By Kevin Garrahan
Kevin Garrahan is a 2018 graduate of the Johns Hopkins School of Advanced International Studies, where he concentrated in Latin American Studies. He is currently a consultant in Chicago.
The World Economic Forum has ranked Colombia eighth in the world in terms of secure, accessible, and sustainable energy, the highest of any non-European country.[1] And for good reason - access to electricity is measured above 95%, hydro power accounts for two-thirds of its energy matrix, and it has some of the best conditions for wind and solar energy in the region. Despite these accomplishments and its abundant natural resources, Colombia has lagged behind its peers and even some less-developed nations in clean energy and rural electrification.[2] Renewable off-grid energy solutions now offer real opportunities for the country to finally address these dual challenges.
The Challenge
A country of diverse geographic regions and dense urbanization, 87% of Colombians live within the National Interconnected System (SIN), but 66% of the country’s geography is in the Non-Interconnected Zones (ZNI).[3] Providing electricity to the communities of the ZNI has been difficult, and grid extensions have been slow or nonexistent in many areas. Since 2003, the government has utilized a fund called the FAZNI, supported by royalties from the energy industry, to support off-grid rural electrification. But this effort has led to the dominance of stand-alone diesel generators in more remote regions, which provide power to 7 million people. Only a small fraction of energy in the ZNI comes from solar or small hydro plants. Meanwhile, in addition to their negative environmental effects, diesel generators only provide an average of six hours of service per day and must be fixed or replaced often.[4] Candle lighting and solid wood fuel thus remain a common substitute when electricity is unavailable and an estimated one million people have no electricity access at all. Despite continued governmental efforts, a full 17% of the population does not meet the 7th Sustainable Development Goal, access to Affordable and Clean Energy.[5]
Business Case for Action
There is a promising market opportunity for the private energy sector to help close these gaps. Potential strategies for these firms include grid extension coordinated with the government, shared energy infrastructure with local communities, and off-grid renewable energy products.[6] The first two options can work nicely in conjunction, as one of the best regions for wind and solar energy on the whole continent, the Guarija peninsula, is located off the grid in Colombia.[7] To fully capitalize on these natural resources with large utility-scale clean energy facilities, investors would benefit from expanding the grid in certain ZNI areas, which would support numerous small communities. The government and major global energy firms have taken initial steps in this direction with the successful wind and solar energy auction in 2019. The auction rules mandated that new plants, which will provide 1.3 GW of renewable energy to the country, must secure connection to the grid.[8] This requirement, or those of potential future auctions, could be expanded to require that the plants provide power to nearby populations.
A more direct business model would be to provide off-grid solar energy to customers in the ZNI through appliances, home systems, and microgrids. The profitability of such products has improved dramatically in recent years due to falling costs, innovative products and financing, and broadening demand. For example, solar photovoltaic panel prices have dropped more than 80% since 2009, and are expected to half again within the near future.[9] While early innovations like solar lighting and phone charging products proved successful Base of the Pyramid (BOP) business models in places like East Africa and India, Solar Home Systems and emerging appliances in refrigeration, cooling, and televisions have also shown growth.[10] Now, as numerous private sector reports indicate, low-carbon microgrids present the next promising opportunity in this space. They can support both commercial and residential activity, which improves revenue generation, and they have a lower Levelized Cost of Electricity (LCOE) than the traditional diesel generators.[11]
With more than 7 million people that either rely on outdated diesel generators or have no access to electricity at all, Colombia is an attractive market for off-grid clean energy. New forms of consumer financing and pay-as-you-go models for off-grid energy, which have been pioneered successfully in BOP models elsewhere, play an especially important role. They help transfer the lower LCOE to these communities, reducing barriers and boosting demand. The government has also played its part by putting in place significant tax incentives for renewables and issuing a new decree to reduce barriers for off-grid solar projects.[12][13] On the macro level, Colombia has relatively low fuel subsidies to distort the market, strong governmental and financial institutions, high levels of foreign direct investment, and strong economic growth. East Africa and South Asia may have the largest pyramid bases, but Colombia has many strong potential energy customers and its positive private sector environment is unique compared to other developing countries and its Latin American peers. This environment has continued to improve since a peace accord with the FARC was ratified in 2016 and the country has been able renew focus on rural development.[14]
Industry Current State
The clean energy industry, and especially the off-grid sector, is still in the development stage in Colombia. Many of the large international renewable energy companies that operate in the dominant Chilean and Brazilian markets - like Enel Green Power and Acciona – have participated in the Colombian government’s recent renewable auctions and established the industry association, SER Colombia, but the rest of the industry is still disaggregated among many small Colombian companies.
Among these firms, Hybrytec is a particular standout, with at least 260 completed projects in the country. One of its business units, Hybrytec Access, focuses specifically on providing renewable energy to rural areas. The company has implemented 50 off-grid projects including full solar solutions for homes and communities, lighting, refrigeration and freezers, and water pumping and heating. Hybertec projects are concentrated around the high-potential Guajira region, which has increased access for the indigenous Wayuu communities. Additional projects, such as a solar-powered internet system, have also been completed in the Andes and Amazon regions. Other projects have focused on grid-connected regions, supplying schools and health centers with more reliable power from solar systems.[15] To date, the company has largely relied on development and non-profit funding for its Access projects. For example, USAID supported a project to provide solar energy and refrigeration to a fisherman’s association in Buenaventura.[16] The Chevron Foundation and local organizations supporting indigenous communities have also funded many Hybrytec projects.
Strategies for Progress
In Colombia, companies should seek to replicate successful off-grid BOP businesses operating in other regions of the world. M-KOPA is the poster-child of this wave of successful social enterprises. M-KOPA developed standardized products for its consumers by packaging a set of hard to access parts from international manufacturers, developed a strong distribution network in rural communities, and most famously, created an innovative payment system with mobile telephone credits.[17] It has also attracted significant private funding from Generation Investment Management, Al Gore’s firm, and high-profile entrepreneurs like Richard Branson.[18] Now, M-KOPA’s pay-as-you-go system is becoming a well-known, proven tool to help businesses access low-income customers.[19] Early evidence indicates that communities who benefit from larger micro-grids will similarly benefit from modular, scalable products and new innovations that reduce upfront capital expenditures for firms and consumers.[20] Firms like M-KOPA, d.light, and Off-Grid Electric have shown that expanding energy access can be big business. With the growth in the off-grid sector and continued progress in the Colombian market, Hybrytec and other firms can achieve financial success while bringing energy access to all Colombians.
Endnotes
[1] Espen Mehlum, “Meet the World’s Clean Energy Superpowers,” World Economic Forum, March 22, 2017, online at: https://www.weforum.org/agenda/2017/03/these-are-the-worlds-top-10-energy-performers/
[2] For this brief, “clean energy” will exclude hydroelectric due to its significant environmental effects.
[3] Adriana M. Valencia, “Analysis of Decision-Making for Off-Grid Rural Electrification in Colombia,” Decentralized Solutions for Developing Economies, Springer International Publishing, 2015.
[4] Valencia, p. 262.
[5] Valencia, p. 258.
[6] United Nations Global Compact & KPMG, “SDG Industry Matrix: Energy, Natural Resources & Chemicals,” p. 9, online at: https://www.unglobalcompact.org/docs/issues_doc/development/SDG-industry-matrix-enrc.pdf
[7] Carlos St. James, “Colombia’s Hurdles to developing a viable renewable energy sector,” Latin American Energy Review blog, March 20, 2017, p. 6, online at: http://carlosstjames.com/renewable-energy/colombias-hurdles-to-developing-a-viable-renewable-energy-sector/
[8] pv magazine, “Building a successful renewables auction in Colombia,” September 3, 2019, online at: https://www.pv-magazine.com/2019/09/03/building-a-successful-renewables-auction-in-colombia/
[9] International Renewable Energy Agency, “The Power to Change: Solar and Wind Cost Reduction Potential to 2025,” 2016, p.32, online at: http://www.irena.org/DocumentDownloads/Publications/IRENA_Power_to_Change_2016.pdf
[10] Dalberg Global Development Advisors, “The State of the Global Off-Grid Appliance Market,” online at: http://www.dalberg.com/wp-content/uploads/2016/03/Global_LEAP_The_State_of_the_Global_Off-Grid_Appliance_Market.pdf
[11] World Business Council in Sustainable Development, “Business Case for Low-Carbon Microgrids,” online at: http://lctpi.wbcsd.org/wp-content/uploads/2016/09/Low-Carbon-Microgrid-Report.pdf
[12] Carlos St. James, “What Colombia needs to jumpstart renewable energy investment,” Latin American Energy Review blog, March 7, 2016, online at: http://carlosstjames.com/renewable-energy/what-colombia-needs-to-jumpstart-renewable-energy-investment/
[13] Blanca Diaz Lopez, “Colombia issues legislation for self-consumption,” PV Magazine, March 7, 2017, online at: https://www.pv-magazine.com/2017/03/06/colombia-issues-legislation-for-self-consumption/
[14] International Fund for Agriculture Development, “Investing in rural people in Colombia,” August 2016.
[15] All project information was accessed through Hybrytec’s Success Stories website at: http://www.hybrytec.com/index.php/casos-de-exito
[16] Hybrytec Energía Solar, “Case de Éxito: Asociación de Pescadores PIMPESCA, Buenaventura, Valle del Cauca,” online at: http://www.hybrytec.com/index.php/component/content/article/15-casos-de-exito/149-asociacion-de-pescadores-pimpesca-buenaventura-valle-del-cauca
[17] John Aglionby, “Lightbulb moment for M-KOPA,” Financial Times, March 17, 2016, online at: https://www.ft.com/content/ccfaa1ba-d0f1-11e5-831d-09f7778e7377
[18] Aglionby, Financial Times.
[19] James Mwangi, “This simple energy solution could improve the lives of millions of Africans – for less than $2 a day,” World Economic Forum, May 4, 2017, online at : https://www.weforum.org/agenda/2017/05/a-better-quality-of-life-for-less-than-2-a-day/
[20] World Business Council in Sustainable Development, “Business Case for Low-Carbon Microgrids.”
Photo Credit: Photo Provided by Kevin Garrahan