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UPME - Incentives for renewable energy deployment in Colombia

Economic cost-benefit analysis of nonconventional sources of renewable energy; mechanisms tools and strategies for uses of nonconventional sources of renewable energy in Colombia.

Bogota, Colombia

Challenge and delivery

The Carbon Trust supported Unidad de Planeación Minero Energética (UPME), the Colombian government’s agency of planning for energy and mining, with evaluating the impacts of the Renewable Energy Law which was passed in 2014. The Law set out a series of predominantly fiscal incentives for renewable energy and energy efficiency. 

The Carbon Trust developed five key financial models to assess the profitability of investing in a given renewable energy. The models were developed to factor in a range of areas including energy generation, energy prices, taxes, debt service and, connection costs. The analysis covered onshore wind, solar (residential, commercial and utility scale), geothermal, biomass cogeneration, and biogas cogeneration (electricity & heat generation and export).  The analysis was based on a combination of primary data sourced from Colombia, desk research and inputs from the Carbon Trust’s proprietary resource footprinting databases to estimate the various externalities - wealth creation, environmental damage, carbon emissions, health damage - and how renewables would have a lower impact than fossil fuels.

The Carbon Trust also helped to expand on UPME’s previous financial modelling for an off-grid system based in the island of San Andres, a Colombian coral island in the Caribbean Sea which lies 800km northwest of Colombia. The Carbon Trust specifically looked at how different combinations of renewables could substitute for the current diesel-based generation of the island. As the economics of switching from diesel to renewables were already positive, the externality analysis helped to reinforce the business case.

 

Outcome and impact

The models developed for the project enabled the Carbon Trust team to evaluate the impact of Colombia’s new incentives, to gauge whether they will be sufficient to make the range of renewable energies covered in the analysis competitive in the market. In cases where a commercial case could not be made based on the current incentives on offer, such as PV, the Carbon Trust provided recommendations on additional incentives that could be used to further support these technologies.  The monetary values of externalities associated with renewables, such as the reduction in Greenhouse Gas (GHG) emissions and other harmful pollutants were also assessed. This demonstrated that the social and environmental benefits created by renewable energies in financial terms would exceed the total lifetime cost of the incentives. UPME now has full ownership of the financial tools created by the Carbon Trust as part of the project and is using them for further assessment of renewable energy and energy efficiency incentive policies. The findings have also been published in a publically available report from the Colombian Government.

Full report here: Integración de las energías renovables no convencionales en Colombia (PDF)

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