90 percent of Mongolian businesses are Micro, Small and Medium-Sized Enterprises (MSMEs). The majority of these enterprises use outdated and inefficient equipment – resulting in relatively large emissions of greenhouse gases.
The major barriers preventing MSMEs from investing in renewable energy or more energy-efficient equipment are the high upfront costs of such equipment, lack of familiarity or trust in such technologies, competing investment priorities, and the lack of accessible and locally appropriate financing options.
Due to the extreme climatic conditions in Mongolia, ensuring sustainable and affordable heating is a vital issue for the country’s population. Nowadays, coal is the main source of energy in UlaanBaatar, used to generate electricity, provide district heating to a significant part of the city, and warm up the 800,000 inhabitants residing in traditional dwellings, called gers. The phenomenon creates substantial pollution affecting climate and population health.
While Mongolia encompasses unique challenges, it also presents interesting business opportunities for sustainable energy that can be tapped into by enabling the market conditions for sustainable energy projects for MSMEs.
In 2016, XacBank was granted funding from the Green Climate Fund to implement an MSME business loan programme for greenhouse gas emissions reduction in Mongolia.
BASE supported XacBank to identify business opportunities, and define a strategy aimed at motivating clients to invest in renewable energy and energy efficiency. The strategy included developing the Energy Savings Insurance (ESI) model, which consists of risk performance coverage via a surety insurance product, a standardised contract, independent technical valuation and a monitoring, reporting and verification system. Together these elements create trust between clients and technology providers, and ensure projects’ quality.
The implementation started in 2020, aiming to develop the ESI elements for the Mongolia market and adapt the model to the local context. Therefore, on top of determining the entity in charge of technical validations for ESI projects and the management information system provider, BASE played a crucial role in assisting Tenger Insurance in developing the ESI policy in Mongolia, who worked very closely with regulators to identify a suitable product that aligns with the characteristics of the ESI model. This was particularly important due to certain local regulations in Mongolia that restrict the use of certain products, such as surety insurance, which are commonly utilised by the ESI model in other countries.
As of 2024, the model was successfully piloted in two different solar photovoltaic projects, at XacBank headquarters in Ulaanbaatar, and an E-Mart supermarket also in the capital city.
The Energy Savings Insurance (ESI) model can help to mobilise investments and develop energy efficiency markets by reducing investment risks and building trust between key actors. The ESI strategy targets SMEs to upgrade their old inefficient technologies to new energy-efficient technologies, for example, replacing an old compressed air system with a newer, more efficient one. These new efficient technologies are able to generate the operational cost savings to allow an end-user to recover their investment in a reasonable period of time, while also improving the productivity and efficiency of their business, and reducing greenhouse gas emissions.
The strategy is based on previous experiences in Latin America and Europe, where the ESI program has been successful in mobilising investments in energy efficiency and engaging SMEs and technology providers.
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