Plugging the gap: Reinforcing Colombia's power grid with gas

Finnish electric power manufacturer and services provider Wärtsilä has a project portfolio that currently stands at around 500MW in Colombia. 

In the first of a two-part interview, the Colombia managing director, Roberto Lares, speaks to BNamericas about the importance of backup gas-fired power generation and how battery storage can unlock the potential of renewables.

BNamericas: What are the main challenges and opportunities that Wärtsilä sees in Colombia?

Lares: Well, I’ll tell you a little about our experience. We sell thermal equipment, basically electricity generation plants, which today are called flexible plants. They are plants that have characteristics that allow them to come online very quickly, turning them on and off several times a day without any problem. And that helps a lot today in the energy transition to complement the intermittency of renewable energy.

In Colombia, thermal plants are built through the award of the reliability charge, since there isn't really a market for PPAs [power purchase agreements] for thermal plants yet, as the market price in Colombia is essentially determined by hydroelectricity for now. So they're pretty low prices.

In other countries in the region this isn't the case. In Central America and the Caribbean islands it happens differently: projects can be financed, say, with PPAs between private parties. In Colombia we have to maintain contact with the regulator and with the authorities to alert when it is necessary to hold a reliability charge auction. In Colombia we’ve accumulated a portfolio of projects of around 500MW with serious clients who are advanced in their developments, have environmental licenses, in some cases they also already have the connection point approved, in others they don’t. Essentially, they’re waiting for a new expansion process, an expansion auction for reliability charges. And it’s true that in Colombia these auctions aren’t very frequent, they occur once every four or five years.

Basically, the number of [thermoelectric] projects that could enter [the system] was very small due to the limitations that existed in the process of allocating connection points, which was a requirement for that auction. So I would say that at the regulatory and permitting level, the connection point has become or became a requirement, let’s say, mandatory in these auctions. In the five previous auctions that there have been, it wasn’t mandatory and then became the bottleneck for possible projects or expansions in the thermal world.

It’s good to clarify that there is a high interest in Colombia, both from developers and investors, which is very positive. That is to say, the moment the conditions for a new auction are met and the connection points are placed or granted, there will surely be projects, just as in the renewable world, with very serious investors behind them.

BNamericas: So the connection regulatory changes that Colombia implemented a few years ago didn’t help unblock projects as planned?

Lares: In 2020 there was this necessary cleaning process, that is, the process began with the regulations to clean up a little all the projects or connection points that had been granted under the previous regulation, because there were lots of connection points that were in the hands of developers who weren’t really investing in the development of the project. And this was the right step.

I believe that about 8GW of capacity in the substations was freed up with this process by requesting connection guarantees, which weren’t previously requested. And from that first process of cleaning there were, to my knowledge, only 350MW of thermal projects that placed their guarantees, that had a connection point and were projects waiting for an auction opportunity.

Then came the first single window process carried out by [state energy planning unit] UPME and there this new procedure or new award criteria were applied. Basically, to my knowledge, there was about 1,200MW in thermal projects that had applied and they only granted about 240MW or 250MW in connection permits. That is to say, almost a gigawatt of thermal projects was left without a connection point and those projects were planning to participate in the auction in February of this year, which isn’t bad. It was the first time it was held in Colombia. There was an award criterion that did, indeed, favor solar, wind and small hydroelectric plants, plants that are basically aligned with the energy transition process that Colombia is undergoing.

BNamericas: So thermal energy is being marginalized in Colombia?

Lares: The transition is a process that takes several decades and we must always take into account that the main thing is to maintain the reliability of the energy supply. That is the priority for any regulator and any planner. So the processes must be carried out considering in some way that thermal generation sources will also continue to be required, whether due to firm energy requirements in the case of Colombia or in the case of other countries with less hydroelectric contributions. These plants usually operate daily to complement the intermittency of renewables when they begin to participate significantly in the generation matrix. So it's very interesting.

BNamericas: The energy ministry has recently said that it is thinking about the possibility of having other energy auctions in the not-so-distant future. It has been speculated that there could even be auctions by technology or region. Would Wärtsilä be interested in participating in such auctions?

Lares: Yes, we heard those statements and we are following up because, indeed, it is of great interest to our clients. Until now all the auctions have allowed the entry of all technologies, but there is a current process that this government has developed for offshore wind, which is only an auction for that type of technology.

We think it may be wise to consider an auction focused on projects that provide a higher percentage of firmness, such as thermal and hydroelectric projects. I would think that other processes are also needed for this entire group of solar projects that were awarded in February, they were 4,441MW if I'm not mistaken, since the reliability charge contract for these projects isn’t enough. These are projects that won’t be able to be financed, those that don’t have the PPAs. This [the reliability charge contracts] is another complement for them in their cash flow. I don't know if all these 4,400MW of solar projects had the energy placed, because it's really where the important percentage of income is generated. Suddenly another auction of long-term contracts would be needed as well.

I think it would also be necessary for the government to plan to finish consolidating the income for the projects, so that they can, at least on a financial level, be certain that they already have all the resources, and the issue of environmental licensing and what may be missing falls into another category, but at least the projects are bankable.

BNamericas: Can you tell us a little more about the projects Wärtsilä has under development in Colombia?

Lares: Yes, we’re working, as I mentioned, on about 500MW of projects. In one of them we’re accompanying Celsia in the Tesorito project. We’re always available as possible suppliers of equipment and construction. It’s an advantage for us as a company, we can do the complete EPC of the plant and we have other projects in the Santa Marta region called Termo Bonda, Termo Gaira and Termo Costa. There’s never 100% security until you have the contract, but we’re supporting those four projects that together total about 500MW.

BNamericas: Colombia hasn’t yet been able to integrate large-scale batteries into the grid. How do you see this segment? Is that something that's on Wärtsilä's radar?

Lares: It’s of interest to us without a doubt. We’re very present in Latin America, we’ve essentially focused on Chile because they’ve already developed the regulations, the resolutions that are required to make storage projects viable. Without a doubt, Colombia is going to require it and it depends on whether one is reactive or planning.

In Chile, the storage boom is a product of the fact that the penetration of renewables has been great and has generated dumping, curtailment, which is a problem. There’s a waste, let's say, of essentially solar and wind energy because it’s not close to demand or simply because demand doesn’t require it. And then it has been reactive and has made the resolutions for storage and now that discharge is going to be used in these batteries and will be used at the times of day that demand requires it.

Here in Colombia our suggestion is to move forward. There have been pilots in Colombia to study the technology, which seems appropriate to us. We believe that this should be the next step at the regulatory level: being able to create the mechanisms to make energy storage viable through batteries.

BNamericas: Some say that large hydroelectric plants have the advantage of being able to store energy...

Lares: There’s an understanding in Colombia that hydroelectric plants are going to be like batteries, that is, they are going to stop producing during the day when the load from solar production is more important. However, they also have to consider the issue of network stability, because for this several issues must be handled at the same time.

If we look at the allocation of solar power in February, for example, which was 4,440MW, plus the solar power already in operation, we would be talking about having around 5,000MW of solar energy by 2027-28. This would provide its maximum capacity at midday, meeting half of the grid's or demand's midday requirement of 10,000MW. 

Today at midday, the peak demand is around 10,000MW, that is, there will be a 50% penetration of intermittent energy at that time of day and that intermittency is going to generate stress in the network stability. It will also test the flexibility of the hydroelectric plants in terms of their ability to accompany this intermittency or they will generate discharges or curtailment in some of these projects, because the system won’t be able to absorb 50% of intermittent energy at that time of day due to network stability issues.

BNamericas: Can batteries solve this problem?

Lares: This is where the issue of batteries can become important. We’ve seen it, for example, in the Dominican Republic, that originally there was no obligation for solar companies to install batteries. However, today for projects of more than 50MW they are demanding that a certain storage capacity be installed due to the issue of stability of the network and that they only have a penetration of 25% or 30%.

Then we will imagine what Colombia will be like in 2028 because the existing thermal plants, with the exception of Tesorito, aren’t very flexible. We're talking about coal technology, which are basically boilers with steam turbines that aren’t designed to have capacity go up and down quickly.

We have combined cycles that are also designed to operate at base load and we have very few open cycle turbine plants that can come and go as "peakers." But really what the system needs are flexible plants to be able to face these midday moments when intermittency will have to be supplemented. This is already happening in Europe, in Germany, in the US.

In California, we signed a contract after 20 years of nothing thermal being built. California is already at its limit and already has batteries. It has all kinds of technologies. It has been the US state most at the forefront on this issue. And it’s still necessary, despite all the efforts made, to have thermal plants that operate with fossil fuels for now. In the future these plants could be fueled by 100% hydrogen and we’re already prepared for this. It’s already an issue of fuel economy when it’s available.