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JCM Project Planning Study (PS) 2014 – Final Report

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MOEJ/GEC JCM Project Planning Study (PS) 2014

Summary of the Final Report

“10MW-scale Solar Power Generation for Stable Power Supply”

(Implementing Entity: Joint Proposal of SAISAN Co., Ltd and

myclimate Japan Co., Ltd )

1．Overview of the Proposed JCM Project

Study partners

[Japan]

Next Energy & Resources Co., Ltd (NE): Support on plant design

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd (mums): Support

on MRV methodology development

The TOA Institution: Support on invitation of host country

government officials to Japan

[Host country]

Grand Power LLC (GP): Support on FS report to Ministry of Energy

of Mongolia

Project site

(Altai City, Gobi-Altai aimag, Mongolia)

Category of

project Renewable energy

Description of

project

This project, located in the Western part of the Mongolian Altai City

suburbs, Gobi-Altai Province, is for the construction of a large-scale solar

power plant, to generate power and sell to the local Altai-Uliastai Energy

System. The project will reduce greenhouse gas emissions by replacing

import power from main central grid (coal-fired power supply) and

electricity generated by diesel power plants.

Expected project

implementer

Japan Saisan Co., Ltd. and myclimate Japan Co., Ltd

Host country Joint Venture (JV) established by

Saisan Co., Ltd. and myclimate Japan Co., Ltd

Altai City, Gobi-Altai aimag

Location of Solar Power Plant, Substation and Transmission Line Route

Location of Altai City

Ulanbaatar


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Initial investment 2,650,000,000 JPY Date of

groundbreaking July 2015

Annual

maintenance cost 42,000,000 JPY

Construction

period 1 year 3 months

Willingness to

investment

Yes

※Project profitability

and risk will be

assessed to

determine whether to

invest

Date of project

commencement October 2016

Financial plan of

project

Initial cost (equipment cost, construction cost, etc.) is estimated at 2,650

million JPY, and maintenance cost is estimated at 2 million JPY per year.

Total amount of financing for the project is estimated at 3,050 million

JPY. Financing method is planned as following - 350 million JPY from

capital stock, 1,300 million JPY from JCM financial program, 980 million

JPY from loan by Japan Bank for International Cooperation (JBIC), and

the remaining 420 million JPY from loan by private banks.

GHG emission

reductions

GHG emission reduction: 12,687 (tCO2/year)

Reference emission: 12,728 (tCO2/year)

Volume of generated electricity: 15,579.405 (MWh/year)

Project emission: 41 (tCO2/year)

Project electricity consumption: 49,076 (MWh/year)

Grid emission factor: 0.817 (tCO2/MWh)


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2. Study Contents

(1) Project Development and Implementation

1) Project Planning

1.1.1 Project Implementation Scheme

Figure 1 Business Implementation Scheme

<Main Entity of the Project>

It is assumed that the main entity of this project will be the joint venture (JV) between SAISAN

Co., Ltd and myclimate Japan Co., Ltd, while management of the solar power generation company

will be entrusted to Unigas LLC, local Mongolian subsidiary of SAISAN Co., Ltd.

<Financing of the Project>

Financing of this project is planned to be carried out by a combination of 3 methods – capital

stock of main entity, loan from Japanese banks, and utilization of JCM financing program.

<Design and Construction Companies>

The large-scale solar power generation plant construction in Gobi-Altai aimag will use a Japanese

EPC operator as the primary contractor, and is planned to proceed in conjunction with local

contractors. Since this project has a planned lifetime of 20 years, in order to provide stable

electricity supply over such a long time, advantage will be taken of the rich design and construction

experience of a Japanese EPC operator.

1.1.2 Project Construction Planning

(1) Selection of Project Site

The project site has been selected in the Altai city suburbs at Latitude N46 ° 23.163, longitude

E96 ° 12.653'. The area is 25ha. Permission for land use has already been obtained from the Altai

prefectural government who has jurisdiction over the land.

Figure 2 Photo of Project Site (facing South)

Altai-UliastaiEnergy System

・Power Purchase

・Licensing ・Land Provision

・FinancingMinistry of Energy

Gobi-Altai AimagGovernment

Local Construction Company

・Plant Construction

Mongolia JapanJapanese Government

Japanese Banks

・Plant Management (Utilizing Local Entities)

・Management Skill Transfer

Manufacturers

Joint Venture

(SAISAN Co., Ltd,

myclimate JapanCo., Ltd)

・Solar Panel Installation

EPC Company

SAISAN Co., Ltd

myclimate Japan Co., Ltd

・JCM Project Application


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(2) Geological Survey of Project Site

A geological survey has been conducted at the chosen site, and it was confirmed that there are no

obstacles to the construction of solar power generation plant.

(3) Design of Solar Power Generation Plant

Based on the geological survey, project specifications and detailed drawings of the power

generation plant have been created.

(4) Construction Plan Draft

Construction plan for the project has been drafted based on the above results. Construction is

scheduled to start in July 2015 and construction period is estimated to be 1 year and 3 months. The

start of operation is scheduled for October 2016.

1.1.3 Project Management Plan (1) Management Scheme

A company to manage the solar power generation plant will be established in Ulaanbaatar.

Workers and supervisors will be located at the solar power plant in Gobi-Altai aimag.

Figure 3 Management Scheme

The project will be operated by a personnel of 9 in total. The electricity generation status of the

facility will be remotely monitored by the company in Ulaanbaatar, and if an abnormality is

detected, electricians and other workers stationed in Altai will respond.

Although in many cases large-scale solar power generation are operated as unmanned power

plants in Japan, for 2 reasons, namely the prevention of theft of panels and other equipment, and the

need for regular cleaning of the panels due to the dusty climate, in this project it is planned to have

resident staffs at the power generation plant.

Since operation and maintenance standards for solar power plants is not officially defined in

Mongolia, in this study, Japanese standards have been adopted, as Japan has a broad diffusion of

large-scale solar power generation plants. The Japanese standards are expected to ensure stable

operation of the power generation plant. The operational know-how of SAISAN Co., Ltd,

accumulated through a large-scale solar power generation business track record of 6 projects in

Japan, will be harnessed to achieve stable continuous operation in the project.

(2) Maintenance and Inspection Scheme

For the same reasons above, Japanese standards for maintenance and inspection will be used. The

Japanese safety inspection standard is defined in the “Electricity Business Act second Subsection 2

voluntary safety”. Subsection 2, Article 42 which states that “the power plant’s management

company shall establish a safety system and shall notify the Ministry of Economy, Trade and

Industry”, and Article 43 which states that “a licensed electrician will be selected as the

administrator of the power plant”. Complying with these provisions, in addition to developing

safety regulations for the plant, a technician with the equivalent capability of a Japanese domestic

Electrician (1 person,

stationed at Altai City)

Security Guard (3 persons,

reside at Altai plant)

Operator (2 persons,

stationed at Altai City)

Project Manager (1 person, stationed at Ulanbaatar),

Deputy Project Manager (2 persons, stationed at Ulanbaatar)

・ Maintenance of solar panels

・ Management of security guards

・ Final check on monitored data

・ Management of staffs at Altai

・ Plant cleaning

・ Plant security surveillance・ Safety check and system inspection


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electrical chief engineer will be stationed at the power generation plant.

1.1.4 Management Structure and Experience of Main Entity

The company which is the main entity of this project consists of SAISAN Co., Ltd and myclimate

Japan Co., Ltd. Operation of the company is planned to be entrusted to Unigas LLC. Details of the

management structure will be further defined in the future.

Although the power generation company to be newly established does not have a track record,

SAISAN Co., Ltd already has experience of operating 6 mega-solar projects in Japan. SAISAN Co.,

Ltd currently owns the 6 facilities, and entrusts the maintenance and management to

various EPC operators. Of the domestic track record, NE, one of the outsourcees in this study, acted

as a subcontractor for the Yorii-machi project in Saitama Prefecture, and is advancing discussions

to participate in maintenance and management of this project.

1.1.5 Financial Analysis

(1) Financial Analysis

[Prerequisite 1: Determination of Generation Capacity]

Regarding the generation capacity of the project, outsourcees NE and GP respectively proposed

for 10MW and 8MW, whereas both Mongolian University of Science and Technology (MUST) and

National Dispatching Center (NDC) (government entity under jurisdiction of Ministry of Energy in

charge of electricity distribution as well as balancing of demand and supply) suggested that

5MW-6MW is the most appropriate capacity.

Determination of generation capacity will be made before investment decision held in March 2015.

In this study report, analysis is made based on generation capacity set initially (10MW).

[Prerequisite 2: Status of Discussion with Ministry of Energy of Mongolia on Details of Power

Purchase Agreement (PPA)]

The following details have been agreed through discussions and negotiations with Ministry of

Energy and Energy Regulatory Commission.

1. Electricity price is set at 17US￠, and the purchase of full amount of electricity generated by

the project for at least 20 years is guaranteed.

2. Electricity price during payment transaction from power generation company in Mongolia to

Japan is determined monthly based on latest exchange rate of USD/MNT available, and

payment will be made on 10th of the following month.

3. The following penalty clause is included in PPA;

“Should the PPA counterpart fail to fulfill contractual obligations, the project owner (power

generation company) is to claim for an amount of compensation same as initial investment.”

4. Regardless of change of government or amendments on related laws in Mongolia, all clauses in

the PPA will be guaranteed to continue in effect via adoption of Stability Agreement.

The abovementioned details will be guaranteed to take effect via singing of MoU between

SAISAN Co., Ltd, myclimate Japan Co., Ltd and Ministry of Energy of Mongolia.

[Analysis Results in the Case of 10MW Capacity]

Cost and income in the case of 10MW capacity is estimated as below (based on exchange rate

110JPY/USD).

Initial Investment 2,650,000,000 JPY

Operating Cost 42,000,000 JPY

Annual Electricity Generated 15,579,405 kWh/year


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Annual income

In the case of 15US￠: 257,060,183 JPY



Profitability in the case of 10MW capacity is estimated using internal rate of return (IRR) as an

indicator, based on the assumptions listed below.

Assumption 1: Financing amount is estimated at 3,050 million JPY, among which 1,300 million

JPY is obtained from JCM financial program. The remaining amount will be

obtained from the following sources - 350 million JPY from capital stock, 980

million JPY from loan by JBIC, and 420 million JPY from loan by private banks.

Interest rates of JBIC and private banks are assumed at 0.8% and 1.2%

respectively.

Assumption 2: Purchase period under the Feed-in Tariff scheme adopted in this project is

assumed to be 20 years, same as the project period. Also, full amount of electricity

generated by the project is assumed to be purchased.

Assumption 3: Depreciation period of the project is set at 17 years. Straight-line method (default

rate is 0.059) is adopted in the calculation of depreciation period.

Electricity Price In the case of

15US￠

In the case of

17US￠

In the case of

18US￠

Equity IRR 14.5% 19.5% 22.0%

[Analysis Results in the Case of 5MW Capacity]

Cost and income in the case of 5MW capacity is estimated as below (based on exchange rate

110JPY/USD).

Initial Investment 1,773,000,000 JPY

Operating Cost 31,000,000 JPY

Annual Electricity Generated 7,789,703 kWh/year

Annual income




Profitability in the case of 5MW capacity is estimated similarly using internal rate of return (IRR)

as an indicator, based on the assumptions listed below.

Assumption 1: Financing amount is estimated at 2,000 million JPY, among which half of the

amount (approximately 900 million JPY) is obtained from JCM financial program.

The remaining amount will be obtained from the following sources - 240 million

JPY from capital stock, 700 million JPY from loan by JBIC, and 300 million JPY

from loan by private banks. Interest rates of JBIC and private banks are assumed

at 0.8% and 1.2% respectively.

Assumption 2: Purchase period under the Feed-in Tariff scheme adopted in this project is

assumed to be 20 years, same as the project period. Also, full amount of electricity

generated by the project is assumed to be purchased.

Assumption 3: Depreciation period of the project is set at 17 years. Straight-line method (default

rate is 0.059) is adopted in the calculation of depreciation period.


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Electricity Price In the case of

15US￠

In the case of

17US￠

In the case of

18US￠

Equity IRR 4.3% 7.6% 9.3%

Investment decision will be made by March 2015, based on a comprehensive evaluation of

analysis results on 10MW and 5MW capacities above, as well as details of PPA, project risks and

countermeasures (including adoption of insurances).

(2) Financing Method

3 financing methods are planned for this project - first method being utilization of JCM financing

scheme, second being capital stock of the power generation company (joint venture of SAISAN Co.,

Ltd and myclimate Japan Co., Ltd), and third being loan from Japanese banks.

First candidate for loan from Japanese banks is JBIC. Discussions have been made with the bank

and as a result, under the condition that the project is sure to be selected as recipient of JCM

financing program, provision of corporate finance is possible (repayment period is approximately

7-10 years). Interest rate is set by JBIC based on 6-month London Interbank Offered Rate (LIBOR)

and grade of lender. As of currently, the interest rate is assumed to be 0.8%. However, since the

maximum amount of loan from JBIC is limited to 70% of total amount of loan, the rest of the

amount is to be obtained from private banks with business connections with SAISAN Co., Ltd and

myclimate Japan Co., Ltd. The interest rate for private banks are assumed to be 1.2%. The project

participants will proceed with negotiation with JBIC and private banks to prepare for financing of

the project.

(3) Risk Assessment

4 types of risks are identified in this project and respective countermeasures are taken into

consideration.

1. Country Risk and Countermeasure

Risk of discontinuation of the project due to country-specific issues such as political instability

and natural disasters is considered. Countermeasure for this risk is to enroll in trade insurance

with JCM Special Financing Scheme by Nippon Export and Investment Insurance (NEXI),

which is applicable up to 100% of total loss caused by this risk. For this project, NEXI has

confirmed that it is acceptable to adopt trade insurance to deal with this risk.

2. Default Risk and Countermeasure

Risk of discontinuation of the project due to inability of PPA counterpart to fulfill the

contractual obligations is considered. Similar to Country Risk, countermeasure for this risk is to

enroll in trade insurance by NEXI. Since the applicability of trade insurance differs for every

project, the project participants will continue negotiating with NEXI in order to utilize the

insurance.

3. Exchange Risk and Countermeasure

In Mongolia, business transactions are required to be made in MNT (Mongolian Tugriks). For

this project, risk of exchange losses during income transaction from power generation company

in Mongolia to Japan in the case of denomination of electricity price in MNT is considered.

Countermeasure for this risk is to determine electricity price monthly, based on latest exchange

rate of USD/MNT available.

4. Contractual Risk and Countermeasure

Risk of amendments in the PPA due to change of government and amendments on related laws

is considered. Countermeasure to this risk is to ensure the contents of PPA continue in effect

regardless of the circumstances in the country by signing of Stability Agreement. The Ministry

of Energy has agreed to sign the Stability Agreement and currently the contents of the

agreement are being discussed.


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2) Permits and License for the Project Development and Implementation

As a part of this study, the contents of the licensing and permits required for the project to start

operating and their current statuses have been organized below.

Table 1 Statuses and Future Plans on License Acquisition

3) Advantages of Japanese Technology

2 studies were carried out as part of this survey. (1) To select the solar panels, being the major

device of the project, and the inverters, and to try to clarify the functional superiority of Japanese

technology; (2) to clarify other elements required for large-scale solar power generation projects,

and to attempt to verify the superiority of Japanese technology in this field.

(1) Regarding the superiority of Japanese technology of the selected solar panels and inverters

The following equipment are planned to be used in the project.

Solar panels: Next Energy and Resources Co., Ltd. (Japan), output 255W, conversion efficiency 15.5%

Inverter: Company A (Japan), output 630kW, conversion efficiency 98.6%

These products were compared with those of China, Germany and Switzerland and the results of

the comparison show that the Japanese products both have performance that can be said to be “top

class”, but it has been confirmed that there is no appreciable difference when compared to foreign

products. This is due to the global progress of solar power technology development, and reflects the

current state of performance, whereby both the difference in price and functionality between

countries has been lost.

(2) Regarding the superiority of Japanese technology in other elements that are required for

large-scale solar power generation business

To generate electricity over a long period for more than 20 years consistently, in order to ensure

profitability, in addition to the individual performance of equipment, the following 3 elements were

identified.

a. To continue to maintain the devices that perform power generation over a long period of time,

and the structure of the warranty system (Structure of the warranty system)

b. Also for long-term operation and to avoid unexpected failures, optimal design and construction

suited to local environmental conditions (optimization of design and construction)

c. For prolonged, stable power generation, suitable structure for monitoring, operation and

maintenance (maintenance and operation structure)

License Authority Current Situation

1. Land Use Permit Altai aimaggovernment

Acquired on 26 September 2014.

2. Feasibility Study (FS) Ministry of Energy Study report submitted in January 2015.

3. Environmental Impact Assessment (EIA)

Ministry of Environment and Green Development

Study report completed in December 2014.

4. Power Plant Construction Permit

Energy Regulatory Commission (ERC)

Investment decision will be made by March 2015. In the case of investing, license will be applied in May 2015.

5. Power PurchaseAgreement (PPA)


Scheduled to be signed in June 2015, after acquisition of Power Plant Construction License.

6. Power Generation Business Permit


Scheduled to be applied in June 2015, before construction begins.


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With the spread of the solar power generation business, EPC operators offer a comprehensive

service to provide the three elements of design, equipment procurement, and construction. NE

expects it is the case that Japan domestic EPC operators use their achievements in Japan as the

foothold for increasingly looking towards overseas expansion. And the trend in Japan and other

advanced PV countries is that these EPC operators offer the equipment manufacturer's warranty,

and their own EPC warranty, or a warranty system offered in cooperation with an insurance

company, and use the optimal design construction technology which they have developed through

independent research, as a weapon to implement optimized design and construction, and

furthermore add monitoring and control systems as part of a comprehensive package.

It is difficult to compare the technological superiority of such integrated services, but it is

becoming a requirement of eligibility that EPC operators have systems for warranty and

maintenance. By doing this, through the utilization of JCM schemes, the experience gained in Japan

can be used as a weapon to boost overseas expansion of Japanese domestic EPC businesses, and it

is expected that these Japanese technologies propagate.

4) MRV Structure

(1) Draft of MRV Scheme

From the 2 points of view of securing accurate data, and the maintenance of normal operation of

the facility, the monitoring and reporting scheme shown in Figure 2 is proposed.

Figure 4 Monitoring and reporting scheme of the project

(2) Training Session for Establishment of MRV Scheme

To ensure the accuracy of monitoring data and maintain normal operation of the project, it is

necessary for the main entity to acquire knowledge on monitoring. In addition, since this project is

intended to reduce GHG emissions by connecting to the grid, coordination with the Ministry of

Energy which has jurisdiction over power generation business, as well as relevant licensing

agencies, is essential. In order to continuously and stably reduce GHG throughout the lifetime of the

project, it is extremely important to deepen the understanding of large-scale solar power generation

among Mongolian government officials.

Therefore in this study, the "10MW-scale Solar Power Generation Project Steering Committee"

comprising the main entity and Mongolian government officials has been established, and

discussions aimed at project implementation, sharing of knowledge, monitoring system and the

structure of cooperation with the Mongolian government have been held. In particular, the 2nd

committee meeting was held in late January 2015 to focus on establishment of the

MRV scheme. The main contents of the 2nd committee meeting are as follows.

Project Manager (1 person, stationed at Ulanbaatar),

Deputy Project Manager (2 persons, stationed at Ulanbaatar)

Electrician (1 person, stationed at Altai City)

Operator (2 persons, stationed at Altai City)

・ Accumulation and recording of monitored data

・ Final check on monitored data

・ Double check on monitored data


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■ Visit to solar power generation plant at Yorii, Saitama Prefecture) (held on 20 January 2015)

Through the facility tour, in addition to introducing mega-solar technology of Japan to the

Mongolian side, training on facility management methods (monitoring of system, maintenance, etc.)

were also carried out.

■ Visit to TEPCO (held on 22 January 2015)

The point of view from Japanese domestic power operators was introduced, such as the mechanism

of balancing supply and demand when renewable energy sources are installed and details of PPA.

■ Visit to Agency for Natural Resources and Energy (held on 22 January 2015)

The propagation of renewable energy in Japan, circumstances that led to the spread of renewables in

Japan, and the mechanism used (feed-in tariffs, renewable energy levy, etc.) were introduced.

(3) Selection of Measuring Equipment

For monitoring the amount of electricity sold and purchased by the project, a watt-hour meter will

be used. The type of watt-hour meter used in Mongolia is specified by the Mongolian Agency for

Standardization and Methodology (MASM) which has jurisdiction over standards and registration

of measuring instruments in Mongolia, and is defined in MNS5660: 2006 (Alternating Current

Static Watt-hour Meters for Active Energy). NE who is responsible for the selection of watt-hour

meter confirmed that the watt-hour meter planned to be used in this project meets the criteria set by

the Mongolian standard.

5) Environmental integrity and Sustainable development in host country

1.5.1 Securing Environmental Integrity, Impacts (Positive and Negative) on the Environment

by the Project and Countermeasures

Impacts of the project on the environment is described below.

[Positive Impacts on the Environment]

Reduction of GHG

Realization of this project will contribute to reducing GHG emissions of Mongolia, which has seen

rapid economic growth and associated growing energy demand. This project is a beginning, and

further GHG reduction is expected as renewable energy power generation projects in Mongolia

become more widespread.

Mitigation of Air Pollution

Increasing the power generation rate from renewable energy by the realization of this project,

makes a break from dependency on coal-fired power generation, contributing to air pollution

reduction in Mongolia. If this project creates an opportunity for renewable energy power generation

to further increase as an alternative to fossil fuels in the energy sector of Mongolia, and leads to

efficiency improvements and further promotion of renewable energy, this will lead to further

prevention of air pollution.

[Negative Impacts on the Environment]

Impact on Residents due to Reflection of the Sun

An environmental impact assessment (general evaluation) was carried out on the implementation of

the present project site, and no adverse effects of this project were found. The project site is located

in a remote location 4.7km from Altai city, there are no residences or facilities other than an airport

in the vicinity. With implementation of the solar power generation business in the vicinity of the

airport there is a possibility that it might affect aviation, but the view of the Altai Prefecture land

development director was sought, and it was confirmed that there is no problem.


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1.5.2 Contribution to Sustainable Development

Contribution of the project to sustainable development is summarized as below.

[Contribution in Social Aspects]

Realization of Stable Electricity Supply

If the recent trend continues where supply is limited due to the growing power demand due to

economic growth, it could adversely affect economic development. However, for Mongolia, which

relies on coal for most of its power, if further expansion is based on coal-fired power plants, it is not

easy considering the cost and the time required, and furthermore considering the serious problem of

air pollution, alternative sources of power in place of coal-fired power are needed. Despite the fact

that Mongolia is suitable for large-scale solar power generation with its high level of solar

irradiation and vast land, no large-scale solar plants of more than 1MW have been grid-connected at

the present time. Through our research we found that although solar power plants have been

planned, due to the absence of investors none have been realized. If, through the realization of this

project, large-scale solar power plants can spread in Mongolia, providing a stable supply of power

for the country's economy, the social contribution is large.

[Contribution in Economic and Technical Aspects]

Promotion of Renewable Energy

Once this project has been realized, it is an opportunity to spread other solar power generation

businesses rapidly. In that case, construction materials starting with solar panels and businesses

such as design and construction may be promoted.

Industrial Development of Gobi-Altai Aimag

In the Gobi-Altai aimag, in addition to insufficient power supply to meet the existing demand, there

is also no clear path to proving the power that will be needed for future developments starting with

mine developments that are currently being promoted in the prefecture. The realization of this

project will enable sufficient power supply for the existing demand, and by promoting the spread of

large-scale solar power generation businesses in the region in the wake of this project, power for

future demand is ensured, bringing great effect for the industrial development of the region.

Transfer of Japanese Technology

As mentioned above, if the renewable energy industry is promoted in Mongolia, there is a

possibility for entrance by Japanese companies in this field. If Japanese companies continue to enter

into the Mongolian market, local transfer of superior Japanese technology, can lead to further

development of the country's renewable energy technology.

6) Toward project realization (planned schedule and possible obstacles to be overcome)

1.6.1 Project Realization Schedule

The schedule towards project realization is as follows. Approval of the Feasibility Study report to

be submitted to the Ministry of Energy by the end of this March, and complete the agreement

and MoU for the sale of electricity through consultation with the Mongolian government officials.


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Figure 5 Project Realization Schedule

1.6.2 Challenges and Solutions for the Project

The challenge at the present time for the realization of this project is the investment decision by

SAISAN Co., Ltd and myclimate Japan Co., Ltd. In order to make decisions, details of PPA must

be fixed. Since this project is to obtain revenue by utilizing the Feed-in Tariff defined in the

Renewable Energy Law of Mongolia, negotiations must be held with the Ministry of Energy on the

price, amount and period of sales.

Discussions with the Ministry of Energy regarding the price, amount, and period are already

advancing and it is planned to complete by March 2015. Based on the obtained conditions, business

investment decision will be made. MoU between SAISAN Co., Ltd, myclimate Japan Co., Ltd and

Ministry of Energy is scheduled to be signed based on the discussion results. In the case that the

business investment decision goes ahead, even without the official PPA which is assumed to be

signed around summer 2015, the project participants is expecting to apply for JCM financial

program in spring 2015.

(2) JCM Methodology Development

1) Eligibility Criteria

7 eligibility criteria for the project are set as below.

Criterion 1 The project activity is generation of mega-solar scale power (more than or

equal to 1MW output) in Mongolia.

Criterion 2 The project activity is the installation of a new solar power generation

system at a site where there has been no mega-solar scale power

generation system, or capacity addition to the existing solar power

generation system.

Criterion 3 The electricity generated by the project will be supplied to Altai-Uliastai

Energy System in Mongolia to replace existing electricity generation.

Auxiliary electricity consumption by the project, if there is any, will be

supplied from Altai-Uliastai Energy System.

Criterion 4 The solar power generation system installed in the project measures net

electricity supplied to the grid.

Criterion 5 The solar cells in the system have obtained: (i) a certification of design

qualifications and safety qualification set by the IEC (International

Electrotechnical Commission ), or (ii) have obtained any other national

certifications that conforms to the IEC. The qualifications set by the IEC

referred are as follows:

Jan. Feb. Mar. Apr.

FS Approval (Science and Technological Committee)

Establishment of Power Generation Company

Application for JCM Financing Scheme

Consensus on PPA Conditions via Signing of MoU

Signing of PPA

2015 Jul.May. Jun.

Acquiring Power Plant Construction Permit

Acquiring Power Plant Construction Permit


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- Design qualification and type approval: IEC 61215 (silicon) , IEC 61646

(thin-film) , and IEC 62108 (CPV)

- Safety qualification: IEC 61730-1 (construction) and IEC 61730-2

(testing)

Criterion 6 The solar power generation system installed in the project includes power

conditioner(s) with minimum conversion efficiency of 98%.

Criterion 7 The solar power generation system installed in the project is equipped

with remote monitoring system. The remote monitoring system emits

warning in the event of operational failure. The project owner/participant

located in the distance receives warning remotely and can quickly attend

to the issues for trouble-shooting and recovery.

In particular, regarding eligibility requirements 5, 6, 7, to prevent the influx of inferior products

into Mongolia, and in order to maintain long-term operation of the power generation plant, it is

aimed to introduce products having a certain degree of performance.

2) Calculation of GHG emissions (including reference and project emissions)

(1) Calculation of Reference Emissions

The methodology that applies to this project is introducing new photovoltaic systems or adding a

new unit to an existing solar power system to generate renewable energy to supply to the grid,

achieving emission reductions. Therefore, emissions reduction are calculated by multiplying the

amount of renewable energy to be generated by the project (EGREF,p) by the emission factor of the

grid power to be replaced (EFCO2,grid,p).

pgridCOpREFp EFEGRE ,,2,

Description of the data Unit Value

RE p Reference emissions of period p tCO 2 / p Calculated

EG REF, p Amount of power that is supplied to the grid by the

project MWh / p

Monitored

value

EF CO2, grid,

p

Emission factor of the grid power to be replaced by

the project

tCO 2 /

MWh 0.817

(2) Calculation of Project Emissions

In this project, air conditioning of the building, ancillary power consumption by the power control

unit (inverter and solar radiation meter, etc.) occur. The project site is located in a remote location,

since there is no nearby independent power generation equipment, this power will be imported from

the grid (purchases). Therefore, this power consumption will be monitored and multiplied by the

emission factor of the grid power, and this amount will be subtracted as project emissions.

pgridCOpAUXp EFECPE ,,2,

Description of the data Unit Value

PE p Project emissions of period p tCO 2 / p Calculated

EC AIX, p Amount of grid power consumed by the project MWh / p

Monitored

value

EF CO2, grid,

p

Emission factor of the grid power consumed by the

project

tCO 2 /

MWh 0.817


14

Based on the above calculation formula, the annual emission reductions of the project was

calculated as follows.

(Reference emissions)

pgridCOpRFp EFEGRE ,,2,

= 15,579,405 (kWh / year) × 0.817 (t- CO 2 / MWh) / 1000 (kWh)

= 12,728,37 ≒ 12,728 (t- CO 2 / year)

(Project emissions)

pg r i dCOpAUXp EFECPE ,,2,

= 51,996 (kWh / year) × 0.817 (t- CO 2 / MWh) / 1000 (kWh)

= 42.48 ≒ 43 (t- CO 2 / year)

(Emission reductions)

ER P = RE P - PE P

= 12,728 (t CO 2 / year ) - 43 (t CO 2 / year )

= 12,685 (t CO 2 / year )

Annual emission reductions of the project are calculated as 12,685 (t CO 2 / year).

3) Data and parameters fixed ex ante

The ex ante parameter before project implementation used in this methodology is the grid emission

factor calculated in the next chapter of 0.817tCO2/MWh. The calculation method is shown below.

2.3.1 Understanding the Interconnectivity of the Mongolian Grid

There are 4 electrical grids in Mongolia - Central Energy System (CES), Western Energy System

(WES), Altai-Uliastai Energy System (AuES) and Eastern Energy System (EES). Of these, it has

been confirmed by this study that the WES and AuES, and the AuES and CES are interconnected.

Currently, the CES comprises more than 80% of the transmission amount of the entire Mongolian

power system, while the WES and AuES are overwhelmingly small as compared to the CES1.

Figure 6 Amount of Electricity Transmitted by Central, West and Altai-Uliastai Energy

System (2013, MWh)

Source: Study Team based on the data obtained from Altai-Uliastai grid engineers

1 National Dispatching Centerの情報に基づく

http://www.kpx.or.kr/english_new/overview/data/3.%20Tsogtbaatar%20Khandsuren.pdf (Slide 5)


15

Features of the CES The CES is composed mainly of sub-critical coal-fired power plants. Specifically, there are five

thermal power plants: the second thermal power (21.5MW), third thermal power (136MW), fourth

thermal power (580MW), Darkhan CHP (48MW), and Erdenet CHP (28.8MW). Also, in the CES,

in order to meet the increased power demand in the region that it powers, plans to build a new

subcritical coal-fired power station of 450MW in 2017 (5th thermal) are underway.

Features of the WES

The main power of the WES is provided by a single hydroelectric power plant of 12MW, which

was built as a CDM project. To compensate for the chronic power shortage, power is imported from

Russia.

Features of the AuES

The main power of the AuES is a hydroelectric power plant of 11MW, which was built as a CDM

project. In addition, imports from the WES and 2 diesel power generators (8.5MW and 7.0MW)

have been providing the power demand. From 2013, especially for dealing with seasonal power

shortages in winter, imports started from the CES, accounting for 45% of the total amount of

transmitted power of 2013 on the AuES.

From the current state as mentioned above, if the CES, WES and AuES are considered as one grid,

nearly 90% of power generation are composed of coal-fired power. In addition, in view of the new

plan for thermal power generation in the future of the CES, during the implementation period of

JCM until 2020, the status occupied by coal-fired power is not expected to greatly change.

2.3.2 Setting of Target Range of Emission Factor

In the setting of the emissions factor in this methodology, the CES, AuES and WES are regarded

as one grid. Power that will be most affected by the implementation of this project, is considered to

be coal-fired power generation facilities in the CES. Thus, it was decided to take the approach of

setting the grid emission factor in this methodology on the basis of the emission factor of the

existing coal-fired power generation.

2.3.3 Setting of Emission Factor

In determining the grid emission factor, in order to ensure that the net emission reduction is

achieved by the project to which the methodology is applied, a calculation process that estimates

lower than the actual emissions reduction in the emission reductions methodology was

examined. The procedure is described below.

①Determination of Thermal Efficiency of Coal-fired Power Generation Affected by the Project

The existing thermal power plants of Mongolia are all sub-critical pressure power generation

plants. Of the 5 plants connected to the CES, figures showing that the lowest thermal efficiency is

21.2%, and the highest is 40.5% have been published.

Table 2 Thermal Efficiency of Power Plants in CES

Power Plant Installed

Capacity (MW)

Thermal Efficiency

(%)

2nd thermal plant ( CHP2 ) 21.5 21.2

3rd thermal plant (CHP3 ) 136 37.8

4th thermal plant (CHP4 ) 580 40.3

Darkhan CHP 48 40.5

Erdenet CHP 28.8 28

Source: Energy Statistics of Mongolia, 2011 based on the Study Team


16

The thermal plant due to be commissioned in 2017 will also be a sub-critical. In the calculation of

emission factors, by adopting the thermal efficiency of the latest supercritical pressure power or

ultra-supercritical pressure power plant, it is possible to realize the calculation of a more

conservative reference emissions figure. This methodology employs figures published by the

Ministry of the Environment and the Ministry of Economy, Trade and Industry of Japan

"Commercialization of State-of-the-art Power Generation Technology and Development Status

(BAT reference table 2)", giving the design thermal efficiency of power generation at generation

point of 44.5% as the thermal efficiency of power generation.

Table 3 Thermal Efficiency of Power Plants in Japan

Power

generation

scale

Power generation

method

Design thermal

efficiency (power

generation end)

[%: HHV]

(In parentheses

LHV )

Design thermal

efficiency (sending

end)

[%: HHV]

( in parentheses

LHV)

700MW

Ultra-supercritical

pressure /

Supercritical

pressure

42.5 ( 44.5 ) 40 (42)

500MW Supercritical

pressure 42.5 ( 44.5 ) 38.5 (41.5)

200MW Subcritical pressure 41 (43) 38 (40)

②Determination of Parameters Required for Calculation of Emission Factor

Parameters required for the calculation of the emissions factor were determined as follows.

Table 4 Parameters of Emission Factor

Parameter Value Unit Source

CO2 of coal emissions

factor 101

KgCO 2 /

GJ

IPCC 2006 Chapter 2

Stationary Combustion Table

2.2

Conversion factor 3.6 MJ / kWh -

Thermal efficiency 44.5 % Ministry of the Environment of

Japan

Source: Study Team based on the data obtained through the survey

③Calculation of Emission Factor

Based on the following calculation formula, a grid emissions factor of 0.817tCO2kg / kWh was

calculated.

Emissions

factor of coal

x

Conversion

factor

/

1000

/

Thermal

efficiency

=

Grid emissions

factor

101 3.6

44.5 0.817

KgCO 2 /

GJ-coal MJ / kWh

MJ /

GJ % KgCO 2 / kWh

https://translate.googleusercontent.com/translate_f#footnote2


17

④Confirmation of Conservativeness of Grid Emission Factor

To confirm that the calculated emissions factor compared to the actual emissions factor of the CES

is a conservative estimate, the latest value of the grid emission factor applied for CDM projects

connected to the CES was compared. This value has been calculated by the Institute for Global

Environmental Strategies (IGES) and has been published 3 . Both Operating Margin and Build

Margin are above 1.0tCO2 / MWh, confirming that the figure of 0.817kgCO2 / kWh used in the

methodology is a conservative reference emission figure.

Table 5 CDM Emission Factors for CES

Grid name Technique Emission factor

( tCO2 / MWh )

Central grid (CES) Operating margin 1.1501

Build margin 1.0559

2.3.4 Setting of Application Period of Emission Factor

In this methodology, the emissions factor of 0.817tCO2 / MWh, calculated above, is assumed to

apply until 2020. In the case that this project continues after 2020, either through JCM or a similar

emissions reduction scheme to be agreed, at that time, a review of the emissions factor should be

carried out, and re-confirmation that it is a conservative figure is recommended.

(3) Development of JCM Project Design Document (PDD)

1) Environmental Impact Assessment

In the present study, an environmental impact assessment of the project (general evaluation) was

carried out. The environmental impact assessment (general evaluation) sets out 12 evaluation items,

and the impact of the project is predicted and assessed for each of the items.

Table 6 Results of Environmental Impact Assessment for the Project2

Evaluation item Impact prediction and evaluation

Terrain 1.1 Over 530,000m2 building activity area (including the temporary

building at the time of construction, and the range of movement of

construction vehicles) has a possibility of change to the terrain caused

by vehicle movements

Climate 2.1 This business aims to reduce the greenhouse gas emissions caused by

coal combustion, and therefore has a positive impact on the climate.

2.2 Temperature rise due to reflected heat from solar panels is

expected. Excessive temperature rise may cause harm to small animals

and insects around, but for this project the possibility is small.

2.3 There is a possibility of bird death by electric shock from the

transmission line.

Atmospheric

environment

3.1 This project does not cause direct impact on the atmospheric

environment.

3.2 Dust will be caused by the construction vehicles

3.3 During the construction period, greenhouse gases will be discharged

by coal combustion for heating for workers and running construction

equipment.

Noise and 4.1 During the construction period, vehicle noise and vibration will occur.

2 Excerpt of EIA report conducted by Grand Power LLC.



18

vibration 4.2 There will be temporary noise and vibration generated by the assembly

of the solar panels, but this will not be a significant impact on the

surrounding environment.

Rivers 5.1 Since there are no rivers near the site, prediction and assessment of the

impact on rivers has not been performed.

5.2 Water pollution due to hazardous substance leaks during the

construction period may occur.

Groundwater 6.1 This project does not have direct impact on the groundwater. However,

if there is leakage of hazardous materials during the construction

period, there is a possibility that ground water pollution occurs.

6.2 There is a possibility of water contamination due to improper

processing of wastewater.

Soil 7.1 During the construction period there is the possibility of soil erosion

by vehicles.

7.2 During the construction period there is a possibility of soil

contamination by hazardous substances leakage.

Plant 8.1 During the construction period temporary disruption of vegetation will

occur.

8.3 Dust caused by the comings and goings construction vehicles might

affect the ecology of the plants.

Animal 9.1 This project implementation might affect animal life.

9.2 During the construction period due to a temporary increase in

population, illegal hunting may occur.

Protected

areas

10.1 Not Applicable (there are no protected areas in the vicinity of the

project site).

Cultural

property

11.1 Since no cultural properties exist near the site, prediction and

assessment of the impact of the cultural properties has not been

performed.

Social

economy

12.1 Employment creation through implementation of this project can be

expected.

As can be seen in Table 3-1, the environmental impact expected at the present consists of normal

effects that can occur during construction work, and there are no special environmental impacts of

the project. At 4.7km from the city, with no housing or nature reserves in the vicinity, it has been

judged that there are no special impacts on the surrounding environment due to the implementation

of this project. We have obtained comments that cases where a detailed environmental impact

assessment evaluation is required by the Ministry of Environment and Green Development for solar

power projects are rare, and further environmental impact assessment work is not expected to occur.

2) Local Stakeholder Consultation

For the implementation of this project, the following stakeholder consultation is considered

necessary.

1. Local residents (in particular residents living around the project site)

2. Altai Airport (facility adjacent to this project)

3. Altai-Uliastai grid (counterparty of the grid connection)

4. Altai Prefectural Government (party that has jurisdiction over the implementation areas of this

project)

5. Ministry of Energy (party involved in the power generation business in general)


19

Comments relating to stakeholder consultation obtained through this study are as follows (excerpt).

Organization: Altai Prefectural Government

Contact Person: BATSAIKHAN.D Vice Governor, CHINZORIG.D Deputy Governor

Description of the implementation of this project to the local residents, has

already been implemented through prefectural assembly members meeting.

Organization: Altai prefectural government land Development Bureau

Contact Person: Land development director

(About the possibility of adverse effects on Altai Airport due to reflected light or

the light from solar panels) This project site is separated from the Altai Airport by 500m

or more. Therefore, there is no fear of adverse impact on the airport.

In general, local residents living close to the site have high potential impact from the project

implementation and typically require consultation the project implementation, however ① at this

site there are no houses around and the site is away from any residential area, ② explanation have

been made to residents of the area ③ it has been confirmed that there is no problematical effect on

the airport due by the Land Development Bureau, therefore consultation and coordination have been

judged to be unnecessary.

3) Monitoring Plan

The following two points are the monitoring parameters for this project. Table 3-2 summarizes

these monitoring techniques.

Table 7 Monitoring Plan for this Project

Parameters Content Monitoring

technique

Frequency Data storage

EC REF, P Net amount of

power generated

by the

project (kWh

/p )

Grid company to

issue

invoice ,receipt or

other statement at

the time of sale of

electricity, amount

of power that has

been described will

be recorded

Based on the

evidence (invoices,

receipts, etc.)

associated with the

sale of electricity,

but at least a

cumulative total

every month.

Data

(CD-ROM ,USB ,

etc.), paper

medium in two

forms, stored up to

2020

EC PJ, P Amount of

power

consumed by

the project and

purchased

( kWh / P )

Grid company to

issue

invoice ,receipt or

other statement at

the time of

purchase of

electricity, amount

of power that has

been described will

be recorded

Based on the

evidence (invoices,

receipts, etc.)

associated with the

purchase of

electricity, but at

least a cumulative

total every month.

As above


20

4) Calibration of Measuring Instrument

Although a power meter will be used in this project, Mongolia national standards MNS5660:

2006 (Alternating Current Static Watt-hour Meters for Active Energy) does not describe clear

standards for calibration of the power meter. Therefore, in this project, the period of calibration will

be based on the standards of Japan. According to the provisions of the Ministry of Economy, Trade

and Industry in Japan, there are different validity periods of calibration depending on the type of

energy meter, and it is necessary to use the equipment within that period 5 (Table 3-3 ). This project

will use a 35 kV, 200 ~ 300A meter connected to the transmission line, therefore the validity period

of the power meter is set to 10 years.

Table 8 Types of Watt-hour Meter and Calibration Periods

Type Calibration

Period

a. Less than 300V rated voltage power meter

(Excluding those listed in intended to be used along with a transformer

and b (2).)

10 years

b. 300V rated voltage power meters, as listed below

(1) Used with a current transformer with rated primary current less than

120A

(except those used with the transformer with rated primary voltage over

300V)

(2) Rated current is 20A or 60A (excluding electronic type)

(3) Electronic type(except those listed in a. and (1))

7 years

c. Power meter other than what is listed in a or b 5 years


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