| Colombia | Aug 21, 2022
Natural advantages and the state’s commitment to a green economy are advancing Colombia’s drive for alternative energy.
It may seem a little mercenary to view a green initiative—essentially a remedial one to reverse human damage inflicted on the planet—as commercially appealing. Yet, like it or not, such schemes work best if an integral part of mainstream economic policy, social mindset and commercial enterprise. Therefore, supporting infrastructural commitments aside, Colombia has built a conducive investment ecosystem for lasting energy transformation. The country recently adopted green taxonomy to deepen the green financing market. So-called green auditing is increasingly the name of the game for local businesses in terms of securing project financing. The government has already launched a sovereign green bond and is eyeing both state and private sector interest. Meanwhile, environmental, social, and governance (ESG) criteria are setting corporations new standards for environmental compliance.
Making it Worthwhile Now
Colombia aims at carbon neutrality by 2050, which will require transparency and consistency of policy and implementation. However, certain energy issues will need ironing out over time. For one, the National Energy Plan for 2050 foresees a doubling of coal-fired generation’s share of the overall matrix to 12.5% of installed capacity by 2028. Furthermore, Colombia has suffered from the lack of reliable, cost-effective, and climate-friendly energy supply reflecting in stubbornly low reserve-to-production ratios in hydrocarbons. Today’s energy generation mix is top-heavy hydropower, at over 70%. To that may be added around 11% of gas power generation.
A disproportionate reliance on hydroelectricity renders Colombia susceptible to climatic extremity such as drought, and weather patterns including as El Niño and La Nina. Energy matrix diversifications thus is essential and state incentives fuel the momentum. The tax breaks of 2020 include VAT exemption for the procurement, including importation, of equipment, machinery, and services comprising the initial investment, as well as investment in renewable power generation and consumption.
For longevity, state support, per Law 1715 of 2014, encompasses the accelerated depreciation regime incentive, at an annual rate of up to 20%. The regime covers renewable energy-based power producers investing in machinery, equipment, and construction as an investment prerequisite. Meanwhile, Energy Transition Law No. 2099 has established a fiscal framework and tax benefits for unconventional renewable investment of…
Colombia’s hydrogen journey has begun and this March national hydrocarbon concern Ecopetrol launched the first green hydrogen pilot project at its Cartagena-based refinery. The prospects for this USD140 million annual investment to 2040 are good given the region’s logistical advantage being on the Caribbean coast with access to the Americas and Europe when exports become feasible. Current estimates point to green and blue hydrogen production of 3.2 to 5.8 megatons by 2050.
Given its equatorial location Colombia’s solar energy market is forecast printing a CAGR of over 50% by 2027, by when its installed capacity will have scaled 4,019MW from 440MW in 2022. With a 12-hour daily window, solar stands to be the growth leader of Colombia’s green energy drive. The Guajira Peninsula in the northeast and the Orinoco flatlands in the east yield the highest national solar value of around 6.0 kWh/sqm. The El Paso solar plant is the nation’s largest solar facility, with a 2021 solar PV capacity of around 86.2MW. The facility can also curb annual CO2 emissions by c.100,000 tons.
While currently smaller than its neighboring countries, solar PV seems set to be its scaled to rival the current hydro-electricity contribution. In 1H2021, the Ministry of Mines and Energy launched the third renewables auction to allocate 796MW of solar power. Projects due for completion next year feature energy players such as EDF, Canadian Solar, Solar Pack, Enel, and Celsia. Additional auctions are earmarked for 2025 to 2026 to encompass renewable energy and reliable charge to enhance regular energy supply.
Blowing in the…
…Wind forms another part of Colombia’s green matrix, where the northeastern Guajira region sees hat-losing winds of 8.5 to 8.75m per second, exceeding global averages. A grid of 16 wind farms is envisioned for the region. The first, the Guajira I wind farm, has an annual capacity of 20MW. Assuming all facilities are operational by the 2031 target 17% of the nation’s total electricity grid will be in the breeze. Furthermore, the Caribbean city of Barranquilla has conducted a feasibility study regarding the potential for a 350MW offshore wind farm.
With ports uniquely on both the Atlantic and Pacific Oceans in South America, Colombia is ideally placed to export renewable energy with an optimized matrix in place. And with government incentives greasing the wheels of progress the nation promises to successfully trade off its green credentials.