Mongolia is planning widespread energy reform with the aim of diversifying its energy sources, improving energy infrastructure and reducing air pollution. Mongolia’s energy reform plans are reliant not only on support from immediate neighbours Russia and China but also its ‘third neighbours’ — nations other than Russia and China — such as the United Kingdom, France, India and Australia. The plan involves 14 mega projects, greater foreign investment in the energy sector, increased partnerships with third neighbours, expanding business opportunities in battery storage and increased installation of wind and solar energy.
Mongolian policymakers are embarking on energy reform that aims to diversify energy sources and work on issues like improving energy infrastructure and decreasing air pollution. The government has proposed ‘14 mega projects’ which will require support from Mongolia’s immediate neighbours — Russia and China — and are also heavily dependent on other nations for financial and technical assistance. These areas are an inseparable aspect of Mongolia’s transition to energy reform.
Energy reform has become an increasingly important topic of interest among policy pundits alongside Ulaanbaatar’s foreign partners. Mongolia’s need for energy reform is no longer solely about whether Mongolia should diversify its energy sources — it is now a matter of transition speed and a discussion of the mechanisms that will attract investment and financial support.
It has become clear to the Mongolian public in recent years that intermittent shortages of electricity in tandem with deaths and illnesses caused by extreme air pollution are becoming more widespread. It is an increasing view of the public that recalibrating the energy system is necessary.
The coalition government headed by Mongolian Prime Minister Oyun-Erdene Luvsannamsrai recognises the need to solve Mongolia’s energy challenges. The government will adhere to Mongolia’s long-term development strategy, ‘Vision 2050’, while implementing the State Policy on Energy 2015–2030. To Ulaanbaatar, increasing third neighbour participation is paramount to the pursuit of greater diversification of energy sources. Aligning foreign investment towards the energy sector, expanding business opportunities in battery storage and installing wind and solar is crucial.
‘Third neighbours’ — nations other than China and Russia — are central participants in Mongolia’s energy transition. For example, the United Kingdom has approved 11 projects with US$460 million in funding targeting the energy transition and other sectors. The Migration Action Facility will work on the ‘Mongolia – Energy Performance Contracting for Residential Retrofitting in Ulaanbaatar City’ project to improve insulation and energy efficiency in old apartment blocks.
The European Union is actively funding Mongolia’s energy sector with the European Bank for Reconstruction and Development. The EU partnership targets Mongolia’s ‘greater grid reliability and support for renewable generation’. Mongolia has also been working with Finland as a leading renewable energy country.
While Mongolia is striving to diversify its energy sources and transition to renewable energy, its economy continues to depend on the export of natural resources. In 2024, foreign direct investment into Mongolia increased to US$177 million, up from previous years. In the face of rising investment in green energy, Mongolia’s economy continues to depend on its mineral wealth.
But it is important for the Mongolian government to attract more investment, particularly in renewable energy infrastructure. With critical minerals exports increasingly relevant, foreign direct investment can be redirected toward these newer initiatives. Yet mining exports will continue to be Mongolia’s economic lifeline. The only concern is that if China stops importing Mongolia’s coal, Ulaanbaatar will need a different strategy. This is why economic diversification — even in the mining sector — is crucial.
In 2023, clean energy contributed a record 11.4 trillion RMB (US$1.6 trillion) to China’s economy — becoming a key driver of China’s economy. These notable shifts can influence Mongolia–China mining relations.
Though Mongolia exports 90 per cent of its coal to China, it is important for policymakers to divert certain Chinese investments into necessary sectors. A comprehensive strategic partnership with Beijing will present a learning curve for Mongolia’s critical minerals and clean energy market.
Russia will play a different role in Mongolia’s energy reform. Russia will continue to see Mongolia as a major energy buyer and likely to maintain that relationship even with Ulaanbaatar’s renewable energy directions.
Russia and China — both comprehensive strategic partners of Mongolia — will need to support Ulaanbaatar’s endeavours in improving its energy infrastructure, diversifying energy sources, while assisting development of clean and renewable energy. In addition to relying on its two neighbours, Mongolia is currently eyeing nations in the Indo-Pacific and the Middle East for new partnerships.
In the coming years, Mongolia’s diversification of energy sources, transition to renewables and accelerating business investment in energy will continue to be a key priority. Mongolia’s third neighbours including India, France and Australia already have mega projects in place in oil refining, uranium exploration and mining, including one of the world’s largest copper mines with Rio Tinto. Newer partnerships with Saudi Arabia, the United Arab Emirates and Bahrain represent an expansion of bilateral relations.
Ulaanbaatar’s proposal for energy reform will take years to fully implement. Until the necessary infrastructure is put in place and fully operational, Mongolia will continue to depend on coal-based energy. On a geopolitical level, Mongolia’s success in the energy transition will also depend on the stability of the region and where the flow of finance is heading.
BY: Bolor Lkhaajav is a Researcher specialising in Mongolia, China, Russia, Japan, East Asia and the Americas.
This article is part of an EAF special feature series on 2024 in review and the year ahead.
https://doi.org/10.59425/eabc.1742076000

Published Date:2025-03-17