E.Orchlon: We strive to turn Mongolia into a renewable energy exporter

ariunzaya ariunzaya
2021-05-06 13:31:43

Mongolian Economy magazine spoke with E.Orchlon, Board Member and Chief Investment Officer of Newcom Group, about their vision, renewable energy and pioneering projects that are bringing lasting impact to Mongolia. 

-It is quite intriguing how someone with an economics degree ended up working as a CEO of Clean Energy Asia LLC, the second wind-powered renewable energy project in Mongolia. Could you tell our readers the story behind it? 

-I left Mongolia when I was quite small. As my mother was a diplomat, from time to time we had to move to different countries and cities. I personally think that living in various countries across the globe stimulated my entrepreneurial spirit. Even when I was studying at New York University, I had a strong interest in startups and chose to do my internships at various start-ups. This together with the fact that I always wanted to come back to Mongolia made me decide to return to Mongolia and start a company after graduation.

After graduating from New York University with an economics degree in 2010, I came back to Mongolia and started a management consulting company with my friend. Then we started reaching out to potential customers and met with the then CEO of Newcom Group. After carefully listening to our management consulting proposal, he talked some sense into us and made us realize that we need to gain experience before starting a management consulting firm. Looking back, it seems obvious that 21 years olds with no prior work experience barely can give management advice to businesses. Luckily, following our failed pitch, I was offered a job at Newcom and decided to work as an investment analyst at Newcom Group after trying to run our company for around six months.

At that time, Newcom Group was raising capital for Salkhit Wind Farm which was the first wind farm project in Mongolia. I was fortunate to be involved in the project. It certainly gave me a grasp of what it is like to work on a wind farm project. A few years later I went to work for Oyu Tolgoi LLC where I learned more about the systematic ways of doing business and gained insight into the mining industry. Moreover, working at Oyu Tolgoi LLC for four years I understood that mining is a cyclical industry. In other words, commodity price volatility puts the economy under strain as mining is the main driver of economic growth in Mongolia. This made me realize that economic diversification is vital to long-term sustainable growth. Thus, I began to look into opportunities for economic diversification and realized that renewable energy has lots of potentials, something in which I still continue to believe today.

In 2016, I made the decision to come back to Newcom Group as the Chief Investment Officer and Board Member. At that point, the company was starting their second wind farm project, Tsetsii Wind Farm. Within that framework, Newcom Group established a joint venture company, Clean Energy Asia LLC, with SB Energy Corp. Both companies deeply believe in the future of Mongolia’s renewable energy sector. If you visit Tsogttsetsii soum in Umnugovi province, you will discover how a diversified economy could look like. On one side you will see a coal plant, coal trucks and main coal export road and on the other side, you will see white turbines of the Tsetsii Wind Farm.

As the 50 MW Tsetsii Wind Farm was an important project for both Softbank Group and Newcom Group, the Board agreed to appoint one of the Board Members as CEO of Clean Energy Asia LLC. That is how I became the CEO of Clean Energy Asia LLC in January 2017. I was only 27 years old, so it was a unique opportunity for being able to make a big impact. It is an honor to say that our team successfully raised 120 million USD for the Tsetsii Wind Farm Project and completed the construction of the wind farm earlier than had been expected. More importantly, we had zero safety incidents. Approximately 500 people worked on the construction of the project with 95 percent of them being Mongolian nationals. This project has certainly proven that Mongolians are capable of building wind farms as well as anybody else in the world. That also means we have the potential to turn the renewable energy sector into the next big industry in Mongolia.

-How did you learn and study renewable energy? How challenging it was to learn about a whole new field? 

-It was quite challenging. The first few weeks I put pressure on myself by trying to learn everything about the industry. I used to read a lot and talked with lots of experts in the field to pick up some knowledge. Quite frankly, I even used to watch documentaries on the National Geographic channel on how to build wind farms. Eventually, I realized that as the CEO my job was not to know and do everything myself but to hire the right people for the right jobs and ensure they were positioned for success. I then communicated to my team that I did not know as much about their respective fields and began putting my efforts into ensuring that my team had the right KPIs, the right tools for their jobs and a supportive work environment. I think it helped us to work more efficiently.

-Why did SB Energy Corp decide to invest in renewable energy in Mongolia? 

-As you may know, Mr. Masayoshi Son founded Softbank Corp to distribute PC software throughout Japan and now it has grown into a holding company that invests in transformative technologies for the betterment of humanity. Soon after the Fukushima Daiichi Nuclear Power Plant accident occurred on 11th of March 2011, Softbank Group began shifting its focus to a reliable, safe and sustainable new energy source. Compared to the Middle East or Mongolia, Japan is not rich in renewable energy sources and does not have the vast land to build wind turbines. Therefore, Softbank Group proactively develops overseas renewal energy projects including Tsetsii Wind Farm. Also, as the Gobi Desert has rich renewable sources, it is technologically and economically feasible to export clean energy to Japan via China or South Korea.

-Does Mongolia have the potential to supply clean energy to the entire Asian region? When could we start exporting renewable energy to other countries? 

-According to the available data and research, Mongolia has enough wind and solar energy sources to power most of the Asian region.

The world is moving towards data-driven business models such as AI, machine learning and 5G. Data is essentially just energy meaning that you turn kilowatts into kilobytes. To enable data-driven businesses we need a steady and reliable energy supply. At the same time, everything is becoming electrified. For instance, carmakers such as Volkswagen and GM are moving away from fossil fuels and focusing on electric cars. Over the next decade, we will see more demand for data and renewable energy. Lucky for us, we have enough renewable sources to meet that demand. But whether we could turn it into reality or not is up to us.

As a case in point, Saudia Arabia has rich oil reserves but they will eventually run out of it. The oil industry is the primary driver of economic growth, so they hired multiple management consulting firms to develop the best economic strategy once their oil runs out. They then concluded that Saudi Arabia can maintain its position as an energy supplier by shifting from fossil fuel (oil) to renewable energy. They have already started a solar project worth 200 billion USD to become one of the pioneers in this field. In the future, it might become cheaper for Europe or other developed nations to import renewable energy from the Middle East than building their solar or wind farms. This will enable Europe to use its land for other purposes including urban expansion, factories or even agriculture.

In the same vein, I think Mongolia as a nation must realize its potential to become a renewable energy exporter in Asia.

The economy of China, South Korea and Japan will likely grow faster than Europe and so will the demand for renewable energy. We surely want to be able to bridge the gap between the demand and supply of clean energy in Asia. By importing cheap renewable energy from Mongolia, Japan could expand their cities or build new factories instead of building wind farms or solar plants.

To conclude, Mongolia has a vast resource of renewable energy and neighboring countries that are rapidly growing. However, to turn this into reality, we need to realize our potential as a nation. We must consciously invest all our resources into the renewable energy sector. As I mentioned previously, due to data-driven economies, electrification and climate change, we will see growing demand for renewable energy in the next decade. We can position ourselves as a clean energy supplier in Asia.

-How does the Government of Mongolia promote renewable energy? What measures can be taken to enhance the development of the renewable energy sector in Mongolia? 

-Under the State Policy on Energy, the Government of Mongolia aims to get over 20 percent of its energy from renewable sources by 2023 and 30 percent by 2030. As far as I know, there are no regulations or policies that are designed to promote investment and renewable energy exports.

Mongolia needs a clear and comprehensive policy for renewable energy and its exports. This includes the creation of a favorable environment for investors, reducing the cost of financing and ensuring enforcement of the law. In terms of financing cost, Mongolia can lower the costs by strengthening its capital market and making sure international contracts and agreements are honored over the long term. Only that way our local companies will have possibilities of listing their companies and raising fundings from the domestic capital market. So far, infrastructure projects mostly depend on foreign banks and foreign investors to secure the necessary capital. Another idea would be for us to set up special zones for export-oriented renewable energy development.

-The Tsetsii Wind Farm started its operations with 25 wind turbines. Do you plan to expand your capacity or upgrade their existing technologies?

-At Salkhit Wind Farm, we plan to build a 24 MW solar plant with battery storage. We have everything in place and the only thing that is left to do is to conclude a Power Purchasing Agreement with the Government. I am glad to say that it will be the first wind and solar plant with battery storage in Mongolia. In the near future, we hope to do the same for Tsetsii Wind Farm.

I would like to mention another project that we are doing in terms of expanding renewable energy generation. Since the start, Oyu Tolgoi LLC has been importing electricity from our southern neighbor, China. Thus, to reduce electricity imports, the company has been trying to build a coal-fired power plant near the mining site. However, nowadays it has become difficult to find investors or cross-national institutions that are willing to invest in fossil fuel power plants. In addition, insurance companies are stopping or restricting insurance coverage for coal-fired power plants around the world. In 10 years, it will be almost impossible to find spare parts for coal-fired power plants. Hence it is going to be much more expensive to run a coal-fired power plant. In terms of sustainability, coal-fired power plants not only emit greenhouse gases but also use excessive amounts of water to produce electricity. Taking all these factors into account, we came to the conclusion that for Oyu Tolgoi LLC it would be more preferable, suitable and feasible to build a renewable energy power plant. Thereby, Newcom Group offered Oyu Tolgoi LLC to build a 500 MW hybrid solar and wind plant. According to our calculations, it was the lowest cost option for Oyu Tolgoi LLC but it is up to their shareholders to make the final decision on our offer.

-The cost of electricity generated at wind farms is more expensive compared to coal-fired power plants. You mentioned that you are planning to install battery storage at Salkhit Wind Farm, will it help to reduce the cost of electricity?

-That is what we are aiming for. As the cost of existing technologies including wind turbines, solar panels and batteries are going down, so the cost of electricity will go down as well. But it must be borne in mind that if the financing costs increase, it will offset the costs saved through cheaper technologies.

The wind turbines constitute only 30 percent of the total cost, construction 20-30 percent and the remaining is the cost of financing. If we fail to fulfill our contractual obligations or Mongolia is seen as a risky country to invest in, the cost of financing goes up.

In other words, we should not only try to seize the price fall in technologies for wind and solar farms but also strive to reduce the cost of financing. In the eyes of foreign investors, Mongolia is still a risky country to invest in. We need to collectively create and ensure that Mongolia has a favorable environment for foreign investors.

-How many households use electricity generated at Tsetsii and Salkhit wind farms?

-In total, it is around 150,000 households and electricity to the Central Grid. As a matter of fact, we are also developing an off-grid solution to enable electricity supply to rural areas that are not connected to the Central Grid. The wind farms are contributing to the reduction of imported electricity and climate change mitigation. Each wind farm annually reduces coal burning by 122-180 tons, offsets 180-230 thousand tons of greenhouse gas emissions and saves 1.2-1.6 million tons of water.

-It is difficult to raise enough fundings for renewable energy projects in Mongolia as we only have an option to borrow from banks. What are organizations and financial institutions that offer investments in renewable energy projects? 

-The interest in investing in renewable energy is growing. We have JICA, EBRD, General Electric, Asia Development Bank, World Bank and FMO which is a Dutch development bank. Currently, we are in discussions with large European and Asian investors for renewable projects in Mongolia.

-As the Chief Investment Officer of Newcom Group, do you plan to expand your portfolio from energy, telecom, construction and real estate, let’s say, to health or education?

-I am glad that you asked. Currently, we are working on an exciting project in the transportation sector. Traffic congestion which has become a pain in the neck is mainly due to inefficient management of public transports in Ulaanbaatar. We have roughly 18 different companies with 1,2,00 buses operating in the public transport sector. These companies do not coordinate with one another. Around 900 buses pass through Chinggis Khan Avenue and 20 or 30 percent operate on the main road. Over the next three years, almost 900 buses are expected to be decommissioned as their engine lifetime will exceed the maximum allowed 12 years which is quite evident from the smoke released from these buses.

To address the inefficiency of public transportations, we have been working with Ulaanbaatar Development Corporation since last year in order to make public transportation more efficient and introduce electric buses. Compared to buses that run on fossil fuel, electric buses cause less pollution, are more reliable and cheaper to maintain as we do not need to import petroleum from Russia and use renewable energy to charge the buses. Moreover, we want to adopt a more intelligent management system and reroute the buses to accommodate high travel demand areas. It is expected to make public transportation an attractive alternative to private cars. In Ulaanbaatar, almost every household owns at least one to two cars. This project could make Ulaanbaatar a more convenient and efficient city. To do so, we are discussing investments with IFC, World Bank and other international institutions. Our team at Newcom Group will keep striving to solve Mongolia’s infrastructure problems with renewable energy.

-How do you prepare for negotiations with potential investors? Do you have any advice?

-Prior to negotiation, you need to do extensive research. To simply put, you must know about your field from a to z. You must dig down and understand the fundamentals of that field or industry including the legal framework. Also, you must know what are the potential risks and benefits. It is easy to tell if the person knows and understands their field or not. On top of that you should not only know about the global trend but also how it applies or how it is going to work in Mongolia.

To build a Salkhit Wind Farm, it took us around ten years from data collection, research, securing investments to construction. In short, to be able to answer all the questions and address investor’s concerns you need to put tremendous effort and resources and do months and years of research.

-Where do you see yourself in 5 or 10 years?

-I want to be in a position where I could consistently drive the company, industry and country towards the future we have discussed. For me, the job title is irrelevant as long as I am working on turning Mongolia into a clean energy exporter. At the same time, I try to spend enough time with my family and find work-life harmony. Lately, I am coming to realize that we need to take deliberate care of our bodies and health because we cannot achieve any ambitious goal we have if we are not healthy.

-How do you keep yourself healthy, emotionally and mentally?

-The COVID-19 has given me an opportunity to reconnect with my family and a time to reflect on my life and work. Sometimes we tend to chase after things that are not important to us. I would suggest reevaluating and if needed, recalibrating your values during these difficult times. One good thing with the lockdown has been that it has given me more time and flexibility to exercise more because, before COVID-19, I used to spend most of my time sitting, in the car, in the office and at home and barely exercised and moved around.

-What makes you bounce back after failure?

-Failure is an interesting word. It depends on how you define it.

To me, failure is an opportunity to begin again.

To give you an example, the Combined Heat and Power Plant No.5 (CPH Plant) was an important project to Newcom Group and to Mongolia. We invested a lot of human capital, money, time and energy. Out of blue, in 2017, we were told that the project is no longer viable because our foreign co-investors informed us that they are no longer allowed to invest in coal-fired power plants. Initially, this news affected us extremely negatively but as we gave it more thought, it gave us a whole new perspective and opened a new opportunity. We explored that Liquefied Natural Gas (LNG) plants are much more effective and cleaner than coal-fired power plants. Thus, at the moment, we are discussing turning the CHP Plant project into an LNG plant project.

It can be said that this failed project has led to better opportunities for Mongolia. Sometimes what you have considered as failure turns out to be a big opportunity. Having that mindset will help you to see the bigger picture. In this fast-changing world, keep learning and educating yourself. That way you will be able to see and connect more dots.

-You have started your own business and led pioneering projects in Mongolia. Do you have any advice for young entrepreneurs?

-You should understand why you really want to start your own business. I know a lot of people who started their business without any profound reasons. I was only 21 when I started my management consulting company. I think I started it because when I was at the university, management consulting firms were becoming trendy and everyone wanted to do it. I knew nothing about management consulting but I started the company merely following the trend, not my passion. Ask yourself why you want to start your company? You should know your values. The most successful people are passionate about what they do. What you are doing should be organically pushing you towards learning and growth.

Secondly, ask yourself if it is the best use of your money, time and energy. It is impossible to have a full-time job and start your own business. You must be willing to put your blood, sweat, and tears into your company and idea. Starting your own company means you will need to put your idea and vision ahead of your own needs and comfort and also become responsible for the livelihood of the people that you employ. So people need to understand, rationalize and accept this heavy accountability before they make any rash decisions. Lastly, as with anything, execution is key. You may have a great idea but if you can’t put the time and resources to make sure great execution, then it will be extremely difficult to turn your idea into a revenue-generating, sustainable business.

ariunzaya ariunzaya