PRIVATE INVESTMENT IN WIND POWER IN COLOMBIA

Colombia currently has a very low penetration of non-conventional (non large-scale hydro) renewable energy sources. This reflects the dominance of large-scale hydro projects within the generation sector. However, increasing concerns over the impact of periods of serious drought in El Niño periods, most recently in 2009/10, have meant that Colombia is investing heavily in new thermal power capacity, increasing the country's carbon footprint.

This report is the main output of a project supported by the UK Foreign and Commonwealth Office (FCO) Prosperity Fund for Latin America. It examines the feasibility of private investments in wind power in Colombia within the current regulatory framework. By reference to a specific wind power project, it estimates the financial gap between what investors might require and what they can expect, and considers how this gap could be reduced under the current regulations. Although our terms of reference do not include detailed research on alternative regulations that might be introduced in Colombia, we have drawn on international experience to identify some ideas that deserve further exploration if the government wishes to encourage private investment in non-conventional sources of renewable energy.

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1. Introduction and executive summary

2. The Colombian power sector and the case for wind power 2.1 Supply side of the Colombian power sector 2.2 Why consider additional non-conventional renewable power?

3. Two policy instruments: ENFICC and CER 3.1 Colombian firm energy market 3.2 CER payments

4. Financial analysis of a wind project under the current regulatory regime 4.1 What the model calculates 4.2 The logic of the model 4.3 Main elements of the financial modelling 4.4 Benchmarking the model 4.5 Results of the main policy scenarios 4.6 Sensitivities 4.7 Risk Analysis 4.8 Other financial considerations 4.9 Conclusions from modelling

5. Other risks and opportunities facing investors 5.1 Commercial opportunity and risk 5.2 Political considerations 5.3 Regulatory risk 5.4 What most investors look for from policy and regulation

6. Conclusions

Annex 1: Information on Colombian Electricity System 2010-2011 Annex 2: Colombian commitments on climate change mitigation Annex 3: Requirements to execute a wind project in Colombia, in Indigenous Territory Annex 4: Quantil Model