Renewable Energy Opportunities in Colombia

Renewable Energy Opportunities in Colombia

Colombia is Ready to Adopt Non-traditional Renewable Energy

Colombia was one of the first countries in Latin America and the Caribbean in liberalizing the Electric Sector. Inefficacy and power outages were the main reasons to push energy reform (Laws 142 and 143).

On one hand, corruption and mismanagement caused large losses to the point that the central government was forced to borrow money to finance the electric sector. On the other hand, given that Colombian generation was concentrated mostly on hydro plants, dam levels were greatly affected by the El Niño Southern Oscillation droughts triggering scheduled power outages during 1991-1992.

The reform led to the establishment of new independent regulatory institutions, private sector participation, and the separation of the generation, transmission, distribution, and trading sectors. During the reform, most of the generation companies were sold.

Until 2016 the government still had 57.6% share of ISAGEN, Colombian generation company that generates 15% of total power. However, the government sold its share in 2016 and the generation sector is now 100% private.

 

Electric Market Structure

The reform split electricity consumers into two groups: Regulated and Non-regulated Users. Regulated users are consisted mostly of the residential sector and small commercial or industry users. To be eligible as a Non-regulated User, consumers are required to have a monthly energy consumption of 55 MWh during six consecutive periods or a demand higher than 0.1 MW. Currently non-regulated consumption represents 25% of the total energy demand in Colombia.

The reform also allowed Power Purchase Agreements (PPAs) and introduced the Wholesale Electric Market model, in which prices and demand are reported day-ahead and in real time. Non-regulated users can contract energy directly with generators through PPAs. They can freely negotiate prices and energy, but they should report those values to the Energy and Gas Regulatory Commission (CREG by its acronym in Spanish).

If non-regulated users demand more energy than the amount contracted, they can buy the shortage in the wholesale market at spot price. Similarly, in the wholesale market, utilities must buy the energy demanded by their costumers at a regulated price established by the CREG.

In addition, through Decree 2469 of 2014, the government regulated self-generators, which allows users to produce their own energy consumption. Large self-generators can deliver energy surplus to the grid but must be represented in the wholesale electric market by a distribution agent to sell the surplus and sign a backup contract.

As it is evident the Colombian energy market is well structured. It has regulated all mechanisms needed by stakeholders to market energy at their best convenience. This would ease the path towards a better diversified energy matrix.

 

Renewable Energy Future

During the last decade Colombia has concentrated its efforts to increase fossil fuel thermal generation in order to reduce dependency on hydropower. Consequently, hydroelectricity’s share of the energy mix fell from 75% in 1990 to roughly 60% today.

Colombia has been way behind other Latin American countries when it comes non-traditional renewable energies, such as solar or wind. Colombia has 18.42 MW of wind installed capacity and 96 MW of solar installed capacity, together accounting only for 0.7% of the total installed generating capacity.

Nevertheless, we are positive to see this tendency changing in the oncoming years. In January and May 2019, the Colombian Ministry of Mines held its first two large-scale non-traditional renewable energy auctions. The second auction is going well, and the CREG expects to award the contracts in September 2019. This auction is expected to increase non-traditional renewable energy between 2,887 MW and 4,313 MW.

We are positive that additional auctions will be carried out, making Colombia a great market for investors. It has a robust power market and great renewable sources. Specifically, La Guajira Department and the Atlantic coast has great wind and solar potential. In La Guajira, the solar potential is near 1,825KWh/m2/year and wind speeds are close to 33 mph, making it one of only two regions in Latin America to register winds of this speed.