The natural gas solution to Colombia's Hidroituango crisis

Andrés Izquierdo Morales, partner and director at Óptima Consultores, tells BNamericas why natural gas has an ever-growing role to play in Colombia's enegy generation mix. This is the second of a two-part interview. 

BNamericas: How important is natural gas to Colombia's electric power matrix?

Izquierdo: Gas is an essential resource for generating electricity in the country. Although the installed capacity of gas plants is already significant – about 2,129MW or 12.6% of the total capacity – its weight becomes more evident when analyzing generation during times of drought. For example, in the first quarter of 2016, 26% of Colombia's electric energy was produced from natural gas and more than 10% from liquid fuels due to low gas availability. In addition, gas is the resource used to determine the price of energy in the country. In its absence – and in dry periods – it is necessary to generate with liquids, which are pollutants and very expensive.

Finally, gas will have additional opportunities as renewables gain a greater share of the generation mix because of its characteristics as a back-up energy source. It offers flexibility, firmness and low emissions compared with other thermal resources.

ALSO READ: Colombia accelerates plan to avert energy shortage

BNamericas: Will the proposed Buenaventura LNG regasification plant on the Pacific coast solve Colombia's gas supply concerns? And would it provide a boost for more gas-fired thermoelectric plants in the country's southwest?

Izquierdo: Regasification plants provide a guarantee against the uncertainty associated with new production from local gas fields. The main objective of the plant is to produce electricity from natural gas. It would encourage gas purchase contracts by increasing the reliability of supply. The proposed capacity of the terminal is 400Mf3/d – the same as the one in the Caribbean. That's enough to feed thermoelectric plants totaling 2,000MW of capacity. So LNG plants do represent a solution to difficulties that generators have had in in accessing gas. The Buenaventura regasification plant could boost the development of gas generation projects in the southwest, but also in other inland areas of the country.

ALSO READ: Colombia eases restrictions for Pacific LNG tender

BNamericas: What does the Hidroituango crisis mean for future hydroelectric dams in Colombia? Will Hidroituango be the last big dam project?

Izquierdo: Before the Hidroituango crisis occurred, opposition to this type of project was already growing due to the environmental and social implications they represent, undoubtedly what happened with Hidroituango. The project now becomes a very bad example that will be used by communities and environmentalists to argue against the development of this type of power generation project. When added to international cases such as the recent one in Laos [an under-construction dam collapsed in the country in July], the Hidroituango situation has meant that political support for future projects with similar characteristics is unlikely.

BNamericas: What do the events of the past few months mean for other sources of energy such as natural gas and non-conventional renewable energies such as solar and wind?

Izquierdo: The Hidroituango crisis represents opportunities for all other sources: firstly, because projects will be required to cover the imbalance of firm energy, and secondly, because of the argument that Colombia needs to reduce its dependence on water resources to strengthen the generation of energy.

BNamericas: The energy ministry has announced that the country's first long-term energy auction from all sources – including non-conventional renewables (NCRE) – will be held in January. Is the government doing enough to encourage the diversification of Colombia's energy mix?

Izquierdo: Despite the fact that Colombia hasn't progressed at the same speed as other countries with the inclusion of this type of generation, in recent years a number of steps have been taken to regulate the development of non-conventional renewable technologies. Examples are law 1715 of 2014, decree MME 0570 of 2018 and Creg's resolution 030 of 2018.

BNamericas: How have these laws helped to kick-start NCRE in Colombia?

Izquierdo: Law 1715 of 2014 established Colombia's interest in promoting NCRE development. Its most significant contributions are tax benefits for developers, including VAT and tariff exemptions, accelerated depreciation and deduction of investors' taxable net income. Decree MME 0570 of 2018 established the public policy guidelines for the execution of long-term power sale contracts, which are essential to facilitate the financing of renewable projects.

Resolution CREG 030 of 2018 regulated the activities of small self-generators and distributed generators, providing incentives for them in the form of simplified connection procedures and the possibility of selling energy to the network at higher prices. These regulatory advances – together with the ability to offer more competitive prices that has become evident in recent times – have significantly increased interest among developers of these projects.