Power plants in Ulaanbaatar, such as Power Plant #3 seen here, consume 3 million tons of coal a year to meet heating and electricity needs. (Photo: Pearly Jacob)

Despite Mongolia’s nearly limitless supplies of coal, Ulaanbaatar recently approved plans to set up the country’s first commercial wind farm. The decision is fueling a public debate that aims to strike the right balance between Mongolia’s near-term and long-term economic development interests.

Sparsely inhabited, with vast steppes and ample wind, Mongolia’s potential for harnessing renewable energy is huge, proponents say. In 2005, the government passed the Renewable Energy Program, mandating that green energy sources account for 20-25 percent of Mongolia’s needs by 2020. Renewable energy is nothing new for Mongolians: It is common to see a remote nomad’s ger – a traditional felt home – fitted with solar panels and windmills powering satellite receivers.

“This is a very ambitious target, but achievable with large scale wind farms and solar power plants,” says Namjil Enebish, Executive Director of the National Renewable Energy Center. Approximately 2 percent of the country’s power needs are currently met with household solar systems and small hydro-electricity projects. The wind farm could significantly boost this figure, he told EurasiaNet.org.

Newcom Group, the country’s largest Mongolian-owned private mobile telecom provider, is helping finance the $80-million joint venture with the European Bank for Reconstruction and Development (EBRD). The project is to be situated on Salkhit Mountain, 78 kilometers south of Ulaanbaatar. Newcom has already signed a power-purchase agreement with the government for the proposed 50-megawatt project. Construction is slated to start in early 2011.

“Extensive wind mapping data has shown Mongolia has the wind capacity to generate enough electricity to supply all of China’s electric needs,” says Bayanjargal Byambasaikhan, head of the Clean Energy Division of Newcom Group, stressing wind’s vast potential. The cost has decreased rapidly in recent years, making wind harvesting the most suitable renewable energy for commercial operation in Mongolia, he said.

But it is still more expensive than coal, critics contend. And coal is a much better bet to bring in much-needed revenue in the coming year and meet the country’s power needs, they emphasize.

With estimated reserves of 150 billion tons, according to the Ministry of Mineral Resources and Energy, the country is experiencing a coal rush. Exports to China could increase from 7 million tons in 2009 to 30-50 million tons by 2015, said Alexander Molyneux, CEO of South Gobi Resources, one of largest foreign coal miners in Mongolia, at the Discover Mongolia Mining investor's forum in September.

Mining experts believe the need to exploit Mongolia’s coal resources to generate near-term revenue outweighs the need to focus on expensive renewable energy solutions. “It will be extremely difficult for Mongolia to find alternative energy sources which can come even remotely close to competing with coal as a primary energy source for many years to come,” contends Graeme Hancock, senior mining specialist at the World Bank.

Apart from the higher investment costs, wind power is unable to provide nearly enough power to heat homes during Mongolia’s bitterly cold winters when total heat demand from the country’s Combined Heat and Power (CHP) Plants exceeds the level of electricity production. “Cost-wise, coal wins clearly, both in capital and operating terms,” he says.

Stakeholders in the Salkhit Wind Farm are under no illusion that renewable resources will replace coal any time soon. “Of course if you’re sitting on the largest untapped coal deposit in the world, it puts the whole renewable energy issue a little in the background,” admits EBRD resident head Philip ter Woort. But with mounting environmental problems in Mongolia, it makes sense to examine renewable options, he added. Renewable energy could help mitigate the increased CO2 emissions that the country is expected to generate with the mining boom, added ter Woort.

Most of Mongolia’s energy needs “will be supplied by coal, there’s no doubt about that. But there is incremental capacity that can be supplied by clean energy sources and that has to be developed for a more sustainable growth,” says Byambasaikhan at Newcom.

The question now is how to pay for an investment that many say is redundant in a developing country. According to Enebish of the National Renewable Energy Center, some of the capital can be generated from eco-taxes on dirty industries and channeling a portion of mining revenue towards financing renewable energy. But this remains a risky political decision for a country that has been wooing investors with a favorable low-tax climate. Bernard Guarnera of Behre Dolbear, one of the world’s largest mining advisory firms, warned against raising the tax rate at the September mining investor’s forum: “When you get too greedy, the goose goes.”

Green activists are concentrating on the big picture, however: “We’re not looking at short term goals. In other words we’re very patient,” says Byambasaikhan, who believes that regardless of present day economics, renewable energy is a key part of Mongolia’s future.