BLOG — Oct 19, 2021
Colombia’s prospects for renewables
The Colombian energy regulator published on 26 September the list of companies that qualified for the third auction of renewable energy projects, which is scheduled to be held on 26 October. Meanwhile, the energy ministry published on 30 September 2021 Colombia's hydrogen roadmap, targeting 1GW of electrolysis capacity by 2030 and escalated usage of fuel-cell vehicles. Both developments point to a rapid expansion in renewables in the country, which would attract large-scale foreign investment and generate thousands of jobs, according to the energy ministry.
Colombia largely relies on hydropower but has considerable potential to develop renewable sources.
The energy matrix in Colombia is currently dominated by hydropower, accounting for 69.6% of power generation, followed by natural gas with 12.3% and coal with 9.3%. Gasoline and diesel account for 7.8%, while non-conventional renewable resources contribute only 1.0% to energy generation. There is significant scope for renewables growth, which has led the government of President Iván Duque to establish a comprehensive regulatory framework to incentivize the development of the sector. This has resulted in an ambitious development program, within which the first major auction (the third overall) is taking place on 26 October. Solar energy, wind, and biomass offer the most potential. For solar and wind generation, there are regions in Colombia where solar radiation levels are above 4.5 Kwh/mt2/day and areas where wind speed is greater than 9 m/sec at a height of 80 m. Both levels are above the global average of about 3.5 Kwh/mt2/day for solar and 7 m/sec for wind. Colombia's energy transition plan aims to increase renewable energy to 12% of the total by end-2022. The region with the most potential is the Colombian Caribbean, comprising the departments of Atlántico, Bolívar, Cesar, and Guajira. About 55% of the existing projects are located there, with the Guajira department pre-eminent for both solar and wind power.
The upcoming October auction is the result of recent landmark regulatory implementation.
Several milestones have been accomplished in 2021 so far, such as the congressional approval of the Energy Transition Bill in June, the award of the first auction of storage in lithium batteries (to be used as backup) in July, and the publication of terms for the third auction of renewable energy slated for 26 October. On 26 September, the Colombian regulator announced that 69 companies will have access to the auction - 22 as generators and 47 as off-takers. In total, there will be 38 projects to be awarded, with successful bidders committing to start delivering energy by 1 January 2023; the duration of contracts will be 15 years. The government indicated that it expected the new projects to add 5GW to the national grid.
The publication of the hydrogen roadmap adds to Colombia's ambitious plan for renewables.
On 30 September 2021, the energy ministry published the country's hydrogen roadmap that "establishes the path for the development, generation and use of this cleaner energy, promoting the consolidation of Colombia's energy transition for the next 30 years", according to the government. The regulatory framework was based on advice and funding from the Inter-American Development Bank (IDB). Colombia has a privileged geographical position that places it favorably to become a leader in developing renewables in Latin America. According to the energy ministry, hydrogen would attract USD5 billion in investment and generate 15,000 jobs over the next 10 years.
Colombia appears certain to boost electricity generation coming from renewables, but poor infrastructure and lengthy environmental licensing procedures pose hurdles.
Colombia's infrastructure is deficient, and this is likely to slow development of projects. The obsolete power distribution network will require both an overhaul and the construction of additional lines. Poor road and port infrastructure, particularly in the Guajira department, where the largest projects will be located, will slow the delivery of equipment and machinery to production sites. Another potential hurdle is the need for consultation with local communities, as demanded by the Colombian constitution, before granting environmental licenses. These procedures are lengthy and likely to generate significant civil unrest. The presence of several indigenous communities, particularly in the Guajira department, suggests that the consultation will be protracted despite government promises to speed up licensing for renewables. Another factor that will probably delay projects is the slow process at the local level to obtain approval for connection points to the national grid. This is likely to become a major constraint for the punctual completion of projects.
Indicators of changing risk environment
Increasing risk
- Protests by indigenous communities in the Guajira department over the use of their land for energy projects would increase the risk of severe delays in obtaining environmental licenses.
- A deterioration of Colombia's fiscal situation would indicate the likelihood of the construction of highways and the planned overhaul of ports in the Caribbean region being delayed, hindering project development.
Decreasing risk
- The October auctions prove successful, meeting government targets for investment and helping it to accelerate planned new power generation.
- The government commits to centralizing decisions related to connection points to the national grid, accelerating approval procedures.