Energy Efficient Construction Or Insulation Material
Energy Efficient Construction Or Insulation Material
Business Model Description
Invest in B2C/B2B businesses engaged in production of low carbon and energy efficient insulation materials.
Mongol Basalt JSC, founded in 2007, produces building heat insulation materials using basalt stones. The product is fire resistant and helps reduce carbon dioxide and air pollution as well as saves thermal energy consumption of buildings by 60-70%. The Company was named as the Best Energy Efficiency Technology Innovator in 2018. (7)
Ecowool LLC manufactures building insulation materials using sheep wool, and exports insulation material. The Company strives to develop products and solutions to deliver low carbon and sustainable building materials.
CHIP (cooking, heating and insulation products) package, provided by the Government of Mongolia's Green Loan Program, gives ger district households stable and clean heating and warmth throughout winter months, thereby helping to reduce both indoor and outdoor air pollution. Currently, the package is offered to households at an interest rate of 1.8% per month for a duration of 30 months.
Expected Impact
Provision of energy efficient insulation solutions to reduce air pollution and improve quality of life of those residing in the informal settlements.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Mongolia: Ulaanbaatar
Sector Classification
Infrastructure
Development need
As per TCData 360, Mongolia performed poorly in terms of the quality of infrastructure as it ranked 130 out of 160 countries in 2018, indicating a need to address infrastructure development, especially to support rapid urbanization. (1)
Policy priority
Vision 2050, Five Year Development Plan, Government's Action Plan and the New Recovery Policy determine infrastructure development as one of the top priorities.
Gender inequalities and marginalization issues
A study reveals that women and children are highly impacted by air, water and soil pollution which is a result of poor urban infrastructure.
The effects of poor infrastructure development are greatest for women and low-income residents as they primarily engage in unpaid household work, living in peri-urban informal settlements (ger districts) - that have limited access to electricity, water, sanitation, and heat supply (2).
Investment opportunities introduction
With the newly approved Law on Public Private Partnerships of 2022, the Government of Mongolia places a high priority on the use of public-private partnerships to undertake large-scale infrastructure projects.
Key bottlenecks introduction
Obtaining adequate finance to undertake infrastructure projects is difficult due to the high risks associated with long payback periods, thereby limiting rapid expansion for projects. Also, upfront costs are significant.
Infrastructure
Development need
Ulaanbaatar is one of the coldest and most polluted capitals in the world. The per-capita use of heating fuel is extremely high and the housing insulation levels are poor in the city (2a). As the dwellings in the informal settlements lose 3-5 time more heat (2b), the residents use coal- burning stoves for heating which results in air pollution posing a great risk on health.
Policy priority
Vision 2050 and Five Year Development Plan aimed at reducing air pollution by 38 percent till 2025 and by 65 percent till 2030. The NDC aims at reducing building heat loss by 40 percent by 2030, compared to 2014 levels. (5)
Gender inequalities and marginalization issues
The residents living in the ger district (peri-urban informal settlements) are increasing each year due to internal migration, thereby increasing the level of air pollution. Due to air pollution, children and pregnant women’s health risks have almost reached a crisis level in Ulaanbaatar.
On the coldest days of the year that record 40 degrees below zero, daily average pollution levels reach 27 times the level WHO recommends as safe. Miscarriages are 3.6 times more likely to happen during coal burning months, and one in 10 deaths is attributable to air pollution, 80 percent of which is caused in the peri-urban informal settlements (ger districts) where the air pollution is highest. (6)
Investment opportunities introduction
Private investment is encouraged to bring in technical expertise and help fund the required infrastructure, particularly to improve energy efficiency to increase access to adequate, safe, and affordable housing and basic services, and upgrade slums by 2030, as defined by SDG 11.
Key bottlenecks introduction
In the absence of incentives, heat is not metered, and thus heat-related payments are not affected by insulation investments that reduce the amount of heat consumed. Due to the lack of domestic production, the insulation material is highly priced.
Consumers have low interest in energy savings which lead to low demand in energy efficient homes due to subsidized heat and electricity tariffs.
Engineering and Construction Services
Pipeline Opportunity
Energy Efficient Construction Or Insulation Material
Invest in B2C/B2B businesses engaged in production of low carbon and energy efficient insulation materials.
Mongol Basalt JSC, founded in 2007, produces building heat insulation materials using basalt stones. The product is fire resistant and helps reduce carbon dioxide and air pollution as well as saves thermal energy consumption of buildings by 60-70%. The Company was named as the Best Energy Efficiency Technology Innovator in 2018. (7)
Ecowool LLC manufactures building insulation materials using sheep wool, and exports insulation material. The Company strives to develop products and solutions to deliver low carbon and sustainable building materials.
CHIP (cooking, heating and insulation products) package, provided by the Government of Mongolia's Green Loan Program, gives ger district households stable and clean heating and warmth throughout winter months, thereby helping to reduce both indoor and outdoor air pollution. Currently, the package is offered to households at an interest rate of 1.8% per month for a duration of 30 months.
Business Case
Market Size and Environment
USD 100 million - USD 1 billion
As of 2019, there were 160,000 households needed to insulate their houses in Ulaanbaatar. (6)
In order to meet the target specified by the NDC, Mongolia needs to improve insulation for existing panel apartment buildings of 18,184 households in Ulaanbaatar, for an investment amounting to ~USD 90 million. (8)
The main customers of the business are 221,000 households living in informal settlements in Ulaanbaatar city, as well as construction companies. More than 80 percent of the detached houses in informal settlements are self-built, or built by informal companies or individual workers with limited technical knowledge and expertise in energy conservation. (3)
The projection of housing demand based on the population growth rate indicates that approximately 140,000 apartment units will be constructed between 2020 and 2030, translating to ~14,000 new units annually. (4)
Indicative Return
10% - 15%
Publicly traded comparable companies noted average gross profit margins of 10-19 percent.
Even though the main raw materials including sheep wool or basalt wool are locally available and can be purchased at a comparatively cheaper price, the manufacturing process is capital intensive of which capital is usually financed by commercial financing.
The manufacturing could not reach economies of scale that makes the cost of materials at considerable prices.
Investment Timeframe
Short Term (0–5 years)
As per expert consultations, the expected payback period is about 5 years or less.
Commercial banks in cooperation with UNICEF and the Government of Mongolia provide concessional loans with annual interest rates of 3 percent, a tenor of up to 30 months, and no advance payment for purchasing the CHIP (cooking, heating, and insulation products) packages. Vulnerable households are provided with CHIP packages at up to 70 percent subsidized price.
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Capital - Limited Investor Interest
Capital - Requires Subsidy
Market - Volatile
Impact Case
Sustainable Development Need
As the dwellings in the informal settlements lose 3-5 time more heat (2b), the residents use coal- burning stoves for heating which results in air pollution posing a great risk on health. The average household in those informal settlements emits approximately 13 tons of CO2 household per year. (3)
Reduced consumption of coal for heating and improved insulation of construction will reduce GHG emission as more than 50 percent of Mongolia’s greenhouse gases come from the energy and construction sectors. (8)
Improved insulation and energy efficiency will reduce poverty. A typical ger-area resident spends USD 200 on roughly 4-6 tons of coal for heating per year (6) and the thermo-technical refurbishment of a building is around eight times cheaper than constructing a new one. (8)
Gender & Marginalisation
Children are the most vulnerable to adverse health effects of air pollution from the day they are conceived. Children living in a highly polluted district of central Ulaanbaatar were found to have 40 percent lower lung function than children living in rural areas. (5)
Improvement in insulation will reduce heating consumption and thus will have a significant impact on time saving for women to heat their homes. Households burn coal to heat their homes 3-4 times per day which increases unpaid care work for women during winter time. (3)
As of 2018, 93 percent of sample households in ger area (peri-urban informal settlements) were required to insulate their homes and 60 percent of the surveyed households expressed the thermal condition of their homes as cold according to the SWITCH Asia's project baseline survey.
Expected Development Outcome
Households who implemented energy efficient insulation solutions experienced improved thermal comfort, decreased frequency of respiratory system diseases, which led to less expenditure on health and reduced stress in preparing fuel and firing stoves. (2)
This has resulted in better health and well-being of households living in the ger area. The insulation products and services developed are able to save energy consumption of detached houses up to 70 percent. (2)
Increased production of low carbon and energy-efficient insulation materials will substitute imports of such products, thereby improve foreign trade balance.
Increased production of low-carbon and energy-efficient insulation materials will support employment.
Gender & Marginalisation
Improved living conditions for low and middle income population that cannot otherwise afford to upgrade their homes.
Energy efficient insulation solutions will provide improved thermal comfort and decreased frequency that results in less care work for sick children and better economic opportunities for women and consequently more gender equality.
Primary SDGs addressed
3.9.1 Mortality rate attributed to household and ambient air pollution
8.3 percent (2021)
12 percent by 2025, 14.6 percent by 2030 and 27.4 percent by 2050
8.4.2 Domestic material consumption, domestic material consumption per capita, and domestic material consumption per GDP
15 kg/USD (2018)
10 kg/USD in 2025, 6kg/USD in 2030 and 3kg/USD by 2050
11.1.1 Proportion of urban population living in informal, informal settlements or inadequate housing
Proportion of households with access to adequate housing: 2018 - 25.3 percent
33 percent by 2025, 35.8 percent by 2030
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
If the price of insulation materials is not commensurate with the appetite of low income households, the initiative will not address the challenge of energy inefficiency.
Heating tariff is subsidized, thus, consumers may have low interest in energy savings which lead to low demand for insulation.
In the absence of prescribed standards, vulnerable population maybe exploited with poor quality materials.
Impact Risks
Due to a lack of information, low price of energy and affordability-related challenges, manufacturing cannot reach economies of scale, putting the cost of materials at considerable prices.
In the absence of accessible financing schemes/loans that are serviceable, especially by low income households, the model will remain fragmented, unable to address energy efficiency issues.
Women and low-income population may face challenges to meet bank loan requirements. (10)
Impact Classification
What
Production of low carbon and energy efficient building insulation materials, which can reduce heating demand and air pollution and develop construction industry.
Who
Stakeholders in the construction industry and Mongolian citizens benefit with access to energy efficient insulation materials.
Risk
There is a risk that limited availability of construction materials supply and concessional loans may negatively affect the scale of projects.
Contribution
If only 10 percent of new houses built in the ger districts were built in an energy efficient way, this would result in a saving of ~48,000 tons of CO2 per year (6)
How Much
The refurbishment in buildings reduced heat consumption by 45-58.3 percent (6)
Impact Thesis
Provision of energy efficient insulation solutions to reduce air pollution and improve quality of life of those residing in the informal settlements.
Enabling Environment
Policy Environment
State Policy on Energy (2015-2020) was approved by the Government of Mongolia wherein energy efficiency was one of the three major policy principles.
Mongolia NDC target: Reduce an equivalent of 830,000 tons of carbon dioxide in the construction sector. These include: -599,000 tons of CO2-equivalent due to the use of improved fuels; -231,000 tons of CO2-equivalent due to insulation of prefabricated apartments.
Financial Environment
Financial incentives: Commercial banks and financial institutions offer concessional loans for households to improve energy efficiency by insulating low carbon and sustainable building materials.
Fiscal incentives: The Law on Corporate Income Tax provides for exemption with respect to the sale of imported equipment and machinery which is environmentally friendly and reduces environmental pollution and waste.
Regulatory Environment
The Mongolian Norm and Regulation BnDB 23-02-09 “Thermal Performance of Buildings” provides performance objectives with measurement and monitoring criteria, which allow building designers the flexibility to determine their own methods for achieving the requirements
The 2015 Energy Conservation Law mandates large energy consumers to undergo an energy audit and to report annually their energy consumption as well as their plans and activities to reduce their energy consumption.
Marketplace Participants
Private Sector
Khan Bank, Xacbank, Mongol Basalt JSC, Ecowool LLC, Rostorg LLC, Unu Mongol Ger LLC,Orgil Jim LLC
Government
Ministry of Construction and Urban Development, Ministry of Environment and Tourism, Ministry of Energy, the Municipality of Ulaanbaatar, Energy Regulatory Committee
Multilaterals
Switch Asia Program of the European Union, Asian Development Bank, International Financial Corporation, Green Climate Fund, Global Green Growth Initiative,
Non-Profit
Mongolian Civil Engineers Association (MACE); Building Material Manufacturer Association, Building Energy Efficiency Center, GERES NGO, People in Need NGO, German Agency for International Cooperation /GIZ/, Czech Republic Development Cooperation, French Development Agency
Target Locations
Mongolia: Ulaanbaatar
References
- (1) World Bank, 2018, TCData 360 Mongolia,https://tcdata360.worldbank.org/indicators/trade.fac.infr?country=BRA&indicator=332&viz=line_chart&years=2007
- (2) Switch Off Air Pollution (2021), Impact Sheet: Energy efficiency advisory and financial intermediation for sustainable housing in unplanned areas of Ulaanbaatar
- (3) Asian Development Bank (2018), Funding proposal: Ulaanbaatar Green Affordable Housing and Resilient Urban Renewal Project (AHURP)
- (4) Nationally Determined Contributions of Mongolia, https://www4.unfccc.int/sites/submissions/INDC/Published%20Documents/Mongolia/1/150924_INDCs%20of%20Mongolia.pdf
- (5) UNICEF Mongolia, https://www.unicef.org/mongolia/environment-air-pollution
- (6) GIZ (2022), Energy Efficiency in the Building Sector for a More Sustainable Mongolia
- (7) Mongolian Stock Exchange, (2021), Annual report of Mongol Basalt JSC. https://mse.mn/uploads/images/_%d0%b6%d0%b8%d0%bb%d0%b8%d0%b9%d0%bd_%d2%af%d0%b9%d0%bb_%d0%b0%d0%b6%d0%b8%d0%bb%d0%bb%d0%b0%d0%b3%d0%b0%d0%b0%d0%bd%d1%8b_%d1%82%d0%b0%d0%b9%d0%bb%d0%b0%d0%bd_2018.02.pdf
- (8) UNDP (2018), Nationally Appropriate Mitigation Actions (NAMA) in the Construction Sector in Mongolia
- (9) Switch Off Air Pollution's Research Report on Developing Database of MSMEs operating in the Construction Industry of Mongolia, 2019
- (10) Government of Mongolia, United Nations Mongolia and Joint SDG Fund, 2021, Integration of Gender Responsive Financing Practices in Mongolia’s Financial Sector