Colombia’s energy regulatory authority presented four alternatives for a framework aimed at introducing renewables into the country’s energy pool.
Colombia continues to advance on the regulatory steps required for the entry of large scale renewable energy projects into its energy matrix. On February 1, 2017, Colombia’s Commission for the Regulation of Energy and Gas (CREG) held a workshop to present four pricing and contract mechanisms currently under consideration by the regulatory body (Circular 99 containing CREG Document 161 of 2016). The CREG deigned these alternatives to accompany its existing reliability payments (Cargo por Confiabilidad).
The CREG has historically based its tenders on a system design to reward network stability in a system fueled by over 70% hydroelectric energy, paying bidders for their ability to reliably generate energy. Since wind, solar and run of river sources of energy are less predictable. The CREG reiterated in its Wednesday workshop that it seeks an alternative mechanism that allows all generators to compete under equal conditions. The CREG indicated that it is scheduled to select one mechanism applicable to renewable energy tenders within three months. Energy facilities with greater than 20MW installed capacity dispatch energy through the central Marketplace and the chosen mechanism would be applied to tenders to join that Marketplace.
Each of the four alternatives are based on the assumption of a 15-year contract for winning bidders, and for each, the tender would be a centralized, closed-envelope bid.
The first three alternatives are based on the assumption that generation by renewables should receive their own tender process in for entry into the matrix. The final alternative, in contrast, is based on the assumption that all energy sources are on equal footing and should compete under the same bidding conditions for the same long-term contracts.
1. The Green Bonus alternative: Under this alternative, a renewables subsidy would be paid for 15 years to winning bidders, which would be those with the lowest marginal Green Bonus ask price.
2. The Energy Generated Contract (EGC) alternative: Under this alternative, winning bidders would receive a fixed price for generated energy for 15 years, which would be paid by retailers in the regulated market. Winners would be those with the lowest bid price up to the marginal capacity sought.
3. The Energy Purchase Contract (EPC) alternative: Under this alternative, winning bidders would offer the lowest price on a set amount of average energy generated per year with a 10% cushion. Retailors would buy all such energy at the price of the marginal winning bid monthly at 1/12 of the annual contracted price. At year’s end, either respective side would reimburse any excess or shortfall on the agreed amount.
4. The Open Bid Energy Purchase Contract (OBEOC) alternative: The forth mechanism under consideration is an open tender where renewables and traditional energy compete openly where price is the only consideration. Bidders will be selected for their marginal lowest price, which will be paid to all bidders for 15 years.
From a regulatory stand point, and as pointed out in today’s meeting, these mechanisms are aimed at “correctly distributing risk among the market actors” and not as a means to either incentivize investment or reward any one technology over an other. Today’s event also served as a time to take public comment, suggestions, questions and criticism. Participants were concerned with the timing, noting that the law had been passed in 2014 and that investors and EPCs were awaiting finality. Additionally, on the generator and project developer side, questions were raised as to the possibility of contracting in US dollars as a way to promote investment and stability. CREG representatives indicated that the suggestion would be taken into account noting that taking this step would require finding a means to mitigate risk on the buyers side.
In 2014, Colombia adopted law 1715 establishing the legal and regulatory framework for investment in and development of renewables by providing for tax, accounting and import incentives. While some projects below 20MW have started to take shape, larger projects and particularly wind projects slated for development in the coastal north, are awaiting finalization of the rules and regulations. Understanding the rules in place and those to come will be key to executing a profitable investment in one of Latin Americas most dynamic growth markets.
Please do not hesitate to contact us if you would like more information about the Colombian regulatory framework for renewable energy.
Margarita R. Sánchez
David A. Wilhite*
* Not admitted to practice in Washington DC, working under the supervision of attorneys licensed in Washington DC.
Disan LLP is an international law firm based in Washington D.C. with a keen focus on Latin America and the Caribbean. The firm is dedicated to helping companies, sovereign governments, and international organisations resolve their problems and achieve their goals throughout the Americas and globally. Disan focuses on providing a rich understanding of Latin American culture and round-the-clock dedication to its clients in the field of international law.
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