ……

Electric cooking …… Clothes washer ……

Electric water boiler …… Electric heating…….

TV, radio/CD or video …… Air conditioning ……

Internet …… Iron………. Mobile phone charger …… Others ……

11. Please indicate by ticking one or more boxes which of the following items you already have in your household?

Candle(s) and torch (s) Traditional stove (s)

Portable gas stove(s)

Backup power supply(s) for lights, battery charge, etc. Others ……………………………………………………. None of the above

12. We would like to know whether the impacts of a power failure are more important to your household activities or to your business activities. Tick the box below that best describes the main activities you were thinking about when you answered Questions 7, 8, 9 and 10. [Please tick one only]

Mostly household activities

Both household and business activities, with household activities more important Both household and business activities, with business activities more important Mostly business activities

Your household

13 Gender of household head: [Please tick one only]

Male

Female


47

14. Education of household head: [Please tick one only]

University or higher level Professional school or college level High school level Primary school level

15. Employment of household head

self-employed or having own business: receive pensions: receive social welfare allowances: without income:

16. Family composition

[Enter the number] HH members:

17. Household gender composition

[Enter the number in each box; if none, enter “0”] Male ……

Female ……

18. Adult and children composition?

[Enter the number in each box; if none, enter “0”] :

Adults, aged 21 and over: ……

Children and teenagers, ages 0 to 20: ……

HOUSING INFORMATION

19. Which of the following best describes the type of dwelling you live in? [Please tick one only]

Traditional ger housing

Self-built house

Apartment

Other

20. HOUSEHOLD monthly INCOME

1. ………………………………………………..

2. ………………………………………………..


48

3. ………………………………………………..

4. ………………………………………………..

5. ………………………………………………..

6. ………………………………………………..

7. ………………………………………………..

8. ………………………………………………..

9. ………………………………………………..

10. ………………………………………………..

Undisclosed

Your comments or suggestions

If there are any comments you would like to make about the effects of power failures or the reliability of your power supply, please use the space below.


49

BUSINESS SURVEY

Purpose of this survey

INTEGRATION GbmH and Mon-Energy Consult (“the Project Team”) are conducting a social survey for the Project “Energy Storage Option for Accelerating Renewable Energy Penetration” on behalf of the Asian Development Bank and the Government of Mongolia.

The results of the survey will be used for analysis of general information concerning the characteristics

of businesses, experience of businesses with power failures in the recent past, impacts of power

failures on your businesses, the value of reliability improvement and some gender elements of the

project.

Your cooperation and participation is essential to ensure the accuracy of the information collected. All

of the information that you provide about your household will be kept strictly confidential by the

research company who will be collecting and processing the data on behalf of ADB.

Person issuing the survey form:

Date:

Name of respondent:

Your experience with power failures in the past

Whenever we talk about a power failure in this survey, we mean a complete interruption of electricity

affecting one or more areas for a period lasting at least a few minutes, and possibly several hours, or

even a few days. Sometimes, a power failure may involve the power switching off and on again

perhaps several times over a matter of minutes, but please regard such a problem as only a single

failure event.

1 Does your business, or the building in which it is located, have any backup equipment to

maintain operations in the event of a power failure of the mains electricity supply? [Please tick one

only]

No [Please skip to Question 3]

Yes [Please continue to Question 2]

Don’t know [Please skip to Question 3]

2 Please tick one or more of the boxes below to indicate the type of backup electrical equipment

your business, or the building in which it is located, has and enter the number of hours that it can carry

the load served.

Standby generator …… hours


50

Uninterruptible power supply (UPS) …… hours

Battery system …… hours

Other [Describe] …… hours

Length of time load can be carried

3 To the best of your memory, how many times has your business experienced a power failure at

this location in the last 3 months ?

[Enter number of power failures] [Only include power failures that affected yours and other businesses

in your area]

4 Thinking about how long those power failures lasted, how many of them lasted . . .

[Enter the number in each box; if none, enter “0”] Up to 1 hour

For more than 1 hour and up to 4 hours

For more than 4 hours and up to 8 hours



For more than 48 hours

Don’t know

5. Please indicate by ticking one or more boxes which of the following items you already have in

your company?

Candle(s) and torch (s)

Traditional stove (s)

Portable gas stove(s)

Backup power supply(s) for lights, battery charge, etc.

None of the above

The impacts of power failures on your business

Power companies typically give their customers a minimum of 48 hours advance notice for planned

power failures. But this isn’t always possible as failures are sometimes caused by unpredictable events such as storms, bush fires, or road accidents. These are unplanned power failures and can

vary from seconds to days. The impacts on electricity users can range from a minor inconvenience

(like having to reset a digital clock) to a loss of a more tangible nature (such as the shutdown of a

manufacturing operation or a retail business).

This section of the survey is about the impacts of unplanned power failures causing widespread

blackouts on businesses, and the losses they would incur as a result of such events. The losses vary

considerably from business to business, but they could include:

• Lost sales revenues

• Paid staff unable to work


51

• Spoilage of perishable goods

• Damage to business equipment

6 Thinking about the type(s) of business activities carried out at this location, would the impact of

a power failure vary with the time of day, the day of the week or the month of the year in which the

interruption occurred? [Please tick one only]

No, the impacts are pretty similar whenever a power failure occurs

Yes, the level of impact does depend on when a power failure occurs

7 For your business activities at this location what would be the worst possible month(s) for a

power failure to occur? [Tick no month is worst, or one or more months]

No month is worse than any other

January

February

March

April

May

June

July

August

September

October

November

December

Why? .........................................................................................................................................................

...............................................................................................................................

8 What day(s) of the week would be the worst possible time for a power failure to occur in your

business? [Tick no day is worst, or one or more days]

Monday to Friday

Saturday

Sunday

No day is worse than any other

Why? .........................................................................................................................................................

...............................................................................................................................

9 What would be the worst possible times(s) for a power failure to occur? [Tick no time is worst,

or one or more times]


52

6am to 9am

9am to noon

Noon to 3pm

3pm to 6pm

6pm to 9pm

9pm to midnight

Midnight to 6am

No time is worse than any other

Why? .........................................................................................................................................................

...............................................................................................................................

The costs of power failures to your business

10 If a power failure occurred, without warning, at the WORST TIME for your business, what

would be the possible impact to your business? Please indicate type of possible impacts on your

business the box below.

Here are possible impacts your business might experience.

Costs of operating backup electrical equipment

Spoilage of perishable products

Damage to plant or equipment

Paid staff unable to work

Overtime labour costs

Loss of sales or custom during the failure

Costs to bring business back to normal operation

Costs to repair possible damage to the environment

Cost to recover data lost from computer systems

Other [Please describe]

11 Which of the following best describes the type of business activities you carry out at this

location. [Please tick one only]

Wholesale trade

Retail trade

Accommodation,

Café, restaurant or pub

Air, rail, road or water transport

Storage

Postal, courier or telecommunications services

Finance, property, business or insurance services

Food, beverages, or tobacco products

Textiles, clothing, footwear, or leather products

Wood or paper product manufacturing


53

Printing, publishing, or recorded media

Petroleum, coal, chemicals, or associated products

Non-metallic mineral product manufacturing

Metal products

Machinery or equipment manufacturing

Dairy cattle

Beef cattle

Poultry for meat or eggs

Pigs

Sheep

Cereal grains

Vegetables

Fruit

Medical care, Nursery

Greenhouse or hydroponics


12 Is your landlord responsible for supplying electrical services such as air conditioning, hot water

or lifts to your business? [Please tick one only]

No

Yes

Don’t know

13 Which of the following best describes the type of premises in which your business is located?

[Please tick one only]

Enclosed shopping centre

Multi-level office (more than 5 floors)

Multi-level retail (more than 5 floors)

Multi-level combined office/retail (more than 5 floors)

Building of one to four floors


14 Please tick to indicate which of the following services are supplied by your landlord.

Air conditioning and ventilation

Space heating

Hot water

Lifts

Car park lighting and ventilation

15 How many full time employees do you have at this location? If you know the exact number

please write it in the box below. If you’re not sure of the exact number, please tick one box to indicate your best estimate.

Number of employees: ……..


54

16. Number of employees with disability: ………

17. Number of male and female employees

Male : ………

Female : ………

18. Gender of business owner

Male

Female

Your comments or suggestions

19. Finally, if there are any comments you would like to make about the effects of power failures or

the reliability of your power supply, please use the space below.

Thank you for taking the time to complete this survey.

The information you have provided will help to ensure an economical and reliable supply of electricity.

Telephone: (In case we have any questions about your answers to this survey)

Mongolia Energy Storage Option for Accelerating Renewable ...

Documents

Transcript of Mongolia Energy Storage Option for Accelerating Renewable ...