Renewable energy in Colombia

Due its high rainfall levels and abundance of water resources, Colombia has one of the cleanest electricity grids in the world. Nevertheless, achieving decarbonisation goals have been essential to Colombia’s political, economic, and business agenda. Since 2010 the governments in office have directed public policy around renewable energy, issuing a strong legal framework that has created favorable conditions for investment and the development of new technologies. 

Subsequently, Colombia is emerging as an important leader in the energy transition in LATAM. In recent years the country has implemented efforts from the public and private sectors to promote the integration of renewable energies into the electricity matrix (such as solar, wind, biomass, geothermal, and renewable and low-carbon hydrogen) and the use of more environmentally friendly fuels. This has allowed Colombia to identify the potential it has in renewable resources.  

Colombia has regions with constant daily radiation throughout the year of 6 Kw/m2, which corresponds to 60% above the world average. La Guajira has winds with measured wind speeds of 9 m/s at 80m of height, which is twice the world’s average. According to IRENA, by 2050 Colombia will have the fourth cheapest and most competitive green hydrogen levelized cost in the world, competing with the low costs in China, Chile, and Morocco.  

These characteristics make Colombia an attractive country to develop clean energy generation technologies that will allow an accelerated decarbonization process in sectors other than electricity as well as sectors that are difficult to electrify, such as industrial and transport. This indicates Colombia’s policies have been successful in creating favourable conditions for investment and the development of new technologies, including renewable generation, electric mobility, and green and blue hydrogen.  

Currently, Colombia has an installed generation capacity of 19,0047.79 MW 1 July of 2023, according to the latest update made by XM S.A. E.S.P. . Hydraulic power plants make up 12,584.08 MW (66% of the installed generation capacity) of this,  and 5,816.33 MW (31% of installed generation capacity) of the total capacity corresponds to thermal power plants, which mostly use coal, natural gas, and fuel oil. Thermal power plants are required in Colombia to support supply in times of drought.  

Because of Colombia’s heavy dependence on its water resources, its energy policy seeks to ensure the reliability and security of energy supply during times of water scarcity. This is because the occurrence of the “El Niño” 2 This phenomenon is a cycle of climate variability that occurs in the tropical strip of the Pacific Ocean that causes the warming of the surface of its waters, leading to droughts and, consequently, limits water resources. It occurs cyclically over three to four years, albeit erratically.  phenomenon generates intense periods of drought that affect the contribution of hydropower plants to Colombia’s energy matrix. 

For this reason, a long-term backup mechanism - called the Reliability Charge - was created to expand firm power-generation infrastructure to ensure supply during periods of water shortages. This mechanism ensures that generators are remunerated in exchange for the availability of their generation assets. The cost of this mechanism is passed on to end-users through their utility bills. The Reliability Charge mechanism has enabled players interested in participating in the local market to devote significant resources to developing electricity generation infrastructure, especially thermal, and in turn, has ensured the security of energy supply at critical periods. 

However, Colombia’s energy policy has led to the concentration of two sources of generation: hydro and thermal. Therefore, and in the context of the energy transition, Colombia's most recent energy policy has been directed towards diversifying the electricity grid and fulfilling the country's commitments to combat climate change and achieve the objectives of sustainable development. This gradual transformation of the energy matrix has given prominence to other renewable sources of generation, particularly solar and wind and, to a lesser extent, biomass and geothermal. 

The Colombian legal and regulatory framework has created different mechanisms to integrate renewable energy resources into the Colombian electricity grid and its competitive participation in the energy market, such as, among others 3 The development of small and large-scale self-generation and distributed generation activities and auctions for the entry into of long-term contracts. , the Reliability Charge. 

Thus, in 2019 a Reliability Charge auction was held with the aim of allocating firm energy obligations (“OEFs,”) 4. It is the obligation of a generator to generate a daily amount of energy during the period of validity of such obligation, when the bag price exceeds the limit price known as the Activation Shortage Price.  A net effective capacity of 4,010 MW was allocated in OEF, of which 1,160 MW corresponds to 6 wind generation projects, 238 MW corresponds to 2 photovoltaic solar generation projects, and 1,372 MW corresponds to 3 hydropower generation projects. This was the first time that renewables participated in such auctions 5 This mechanism has been applied in Colombia since 2006. Since then, three auctions have been held. , competing directly with traditional energy sources. 

The Energy and Gas Regulatory Commission has called for the third expansion auction for the allocation of OEF for the period from December 2027 to November 2028, in which high participation of renewable generation sources, particularly solar, is expected. 

Colombia stands out for having the regulatory framework and instruments to promote the use of renewable energy resources, as well as investments, research, and development of clean technologies to produce energy, energy efficiency and demand response. These favourable conditions are reflected in the interest that investors have shown in continuing the development and construction of renewable projects in Colombia. While public policy on renewable sources in Colombia has been successful, investors and developers face different regulatory, financial and transmission infrastructure challenges, mainly with respect to the connection of generating assets to the National Transmission System (“NTS”). 

Thus, one of the challenges facing the Colombian electricity system is the expansion of its transmission network. At the end of 2022, the Mining-Energy Planning Unit (“UPME”) published the Transmission Expansion Plan for 2022 – 2036 which aims to reach an appropriate electricity supply.  

The Caribbean region is one of the major focuses of the Plan. In the opinion of UPME, "The Caribbean concentrates the largest portion of the assigned capacity, the seven departments add 9,042 MW of FNCER (Non-Conventional Sources of Renewable Energies) and conventional sources." Additionally, UPME warns that "currently the transport capacity of the existing network and of the expansions is exhausted, conditioning the connection of new generation projects." Thus, the main challenge seems to be the speed to develop the projects to increase the electricity transmission capacity.  

Some of the strategic projects have presented significant delays such as the "Colectora" project, which will transmit renewable energy from La Guajira, connecting seven wind farms to the National Interconnected System, with a capacity of 1,050 megawatts. With the energy transmitted through “Colectora”, close to 10% of the country's electrical energy demand could be met. The delays occurred mainly due to the complex negotiation process with the communities, which concluded in June 2023, when the “prior consultation” process with the 235 affected communities was completed. 

It is expected that once these drawbacks have been overcome, the entire expansion plan will be able to acquire greater dynamism that will allow the network expansion goals to be met, as well as the connection of power renewable generation plants. 

In June 2022, the new process for the connection of projects to the NTS 6 The regulation of the procedure of assigning connection points is relevant to the prosperity of power generation projects in Colombia. The old procedure for connecting projects to transmission and distribution network operators led to delays and capacity hoarding, among other barriers. For this reason, the Energy and Gas Regulation Commission (CREG) issued Resolution CREG 075 of 2021 (new process for connecting projects to the National Transmission System), through which the process was centralized in the UPME. In June 2022, connection requests were first submitted under this new procedure, which are expected to be finalized by the end of December of 2022.   resulted in 801 applications for generation projects, equivalent to 56,683 MW of generation capacity which is almost three times the total installed capacity of the country. Of these requests, the main generation sources were the sun with 668 requests for a capacity of 42,774 MW and wind, with 64 requests for a capacity of 11,457 MW. 

Of these applications, 7,493 MW of generation projects were allocated in March 2023. Of the allocated projects, 5,774 MW correspond to solar energy which is equivalent to 147 projects; 1,237.8 MW correspond to wind projects which is equivalent to 10 projects, of which 6 are offshore with a total capacity of 349.8 MW; 169 MW correspond to 7 hydroelectric projects; and 1 biomass project. These projects are expected to start operation between 2022 and 2032. 

As mentioned above, Colombia is expected to have the fourth cheapest and most competitive green hydrogen levelised cost in the world. This is owed much to the regulatory framework which has been designed to promote the development of activities that make up the hydrogen value chain, such as production, storage, transport, distribution and use, as well as innovation, research and investments: 

This legal and regulatory framework has been crucial for important local investors who have led the development of pilot and small hydrogen projects. Most of these projects are in the early stages of progress, and seek to allow for analysis of the technical, environmental, and financial viability of hydrogen projects in Colombia. 

Recently, Ecopetrol (Colombian National Oil Company) and Promigas (a major Colombian private corporation) launched their pilot programs. Ecopetrol will build a Green Hydrogen plant at Cartagena’s refinery, to optimize energy consumption at the refinery, producing 20 Kg of high purity green hydrogen daily, they will also build a green hydrogen production plant at Barrancabermeja’s refinery, which 60% of hydrogen production will be used for its own consumption, and the other 40% will be exported. Promigas’ project is aimed to produce 1.574 Kg a year of green hydrogen at Mamonal’s plant. The green Hydrogen is intended to be used in Promigas industrial activities (gas transport and blending).