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What’s driving Colombia to become the next hot solar market in Latin America?

Jan 20, 2022

Latin America has some of the best solar resources in the world, according to MPC. Image: MPC Energy Solutions

Latin America is fast becoming a lucrative solar market as countries ramp up deployment efforts in line with national climate commitments. While two major markets stand out – Brazil and Chile – more and more countries are stepping up with attractive environments for solar PV, and none more so that Colombia.

That’s according to Martin Vogt, CEO of MPC Energy Solutions, a renewables developer with more than 250MW of projects across Latin America. Vogt says that while more established markets like Brazil and Chile represent great investment opportunity for firms with the size and infrastructure to access them, smaller and less mature markets offer significant potential for early movers.

Specifically, he points to Colombia and Panama as markets to keep an eye on. The Colombian market in particular was almost non-existent until two years, says Vogt. “The big white space on the map of Latin America, with zero installed [renewables] capacity if you exclude large-scale hydro,” he says. This is despite Colombia being one of the largest economies in Latin America with a high potential for solar PV.

Meanwhile, Panama – a strong, stable market looking to increase its meagre levels of renewable capacity – also represents an attractive setting for solar PV, adding that the country’s willingness to trade in US dollar also gives it an edge.

Colombia leading the way among challengers
Out of all the markets in Latin America that are striving to reach the maturity of Brazil and Chile, Colombia leads the way, says Vogt. There are a few reasons for this: the size of its economy and relative lack of solar capacity; a liberalised regulatory framework that facilitates bilateral agreements; and a government keen on increasing solar deployment in a country with a conducive environment.

Colombia aims for renewables to make up 14% of the country’s energy mix this year, compared to the paltry 0.2% it was back in 2018. By 2020, solar made up just 1% of Colombia’s renewable energy portfolio, compared with 4% from wind, 2% from biomass and 93% from hydropower, according to the International Renewable Energy Agency (IRENA).

But things are changing. At the start of this month, Colombian power distributor Air-e said 22 companies had reached the pre-qualification stage in its privately held, 10-times oversubscribed renewables auction, with proposals totalling 2.5GW. And the country’s third renewables auction held in October last year awarded contracts to 11 solar PV projects with a combined capacity of 796.3MW, with the winning bids coming in at COP155.8/kWh (US$0.0414/kWh), close to what Vogt says MPC can produce at US$0.04-0.05c/kWh.

“The success of this new auction shows that the energy transition in Colombia is a reality,” Minister of Mines and Energy Diego Mesa said following the auction results.

“The solar PV installed capacity [in Colombia] has grown from 50MW in 2018-19 to about 2.5GW by the end of this year or mid next year, depending on how fast these projects can be built under the disrupted supply chain,” says Vogt.

The growth in solar will also be supported by economic realities in Colombia – it is one of the largest economies in Latin America with the third largest population. Energy consumption is predicted to grow significantly over the next 20 years and the country is targeting carbon neutrality by 2050, meaning it will need to up its energy production significantly. Mesa said Colombia will have more than 2.8GW of deployed renewables by the end of 2022 and Vogt expects more than 10GW to be added by 2030.

Given this backdrop, Colombia has decided to liberalise its energy economy. “The regulatory framework gives off takers and generators a tremendous amount of commercial freedom to forge bilaterally agreements, which is not necessarily the case elsewhere,” says Vogt. “There’s no sort of regulation that sits with a monopoly that would prevent market growth.”

He says a loose regulatory framework means there is less red tape and more flexibility for generators to sign lucrative power purchase agreements (PPA) with corporates eager to secure energy supply and decarbonise their operations.

This is not the only advantage present in the Colombian market. While there are no formal government support schemes for solar, with the government seeing it as a competitive technology, Colombia offers tax breaks for companies that deploy renewables in the country and, similar to Brazil, there is no VAT added to solar imports, helping to drive deployment in a country with little to PV manufacturing.
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