Partnering with ХасБанк (XacBank) and Тэнгэр Даатгал (Tenger Insurance),BASE is starting the implementation of the Energy Savings Insurance (ESI) in Mongolia. After an initial rollout of the model in Latin America in 2015, its success motivated an expanded rollout in different areas of the world such as Europe, North Africa, and is now arriving in Central Asia.

Mongolia has been experiencing extremely high levels of particulate matter in the air in recent years. From summer to winter, the capital city of Ulaanbaatar, faces from 6 to 14 times higher pollution than considered safe by the World Health Organisation (WHO), with severe health implications for residents, especially children and the elderly. Coal burning as a main source of energy generated by old and inefficient power plants located within the city but also from individual households is mainly responsible for this situation: More than half of Ulaanbaatar’s population lives in traditional dwellings (gers) districts surrounding the city centre, that uses coal-powered simple stoves for heating and cooking. In winter months, the extreme cold weather traps the particles at ground level due to the thermal inversion phenomenon.

Accelerating the deployment of cleaner energy technologies is vital for the region, for the sake of both the environment and public health, and different initiatives tried to create such momentum in this direction between 2010 and 2012. The Law on Air and the Law on Air Pollution Tax were enacted to respectively set emission limits, provide air quality monitoring and start charging fees to different categories of stakeholders for the air pollutants they emit. Building on that, in 2017, the National Program on Reduction of Air and Environment Pollution (NPRAEP) was adopted by the government of Mongolia in an effort to scale up efforts to improve air quality nationwide.

It provides revised and more ambitious targets, additional indicators, and aims to create a policy framework enabling more coordinated action in this sector. At the same time, several organisations partnered with the government with the aim to replace the coal-fired stoves with cleaner ones requiring less polluting fuels, or other technologies such as heat pumps in the case of a pre-feasibility study conducted by the Global Green Growth Institute. Despite these endeavours, Ulaanbaatar remains one of the most polluted capital cities of the world, regularly reaching dangerous levels of particles and topping rankings of worst air quality indexes.

Pollution smog stuck at low altitudes during winter months.

Mainstreaming the usage of energy-efficient appliances can drastically reduce emissions while being relatively low-cost compared to other solutions. Additionally, consuming less energy resources can alleviate the challenges posed by extremely cold weather conditions such as on warm or fresh air generation (e.g: conventional heat pumps greatly lose effectiveness in freezing climates) as well as on storage (e.g: batteries can see their performances and lifespan divided by two in temperatures twenty degrees celsius below zero, affecting the amortisation and profitability). However, energy efficiency faces its own barriers, such as the lack of trust in the actual energy savings more expensive efficient equipment can deliver.

The Energy Savings Insurance (ESI) has potential to overcome such barriers. ESI is an insurance-based model that incentivises micro, small and medium businesses (MSMEs) to choose energy-efficient solutions instead of cheaper, conventional appliances when installing or upgrading an equipment. The model guarantees the energy savings a high-performing system should deliver, reinforcing the trust in the long-term profitability of switching to energy-efficient appliances. XacBank enlisted the consulting services of BASE in November 2021 for a one-year program aimed at effectively implementing the ESI model, tested and proven successful in catalysing the adoption of energy-efficient technologies in other regions of the world, notably Latin America.

Partnering with sustainability leaders

Recognising the urgency to ramp up actions to promote energy efficiency, private sector actors also entered the arena over the past decade. Financial institutions such as ХасБанк (XacBank), started to establish several mechanisms to facilitate and accelerate the uptake of low-carbon technologies, such as loans with lower interest rates for equipment emitting less greenhouse gas (GHG) or hybrid and electric cars. In October 2016, XacBank became the first commercial bank and the first private entity from a developing nation to become an accredited entity by the Green Climate Fund (GCF). In that context, it received funding to scale up its efforts to promote renewable energy and energy efficiency in the country. In 2021, XacBank partnered with BASE to identify business opportunities, and define a strategy that would incentivise small businesses to invest in renewable energy and energy efficiency. The ESI model was seen as an option with great potential to achieve these goals.

Daniel Magallon, Managing Director of BASE, and Pablo Oses, Senior Business Developer, introducing the model at the workshop event organized by XacBank at the BlueSky Hotel&Tower. Ulaanbataar’s XacBank headquarters

In the framework of this project, the sustainability experts of URECA have been selected to conduct the technical validations of projects using the model. Originating from Mongolia and based in Singapore, URECA is a climate-tech startup specialising in developing state-of-the-art digital solutions to facilitate and democratise carbon offsetting. Leveraging the latest technologies such as blockchain and AI, the company helps households in unplanned ger districts as well as small businesses to shift to clean energies, improving their energy security and increasing their income by selling carbon credits gained by cutting their emissions. To ensure the transparency and benefits of those activities, URECA carries strict auditing activities and developed a user-friendly measurement, reporting and verification (MRV) system tracking transactions and their impacts. As part of the ESI implementation project in Mongolia, the company will harness its expertise in conducting energy performance analysis to act as a third-party validator and certifier of the savings that technology vendors claim to deliver to customers through their more efficient appliances. With its strong skills in digital solutions, the company will also design the management information system that will facilitate interactions between ESI adopters and all stakeholders involved, and consolidate reliable and transparent MRV data.

Kickstarting the model

In February 2023, the BASE team joined partners from XacBank, Tenger Insurance and URECA to present the model to a variety of stakeholders, including clean energy systems providers and government agency representatives. This inauguration marks the end of a long preparation phase reflecting on how to adapt the model so it can overcome local barriers and address country-specific needs. The feasibility study highlighted the potential of this solution aimed at smaller organisations: 90 percent of Mongolia’s companies are MSMEs. The market assessment revealed almost 14,000 of them, 85 percent of which operate in carbon-intensive industries such as mining, manufacturing or textile.

After the introduction of the model, a second follow-up workshop was held which caught the attention of seven major companies belonging to various sectors, including photovoltaics, electric motors, and efficient houses, among others. Possible pilot projects are being discussed with the objective to find reputable technologists, and keen customers to partner with in order to ensure the quality of the project and good initial visibility.

BASE will be accompanying Xacbank and Tenger Insurance partners all along the initial phase of implementation, which seeks to build strong relationships with local providers for the model to prosper in the long run.

Because the public sector has a significant role to play in the energy transition, the team held meetings with key organisations, including UNEP and Energy Regulatory Commission of Mongolia (ERC) in an effort to include the ESI model within the requirements of the government’s public procurement procedures. This would enable the state of Mongolia to use a standard but adaptable solution to promote sustainability and energy efficiency in all public projects, creating a real win-win situation for everyone.