5 main reasons to invest in Colombia’s renewable energy market

Colombia’s global ranking in the generation of clean energy

As stated by the World Economic Forum’s 2020 Energy Transition Index, Colombia ranks second in the Americas and 25th out of 115 countries worldwide in terms of its capacity to supply quality energy in a self-sustaining, accessible and environmentally friendly manner.

Colombia’s projections in the development of renewable energies

In response to the high dependency on water sources for power generation, Colombia has established a modern regulatory, institutional, and market framework to diversify the energy matrix. Thanks to the latest energy auctions, and by using alternative energy sources, Colombia will increase its power generation capacity by a factor of 50, i.e., from 50MW in 2018 to 2,500MW in 2022. By 2050, renewable energy is expected to account for 25% of the country’s energy matrix.

Colombia’s potential for renewable energy resources

The country has a high potential to generate energy from non-conventional renewable energy sources, thanks to the availability of energy resources such as the sun (4.5 kWh/m2 daily average solar radiation, higher than the global average of 3.9 kWh/m2), the wind (potential to implement wind power plants of more than 25GW, with wind speeds in La Guajira twice as high as the world average), and biomass (enough potential to supply 46% of the national energy demand – over 500,000 TJ per year). Pilot projects, such as Ecopetrol’s USD $6 million green hydrogen pilot project in the Refinery of Cartagena (Reficar), and further research for the generation of hydrogen as an energy source are currently underway.

Incentives provided by the national government for the development of renewable energy projects

Colombia offers incentives for the development of renewable energies, including a 50% income tax deduction for 15 years for investments in alternative sources. Energy from non-conventional sources sold by the producer are exempt from income tax; energy generation equipment imports are exempt from custom duties and VAT; and the acquisition of solar panels and solar generation equipment is automatically exempt from VAT.

Colombia’s recent experience in renewable energy auctions

In a recent auction in October 2022, Colombia awarded power supply contracts for a total of 12.05GWh/day; developers agreed to invest over USD $2 billion in non-conventional renewable energy projects in the renewable energy auction.

Investment opportunities in the renewables energy sector

As of 2021, there are more than 150 power generation projects registered at the UPME (Energy-Mining Planning Unit) with non-conventional energy sources (solar, wind, biomass), with an installed capacity of 10,166MW.

Some of these projects are open to strategic partnerships with investors who are willing to carry out the construction and operation of said projects. ProColombia, the country’s investment promotion agency, has prioritized 23 projects in 11 departments, deploying commercial efforts to connect developers with foreign investors.

Green and blue hydrogen projects are also a main target for the Colombian government. It has been so successful in the country in recent months that in January 2023 the Hydrogen Council announced Ecopetrol as a new Board Member. This will further boost the country’s ambition to become one of Latin America’s largest hydrogen production and export hubs.

Colombia secures USD $70 million in development funds for clean power

On February 2 2023, Colombia secured USD $70 million to prime its power grid for more renewable sources like solar and wind, from a fund that aims to attract further cash for developing countries’ bids to reduce greenhouse gas emissions.

The windfall is the latest from the Climate Investment Funds (CIF), which was set up by big country donors in 2008 and has since put money into projects aimed at reducing carbon emissions in countries that seek help to do so.

According to the International Monetary Fund (IMF), “developing economies account for two-thirds of global greenhouse gas emissions and it is harder for private investors to find viable projects in those countries than in mature markets”. In response to this, CIF stated that it hoped the USD $70 million given to Colombia would attract a further USD $280 million from public development banks and carbon finance markets.

Furthermore, CIF endorsed a national plan that includes reinforcing the grid to cope with the intermittency of solar and wind, and building clean power facilities in the country’s non-interconnected areas.

President Gustavo Petro has agreed to prioritize renewables, including through majority state-run energy company Ecopetrol, when he took office in August 2022. Solar panels accounted for just 0.8% of Colombia’s power capacity as of January 2022, but CIF highlighted that the country generated record levels of solar power in 2021, and that an “energy transformation is already under way in Colombia”.

Colombia inaugurates three 37MWp solar plants

On February 3 2023, the Minister of Mines and Energy of Colombia, Irene Vélez, will inaugurate 3 37MWp solar plants, in the department of Tolima, which will generate enough energy to supply electricity to 40,000 homes, with savings of 26,000 tons of CO2 per year.

These photovoltaic plants, which are part of a group of 37MWp generation projects that will produce a total of 69GWh per year of renewable electricity, have been built by the Spanish Grenergy, which specializes in the development, construction and management of photovoltaic, wind and storage projects. The company currently has 72MWp of solar projects in operation, and more than 1GW under development.

The inauguration ceremony of the parks will also be attended by the Spanish Ambassador to Colombia, Joaquín de Arístegui, who will be accompanied by David Ruiz de Andrés, CEO of Grenergy, as well as other authorities.

About the Author: Felipe Gaitán Michelsen