Oliver Schnorr: Mongolia achieving 2020, 2030 renewable energy goals very realistic (BCM News)
This biggest business headline this week in Mongolia was the successful financing package agreement for the Sainshand wind farm, which will receive USD 120 million from a group of international investors and financiers.
Sainshand is a town located 460 km south-east of Ulaanbaatar in the Gobi Desert. Sainshand Salkhin Park LLC (Salkhin means wind in Mongolian) is sponsored by French energy leader Engie, German project developer Ferrostaal, Danish Climate Investment Fund (DCIF) and Mongolian entrepreneur, Radnaabazar Davaanyam, with long-term financing provided by the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).
The lenders have agreed to provide a total project financing of USD 78.5 million, which comprises EIB funding of USD 47 million, of which the first tranche will be guaranteed by EKF, Denmark’s Export Credit Agency, with NORD/LB acting as agent; and EBRD funding of USD 31.5 million.
Once operational, the new Sainshand wind farm will make a significant contribution to reducing Mongolia’s carbon emissions and cater for an expected increase in power demand in the country. The scheme will significantly enlarge Mongolia’s renewable energy capacity and help the government to achieve the goal of renewable energy accounting for 20 per cent of all power by 2020, and 30 per cent by 2030.
The Business Council of Mongolia spoke with Dr. Oliver Schnorr, President of Ferrostaal Mongolia and also Board Member and Public Relations Manager at Sainshand Salkhin Park LLC.
There are a lot of stakeholders and involved parties when it comes to the recently agreed financing package for the Sainshand wind farm. How long did the process of getting all the parties on the same page and coming to an agreement take?
First of all, let me give you an overview of all the shareholders. There is Engie (formerly Gaz de France), and then we have the Danish Investment Fund for Developing Countries (IFU), which invests in renewable energy. Then there is Ferrostaal as a big project developer, and there is Mr. Davaanyam.
Mr. Davaanyam is the person who had the vision and the idea ten years ago to build the Sainshand wind farm. Davaanyam was look for investors because project development in wind costs a lot of money. I can’t disclose what it is, but it is millions and millions of dollars. So, he needed somebody who supports him, and then we went in as Ferrostaal first.
We approached then Engie and they joined us last year.
So to bring all the parties together who are now investors was a run of four years, but total 10 years for Mr. Davaanyam.
Would it be fair to say the project is the brainchild of Mr. Davaanyam?
Yes. Really to give him the honor, I would say so, yes.
When we came here, we were looking to invest in wind, and there were three wind parks available. One was Sainshand and Mr. Davaanyam. He’s non-political, hard-working and spends his own money, so it was a nice cooperation with him. So he is the man.
So 10 years ago, Mr. Davaanyam had the idea, and four years ago it really began taking off. What were some of the major milestones since the inception of this project?
Four years ago we stepped because we were needed.We had to re-negotiate the PPA with the government, which, thank god, worked out well – so that was a big milestone. We could have done construction in 2015, but there were too many hiccups. For international investors, especially banks, it was impossible.
It seems I have the answer to part of my next question: What was most challenging, and what went smoother than expected? Was the politics the biggest challenge?
To be honest, yes. We also had some funny things, which I can’t disclose all of. For example, one day we had a site visit, and we found a land mine. We thought this cannot be, but the guard called us, and we had to shut down the site immediately. The army or some emergency arm was called, and finally, they found out it’s a dummy.
Another hurdle was that Mongolia unfortunately does not align the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) with the land authority, which often causes conflicts. What happens is the MRPAM gives you an exploration license or a mining license on a piece of land, and doesn’t check who the owner of the land is. These two agencies are not aligned. The MRPAM gives licenses without checking for what purpose. So of course you can’t mine under heavy turbines, so then you have to get that resolved.
We had a lot of obstacles which were not that political, but which are part system we have here in Mongolia. However, we overcame them.
What is one thing that went smoother than expected?
Good question. (Long silence). Not many.
We had four ministers involved, at least when I was there, and they were all supportive all the time. Anytime we needed a support letter, they were always behind us. I cannot complain too much, especially about the Ministry of Energy or other important agencies such as the NPTG, NDC and ERC.
Ferrostaal operates in over 40 countries. What sorts of activities or projects has Ferrostaal Mongolia conducted since being established in 2012? What other major projects have you been conducting in Mongolia?
A big one is an SX/EW (Solvent Extraction and Electrowinning) plant. You take copper waste; there is a stockpile in Erdenet. You take the copper which they don’t process, and process it via a heap leaching process to produce copper cathode. There are already two projects running.
We did the bankable feasibility study and will go in as a coinvestor and EPC contractor.
We are also designing and supplying a 58 MW boiler plant for Oyu Tolgoi. In general, we do a lot of things for OT.
Who is buying the copper cathode?
They are normally the big offtakers. For example, we go with a Swiss offtaker called Clivden Trading. So they normally buy it ex mine gate and then sell it to China.
In your opinion, what is the likelihood of Mongolia reaching its set goal of sourcing 20% of energy from renewables by 2020, and 30% by 2030?
I think it is a definition question. If you’re talking about hydropower, then it’s overly optimistic. Whether the proposed projects of Shuren or Egiin Gol (proposed hydropower plant locations) will ever happen is unclear.
However, I think it’s really possible. If you see right now, with our project we will have already 155MW installed only in wind, getting the figure to approximately 15%. Then a few photovoltaic (PV) operations are coming online, so I think it’s very realistic. With PVs coming in, I think it can be achieved.