Prophecy Coal Chandgana 600 MW coal power plant project

The Canadian company “Prophecy Coal” has received a license from the Mongolian government in November 2011  and is in the process of planning a 600 MW coal power plant right next to their prospective coal mine at Chandgana in Eastern Mongolia. Chandgana is located only about 1000 kilometers away from Beijing, a distance that can be covered with small losses of only about 3% with a high voltage direct current power line. From the project web page:

“The Chandgana coal project consists of two major deposits, Chandgana Tal, with a measured resource of 141 million tonnes, and Chandgana Khavtgai, with a measured and indicated resource of over 1,000 million tonnes (524 mt measured and 545 mt indicated). A mere 9 km apart, the projects are both close to important infrastructure – towns, roads, and electric transmission lines. Chandgana is linked by paved highway to both Mongolia’s capital, Ulaanbaatar, and the Trans-Mongolian Railroad, giving direct rail access to China to the south and to Russia to the north.”

Looking at their web page on that project and their latest presentation for investors gives some vital background information on the situation of Mongolia’s existing and expected electricity generation capacity, as well as some related insights on China.

First off, existing Mongolian capacity is about 750 MW in 2011, unchanged from 2000, and based on dated coal power plants. Since the Mongolian economy is growing fast, demand is expected to rise. Right now the electricity consumption per capita is only about 1,500 kWh per year, compared to about 8,000 in Japan. Demand is projected to grow to 1,600 MW by 2015, leaving a deficit of over 700 MW.

Even now, Mongolia is unable to meet internal demand and needs to import electricity from Russia at 8 cents per kWh.

And of course, immediately next to Mongolia is China with a demand expected to hit 5,000 TWh in 2012.

It is clear from these figures that there is a very good market for developing new electricity capacity in Mongolia right now. The problem for solar will be to beat the price of this coal project. This will be extra cheap for the simple fact that they will burn their own coal right at the site of the mine, which eliminates almost all of the cost usually coming from transporting the coal.

On the other hand, with solar energy the fuel cost is zero. Once the capital cost is paid off, it will beat coal even under these circumstances. With solar, you are paying an eternal supply of fuel right with the capital cost of the plant.

Still, looking at the figures of this project, this is one tough competitor to beat. They assume capital cost for the power plant and transmission lines of $744 million, with a project life of 30 years. The plant’s power production cost is estimated at 2.3 cents per kWh (including coal) and the cost for capital recovery, including loan principal and interest payments at 2.5 cents. That would set their generating costs at 4.8 cents, which is rather low for a coal project.

Again, that makes sense since they will be burning the coal right at the mine. Mongolia also does not impose any costs on CO2 emissions at this time, which helps reduce costs. And no one is talking about carbon capture and storage in Mongolia either, so that is another factor making generation cheaper at that site.

This will be tough to beat for any solar project. On the other hand, once solar has become cheaper than coal at Chandgana in about a decade, there will be nothing left to stop it.

And in the meantime, there might be some need for a little help from the friends of solar. But with 5,000 TWh of Chinese demand right next door, there should be no problem to find people interested in buying energy even with another cheap coal plant getting online in 2015.