CIFs endorsement puts dzud-affected Mongolia on climate financing map

Published on Tuesday, 15 December 2015

Published by Shigeru Yamamura on Tuesday, 15 December 2015

Mongolia has 1,100 GW of wind power generation potential.
Mongolia has 1,100 GW of wind power generation potential.

Landlocked, prone to extreme weather like the current severe winter or dzud, and slowly losing its scarce arable land to desertification, Mongolia faces monumental challenges from climate change. This year's dzud has brought temperatures below -30°C that are decimating crucial livestock herds and threatening the livelihoods of herders. 

Unfortunately, climate change has received little attention inside or outside the country – but this is now changing.

Last month, the Climate Investment Funds (CIFs) endorsed for the first time to Mongolia—alongside Bangladesh, Rwanda and Uganda—to join the Scaling Up Renewable Energy in Low-Income Countries Program (SREP). ADB is the leading agency among multilateral development banks supporting the government’s efforts to prepare the country investment plan for scaling up renewable energy. SREP is a $796 million CIF funding window launched in 2009 to encourage private sector investment in renewable energy by demonstrating the economic, social, and environmental viability of renewable energy.

The CIFs—the world’s largest active multilateral climate finance mechanism, currently valued at $8.1 billion—are financing instruments designed to pilot low-carbon, climate-resilient development through multilateral development banks, including ADB. The funds are the largest source of climate cofinancing for ADB, which is currently administering close to $1.6 billion in CIFs funding for its developing member countries.

The Mongolian government is increasingly keen to gain access to clean energy services and reduce its heavy reliance upon an inefficient and obsolete coal-based power system. Coal is the dominant source of electricity and heat supply in the country, accounting for more than 90% of installed capacity. Delayed new investment and rehabilitation in the energy sector has resulted in widespread use of household stoves and inefficient inner city small boilers, which cause serious air pollution in cities and towns during the long and harsh winter months.

Pushing for more renewable energy is clearly a solution – especially considering the country has an enormous resource potential of 1,100 gigawatt (GW) in wind and 1,400 GW of solar power. In 2015, the government set new medium- and long-term targets to increase renewable energy capacity from around 7% of total installed capacity in 2014 to 20% by 2023, and 30% by 2023.  

Under the renewable energy investment plan endorsed by SREP, Mongolia will receive $29.7 million in grant financing to build—with additional ADB and World Bank support—a 26 megawatt renewable energy system including solar photovoltaic, wind power, small hydro, and shallow ground heat pumps  in remote rural areas in Western Mongolia. The targeted area is one of the poorest region in the country, and heavily dependent on electricity imported from neighboring countries. Upon successful completion of the project, it will also be scaled up in the other remote rural areas to decarbonize the energy system and improve energy security.

The SREP grant financing will also help strengthen the country’s regulatory and institutional framework to encourage private sector-led investment in renewable energy. Seen as a crucial first step toward shifting the country’s energy dependence away from coal, improving clean energy access and energy security in remote rural areas, and building sustainable institutional framework for private sector investment, forthcoming assistance from ADB and the World Bank, together with SREP funding, are expected to facilitate transforming Mongolia’s energy sector into a low-carbon one to achieve its renewable energy targets.

Perhaps even more importantly, the SREP decision opens the door to much more climate change work down the line in Mongolia. Scaling up renewables has been difficult, mainly due to lack of long-term commercial financing, limited and technical capacity, a greatly dispersed national grid system, and reliance on the mining sector to drive economic growth. The endorsement—and the upcoming project—should help showcase the value and financial returns possible when the private sector invests in renewable energy in Mongolia.

Now that Mongolia is finally on the climate financing map, let’s keep the momentum going to start imagining a cleaner, greener future for power generation in the country.