Destined to fulfill its prolific renewable energy potential, Colombia has made headlines with bilaterally negotiated contracts. With the launch of the upcoming renewable auction, it is now the time for the solar industry to step up to the plate.
According to Mark Tremel, the distributed generation (DG) market in Colombia consists of around 20 MW of commissioned projects, with around 100 MW still in the pipeline. DG for residential can be classified as PV systems below 10 kW, for commercial its below 100 kW and industrial is below 1 MW. He states that DG projects, mostly rooftop systems and projects below 100 MW, have been receiving a lot of focus because they are easier to develop than other types of projects.
The major regions that are being developed include: the Center region (Bogota and surroundings), the Coastal region (Barranquilla and surroundings) and the Pacific region (Cali and surroundings). There are also further developments in other regions of the country.
One of the most Important regulations in place is the CREG 030, which was enacted in March 2018. Under this decree, a net-billing scheme was put into place for projects below 100 kW without commercialization of the whole energy tariff (about 85-90 percent of the wholesale price). When it comes to projects between 100 kW and 1 MW, the remuneration for the excess energy is only based on the generation price (about 30-40 percent of the wholesale price), which is relatively low in Colombia. This makes it quite complicated to sell excess energy to the grid. Mark does not agree with this rule, but it is one of the challenges present in Colombian solar market. For projects above 1 MW, the rules are similar to the rules for projects between 100 kW and 1 MW, however, there are stricter measurements, such as irradiation measurements. These measurements have to be done on site on an hourly basis and have to face stricter grid rules.
CREG 030 also gives new obligations for grid operators for each solar system. This decree provides grid operators with around 2 months time to implement certain regulations internally to receive the excess energy as well as the payments for it. Another requirement for grid operators is that every single solar system requires a full RETIE (local electrical code) certification. However, RETIE does not include any specific PV section.
In addition to that decree, CREG 015, also enacted in March 2018, stipulates that projects below 100 kW have no obligation for a backup contract. However, projects above 100 kW do have an obligation to sign a backup contract with the grid operator. The value of that contract will depend on the project and the costs involved with the grid operator.
As for the major players in the market, they include Celsia (Grupo Argos), EPM, Codensa (ENEL Group), and smaller utilities (Vatia, EMCALI, etc.) among others. International EPC companies such as Panasonic, Green Yellow, and several mid-sized firms are also present in Colombia.
There are still quite some challenges in the market. One of the major challenges that is reflected in the auction scheme is the fact that energy contracting is done with short-term contracts instead of long-term power purchase agreements (15-20 years). For example: industrial customers in Colombia, above 5500 kWh a month, can sign energy contracts with utilities all over the country, which is not the problem. The problem itself is that most of these companies buy the energy using energy contracts for only one or two years. Because long-term energy contracting is not common in Colombia, it has become one of the particular problems for the solar energy market.
Lack of local knowledge about solar is another challenge in Colombia, especially on the authority side. When applying for environmental permits, the authorities do not know what is needed and also do not know the environmental impact of solar energy projects.
Another factor that is very challenging for market players is dealing with grid operators, such as UPME and ANLA, due to the high levels of bureaucracy associated with them. UPME is highly dependent on the Ministry of Mines and Energy and gives technical approval for tax benefits for projects that comply with Law 1715. ANLA, the country’s environmental authority, are considered to lack knowledge in the basics of solar energy. Both of these authorities cause for too much paperwork and high administration costs.
Other challenges include no clear rules about technical requirements and grid connection studies. When it comes to technical requirements, there is no real “RETIE standard” yet, which creates difficulties when focusing on the technical details of a solar project. Also, grid connection studies for both DG and utility-scale require too much time, affecting the feasibility of these projects.
Looking beyond these challenges, there are also major opportunities in the market. According to Tremel, one of them is the fact that there is still space for well-positioned international players (for instance EPCs and IPPs). He also thinks there is good market space for distribution companies and equipment wholesalers. Another important opportunity in the market is related to DG projects up to 100 kW, which were found to have interesting business models and private PPA contracts.
A week before the end of the Santos administration, Resolution 40791 /2018 and 40795/2018 were executed. The first regulates the best economic path for the allocation of energy contracts, while the second one outlines requirements, guidelines and conditions that will regulate the country’s first energy auction scheduled for January 2019.
John Padilla, Partner and Managing Director, IPD Latin America, said that under the incoming Duque Padilla administration, renewables are finally set to gain traction. He believes that with Colombia’s new president, Ivan Duque, in charge, the country would be able to successfully move towards solving the government’s corruption issues. Duque’s priorities include reducing economic dependency on the extractive industries, promoting renewables and protecting the environment.
In the Colombian solar space, understanding the local dynamics is vital. Key stakeholder identification and engagement strategies at national, regional and local levels are a must.
Maria Fernandez Suarez, Minister of Mines & Energy, has said that the government is committed to continuing with the auction process approved at the end of the Santos administration. The question now is: Will the Duque administration be willing to take on vested interests to permit more commercial terms for renewables?