Enabling conditions for bioenergy finance and investment in Colombia

By Lylah Davies, John Dulac, OECD Environment Directorate

With sunny skies, windy shores and fertile grounds, Colombia is abundant in natural resources and has substantial potential for renewable energy production. At the same time, domestic oil and gas reserves are in decline and the effects of climate change increasingly impact hydropower installations. Clean energy solutions like solar and wind power can therefore increase Colombia’s capacity to ensure secure, reliable and affordable energy.

The Government of Colombia has committed to diversifying the country’s energy mix and delivering on ambitious climate targets. This can been seen through recent legislation such as the Renewable Energy Law of 2014 and the Energy Transition Law of 2021, which prioritised the use of renewable energy technologies and provided various fiscal incentives. Notable progress includes Colombia’s first renewable energy auctions in 2019 and again in 2021, which enabled project developers to secure long-term supply contracts, attracting considerable investment in new solar and wind projects.

Bioenergy is another opportunity area for renewable energy development in Colombia

Bioenergy solutions can tap into widely available resources such as residues from agricultural activities and even methane emissions from municipal landfills. Organic residues alone (e.g. from rice straw and sugarcane bagasse) have an estimated potential for as much as 14 terawatt-hours per year in clean energy production – or more than twice the average annual output of Colombia’s largest hydro plant in San Carlos, known as the hydro-electrical capital of the country.

Bioenergy resources also have the added benefit of typically being close to demand centres and can be used to improve the reliability and affordability of local energy supply. Energy service provision could thus be improved in areas that are not connected to the national electricity grid. Bioenergy solutions equally address other energy and environmental priorities, such as reducing growing dependence on fossil fuel imports and finding alternatives to aging and diminishing landfill capacities.

Yet, bioenergy developments face a number of implementation challenges

Barriers due to current energy policy, regulations and electricity market design all affect finance and investment in these solutions. Strategic actions could expand the prospects for bioenergy projects by establishing a clearer and more attractive environment for these opportunities in support of Colombia’s clean energy transition.

The recent OECD report Enabling Conditions for Bioenergy Finance and Investment in Colombia looks at actions the government could take to attract investment and increase the overall finance available to bioenergy projects. The report builds upon activities under the OECD’s Clean Energy Finance and Investment Mobilisation (CEFIM) programme, which has supported Colombia’s Ministry of Mines and Energy since 2019 in strengthening policies and measures to scale up finance and investment in renewables and energy efficiency.

How to attract the needed investment for bioenergy projects?

Unlocking finance and investment in Colombia’s bioenergy potential requires measures that tackle barriers to bioenergy capacity additions. For example, electricity generation outlooks do not reflect the potential for bioenergy solutions, as expansion plans rely on an existing pipeline of expected capacity additions in which there are few bioenergy projects planned. The government could address this shortcoming by integrating a techno‑economic assessment of energy solutions in electricity system planning to reflect strategic ambitions for bioenergy outlined in the 2018 Green Growth Policy and the 2020 National Bioeconomy Strategy.

Strengthening the pipeline for bioenergy projects also requires a closer look at electricity network access in an extensively integrated market that depends on retailer willingness to connect distributed generation projects. The government could build upon previous electricity market reforms to clarify grid-access regulations and encourage bilateral contracts with smaller players and generation sizes. Incorporating elements like a locational component in future renewable energy auctions is a feature that has been used successfully in Mexico.

The success of bioenergy solutions also depends on a clear, consistent supply of available feedstock. Colombia has a strong policy framework for waste collection and disposal, which can be strengthened to encourage sorting and treatment of waste through greater price signals on landfill disposal, building upon recommendations from the country’s accession to the OECD.

Access to finance is a critical challenge for bioenergy projects

On-going capital market reforms and Colombia’s emerging sustainable finance framework promise to encourage greater flows of finance to clean energy projects. At the project level, some bioenergy developers still struggle with the high costs of financing, particularly given limited banking sector experience with these technologies and issues such as difficulties in demonstrating clear revenue streams. Awareness raising and capacity building would help to address familiarity with and willingness to lend to bioenergy projects, as can expanding targeted support such the concessional credit lines offered by Findeter, Finagro and Bancolombia.

Further reading

Additional recommended actions are detailed in the report, which highlights the experiences, lessons learned and good practices from previous bioenergy developments in Brazil, Chile, Colombia, India and Turkey.

The report and further information on OECD work on Clean Energy Finance and Investment Mobilisation in Colombia can be found at www.oecd.org/cefim/colombia.