Colombia’s Ministry of Mines and Energy (MME) recently completed its first successful renewable energy auction, enabling the government to obtain variable renewable energy (VRE) at globally low-cost prices. The auction awarded contracts that are estimated to attract more than $1.3 billion of private sector investment and will enhance the country’s capacity to provide reliable electricity supplies to its communities. This blog explores Colombia’s journey to procuring VRE through auctions.
With some of the greatest wind and solar power potential in Latin America, Colombia is rich in renewable energy (RE) resources. Despite these riches, nearly three-quarters of the country’s energy supply is derived from one resource alone—water. Hydropower has long been a highly reliable form of renewable energy, but changing weather patterns associated with El Niño are creating hot and dry conditions, making Colombia’s overreliance on hydropower a critical energy security issue.
In 2018, the Government of Colombia recognized that a diversified energy market, including the addition of large-scale VRE, was key to establishing a reliable and resilient energy supply. The VRE added through the auctions is expected to drive economic growth, reduce costs to consumers, and diversify Colombia’s hydro-dependent energy mix. The auction will also help to overcome one of the most significant barriers to developing VRE: private sector investment. Auctions solve this problem by offering stable, long-term contracts to private sector generators, who in turn compete to deliver the lowest price to the buyers (electricity retailers and distributors).
USAID, through its Scaling Up Renewable Energy (SURE) program, drew upon its extensive international experience in renewable energy auctions to help Colombia develop the policy, regulatory, and business environment needed to procure VRE through auctions. From September 2018-2019, USAID supported Colombia’s Ministry of Mines and Energy in designing the country’s first renewable energy auction. Throughout the design process, USAID co-hosted 13 events with the Ministry that convened 1,200 participants, including 544 people from 13 countries via live stream, and 22 distributors and retailers. USAID also coordinated with Bloomberg New Energy Finance to host events in Bogotá and New York City to attract U.S. private sector developers to bid in the auction. Approximately 150 companies participated in the events, signaling strong private sector interest in the Colombian energy sector.
“The success of the renewable energy auction is also the fruit of the valuable cooperation and technical assistance that we received from cooperation agencies and multilateral banks. Thank you USAID, IDB, World Bank and UK in Colombia and everyone who supported this transformation,” said María Fernanda Suárez, Minister of Mines and Energy
The first auction resulted in no awards, due to antitrust requirements set to ensure sufficient competition. To capture lessons learned, USAID interviewed 12 auction participants and completed an assessment to suggest recommended changes for future auctions. USAID monitored trends and innovations in global auctions and conducted workshops to help participants benefit from best practices and improve the next auction round.
Colombia implemented many of the changes described in USAID’s assessment in the second renewable energy auction. The second auction resulted in the award of contracts for nine projects that will provide 1,374 megawatts from wind and solar sources at historically-low average prices of approximately $28 per megawatt hour.
As a next step and depending on the pandemic situation, USAID is planning to work with the local communities where the projects are planned. More information on this work will be available on the forthcoming Auctions Toolkit, which will be accessible through the SURE website.
Andrew is a AAAS Science & Technology Policy Fellow with USAID’s Office of Energy and Infrastructure. His current work focuses on energy sector resilience issues in the Caribbean. Prior to joining USAID, Andrew worked with the World Bank to evaluate integrated urban planning tools for carbon mitigation. Andrew holds a B.S. in Chemical Engineering from Northwestern University, a M.S./M.E. from the University of Michigan School for Environment and Sustainability, and a Ph.D. from the University of Minnesota Humphrey School of Public Affairs in Science, Technology and Environmental Policy.
Kristen Madler serves as USAID’s Clean Energy Coordinator where she manages the Scaling Up Renewable Energy (SURE) project and the Energy Utility Partnership Program with the United States Energy Association. SURE is a USAID project that helps partner countries plan, procure, and integrate renewable energy. SURE supports countries on their journey to self-reliance by strengthening strategic energy planning, grid integration, competitive procurement, renewable energy zones, and smart incentives. For more information on SURE, visit the SURE website.
Sarah Lawson is a senior energy analyst at USAID. She co-manages the Scaling Up Renewable Energy (SURE) project and the National Renewable Energy Labs Interagency Agreement covering grid integration. She has served in nine countries with USAID supporting energy projects. Sarah joined the Agency as a Presidential Management Fellow. She has a M.A. in Energy Policy from Johns Hopkins University School of Advanced International Studies. For more information on USAID energy projects, visit https://www.usaid.gov/energy/.