Power policy

Colombia’s Ministry of Energy ratified in 2018 its intention of achieving a total installed capacity of at least 2,500MW of renewable energy by 2022. In 2021, this value was less than 1,512MW. The renewable energy capacity needs to grow 40% to reach this target. The country’s historically weak policy support for non-hydroelectric sources of renewable energy has resulted in limited renewable energy development. However, 2019 saw the country hold its first successful long-term wind and solar auction (after an unsuccessful attempt at the beginning of the same year), in which it awarded contracts for 1.3 gigawatts of wind and solar projects. Projects will have to start operations by 2022 and were awarded a 15-year Power Purchase Agreements (PPA). A third renewable energy auction was held in October 2021, after being delayed in 2020, adding 800 megawatts to the national energy mix. Also, in 2019, Colombia introduced a mandate for electricity distributors supplying regulated markets to procure 10% of their power from clean energy sources from 2022 onward. The country also established conditions over the years (2014 and -2018) for a net metering policy for small-scale self-generators.

Power prices and costs

Colombia is highly dependent on hydroelectric energy, which has supplied on average 70% of generation annually since 2010. Prices are subject to upward pressure from extreme weather, as seen in 2015-16, when a pronounced El Nino effect was observed. Serious delays in commissioning of the of 2.4-gigawatt Ituango hydro megaproject, previously expected online in December 2018 but still delayed in 2021, combined with a drought, resulted in a jump in electricity prices. Commercial electricity tariffs rose 38% over 2018-2021, while residential tariffs climbed 6%. Colombia’s heavy reliance on large hydro has contributed to volatile wholesale power prices. From 2018 to 2021, wholesale prices dropped 61%. For a particular group of people in poor social conditions, power prices are subsidized.

Power market

Colombia had a total installed capacity of 17.9 gigawatts at year-end 2021. Large hydro accounted for 61% of this, and it provided 73% of the 73 terawatt-hours of electricity generated that year. That was followed by natural gas, small hydro and coal, at, respectively,10%, 8% and 5% of generation each. Other renewables accounted for 3% of generation, with most coming from biomass and waste. Capacity additions since 2010 have been dominated by hydro, gas and coal. In order to limit the use of fossil fuels in their national power market, a carbon tax was introduced for thermal coal, LPG and natural gas from 2024 on. As of that year, 20% of the going rate will be charged, and every 12 months that will increase by 20 percentage points, until the full value is applied in 2027. This gradual rise allows thermal agents to incorporate clean technologies that generate less CO2 emissions.

Among renewables, Colombia had 970 megawatts of small hydro, 322 megawatts of solar and only 20 megawatts of wind. Colombia’s power market has numerous private and state-owned players across segments. While the generation market has more than 50 independent power producers, each retail company is responsible for a region of the country. Still, consumers with higher demand (normally commercial and industrial with demand over 2 megawatts) can buy power directly from generators. Besides that, the system regulator, Creg, allows small and big companies to generate their own electricity in order to meet their needs, whilst making it possible to sell the surplus to the interconnected system. As an example, on March 2021, GreenYellow secured a PPA to take all output of the solar power plant Petalo de Cordoba I, which will supply electricity for all air conditioning units of the 27 warehouses of Exito Group.

Most investment directed to non-hydro renewable energy in Colombia to date has come from international development banks. From 2010 to 2021, Colombia attracted $3.3 billion in investment, with a substantial increase in non-hydro investments seen in 2018, especially for solar and wind, with respectively, $274 and $678 million invested only in 2021. Investment peaked in 2021, reaching an all-time high of $0.95 billion.

Doing business and barriers

The government introduced tax incentives for investment in renewables in 2014, providing for the accelerated depreciation of up to 20% per year for renewable-energy investments; 50% income tax deduction on investments valued at up to 50% of taxable income for up to five years; VAT exemption for renewable-energy equipment and services; and import duty exemption for renewable energy equipment. Policies introduced in 2019 have added momentum to the renewables market. Colombia’s renewable auctions awarded long term PPAs, paid in local currency, to 2.1gigawatts of wind and solar projects. The presence of large global companies in the auction underlined the attractiveness of Colombia as an emerging clean energy market. With the exception of domestic player Celsia, all winners were large, global firms aiming to secure early market entry.

Although Colombia has clear rules on interconnection, one of the main technical issues for project developers (especially for photovoltaic plants) is that sometimes the permission to connect to the grid takes too long. The country's grid infrastructure needs to be expanded since the network doesn’t cover vast areas of the east of the country.

Clear barriers to renewable project development remain. Wind projects in particular face significant delays to commissioning as essential transmission infrastructure in the promising La Guajira region is held up. Home to many indigenous communities, La Guajira is an isolated and undeveloped peninsula located on Colombia’s northern Caribbean coast. The region has excellent wind resources but is poorly interconnected with the main Sistema Interconectado Nacional (SIN) grid. All of the wind capacity awarded in the first auction is located there, which represents over 75% of total capacity awarded in the auction. The project for 470 kilometers of power lines plus substations was due to be commissioned by December 2023, but since public consultation with local communities was delayed due to the Covid-19 pandemic, the lines are now not expected to be completed until late 2024.

EV market

The Colombian market has seen constant growth in its EV sales since 2018 due to a governmental boost to the clean transport sector (both electric and hybrid) with many incentives, fuel economy standards and carbon tax to diminish the emissions. EV sales reached 2,700 units in 2021, representing around 1% of total passenger vehicle sales.

EV policy

Colombia's president launched in August 2019 the National Strategy for Electric and Sustainable Mobility. The initiative has the goal of having 600,000 electric vehicles on the road by 2030. It also aims for 100% of public vehicles purchased for mass transportation to be electric or with zero polluting emissions by 2035. Parts and loading centers of electric and hybrid vehicles have a differentiated value added tax and exemption on import tax (as do the stations for charging electric vehicles). For the construction of the infrastructure of the stations, Colombian municipalities may opt for public-private partnerships. Bogota, D.C., must guarantee that there are at least 20 fast charging stations in functioning order, and the municipalities of special category may guarantee that there are at least five stations in their territory. The Ministry of Energy and Mines also defined some rules and rights that consumers have once they buy an EV and it includes an income tax discount of 25% of the investment made.

Buildings market

Colombia’s low carbon market is directed at improving energy efficiency as it is not a heating country.

Buildings policy

Colombia's Programa del Uso Racional y Eficiente de la Energia (PROURE) is the program that directs Energy Efficiency policy. Its new action plan, PROURE 2022-2030 aims to reduce energy consumption in the residential sector to 523 Petajoules (PJ) and 8.2MtCO2 from 2022-2030.

Colombia's Energy Efficiency Plan 2017–2022 encompasses measures for transport, industrial, commercial and residential sectors. Some of the residential measures include replacement of domestic refrigeration equipment, incandescent and CFL bulbs with LEDs, improvement of energy efficiency in buildings through athermic paints, wind extractors and substitution of electric showers with thermal solar systems. With that in mind, the "Fondo de energias no convencionales y gestion eficiente de la energía" (Fenoge) finance, manage and execute plans, programs and projects aligned with the purpose of improving Energy Efficiency and the use of Non-Conventional Sources of Energy in the country.