WARMING THOUGHTS

Colombia 2013 | ENERGY | VIP INTERVIEW

TBY talks to Luis Fernando Rico Pinzón, CEO of ISAGEN, on renewables energies, the advantages of geothermal projects, and hopes for hydroelectricity.

How would you compare Colombia's energy sector with its regional counterparts?

Colombia requires three elements in order to become an energy power. The first is natural resources, which is something the country has in huge quantities. Colombia has large amounts of hydrocarbons and alternative energy sources able to produce electricity, such as water, solar, wind, and geothermal. I believe that the latter resources are underdeveloped. If we compare Colombia to other regional countries, the use of these natural resources is only around 10%. The country possesses huge potential in the renewable energy industry, and only Brazil has an amount of natural resources at a similar level. However, Brazil is a much larger country than Colombia. Secondly, I believe that Colombia has a very skilled and professional workforce to satisfy the sector's current needs. Still, I am a little concerned about the future needs of the sector in terms of engineers and specialists, because in the last few years the sector has had to seek out foreign workers due to the decreasing number of engineers graduating from Colombian universities. Thirdly, we need to upgrade the regulatory framework for the renewable energy industry, especially within the electricity generation segment. Colombia has achieved many important things since 1995, when the country adopted market-oriented reforms, with the government leaving regulatory issues to an independent body.

What other steps should be taken to speed up the development process of renewable energy projects in Colombia?

The main obstacle to more projects being developed in the electricity generation segment is Colombia's most common renewable energy resource. Colombia has large water resources, and it is cheap for us to produce hydroelectricity. The generation price of hydroelectricity is two times lower in Colombia than in any other region. Because of this, the cost of equipment to produce electricity from wind, solar and, geothermal energy is much more expensive, and this poses a clear barrier for their development. I hope than in the next five to 10 years electricity prices in the market will increase in Colombia, and at the same time the cost of alternative energy technology will decrease. This will boost the development of other renewable energy types. I believe that the government should also promote the development of different segments of the renewable energy sector by granting subsidies and incentives to electricity producers. Also, it is a matter of social consciousness, and society is slowly showing an increasing interest in renewable energy. In the near future, we expect to see an increase in the demand for renewable energy. I would also like to add that ISAGEN is working toward this goal. ISAGEN is monitoring the development of geothermal and wind energy facilities and the cost of technology in order to judge when to increase our participation in this segment in the near future.

“We need to upgrade the regulatory framework for the renewable energy industry, especially within the generation segment."

What are the advantages of geothermal energy, and what is the potential behind this type of energy in Colombia?

This type of energy has two main features that make it outstanding; ultimately, the main resource for this type of energy is water. What producers seek out when developing a geothermal project is suitable temperature and soil area to let the water circulate while warming up to become steam. Technology enables us to utilize steam and generate electricity. Therefore, generation costs are very low. I believe it can compete with hydroelectricity in Colombia. However, there are some issues to keep in mind when discussing developing geothermal projects, and one of them is exploration. Initially, the costs and risks of investment are high.

In which areas of the country is ISAGEN currently developing geothermal projects?

At the moment, and as a sole developer, we are implementing a project at Nevado del Ruiz, where there is a volcano. We have carried out studies with specialized international firms from the US and Japan. We also signed an agreement with an Ecuadorean company to start developing a project in a border area between both countries where there are three small volcano craters: Tufiño, Cerro Negro, and Chiles. However, there are many more potential areas in Colombia for geothermal projects: Paipa, in Boyacá, Santa Rosa de Osos, and in the south of Colombia, between Nariño and Cauca, in the Azufral area.

What is the company's current market share?

Currently, it stands between 19% and 20% in terms of commercialization. Regarding installed capacity, we are around 17%. We are the third company in the market behind EMGESA and EPM.

Is the company considering expanding its activities abroad?

For the last three years, we have been looking into production and commercialization projects outside of Colombia. We are looking at expanding into Peru, Chile, and Central America. However, we have yet to find an adequate project that fits our goals, expectations and plans, because we are highly committed to protecting the environment.

What are the general expectations of the company's performance and the prices of energy for the current year?

Extreme weather conditions can easily drive prices up in the capital markets, and over the last few months there has been speculation as to a possible weather phenomenon affecting the country. However, energy in Colombia is sold over two- to three-year contracts between producers and distributors at fixed prices. This means prices are unaffected by market volatilities, and provides companies and customers with security. Although prices in the last few months have been rising, I believe that by the end of 2012 they will return to their usual levels. I believe ISAGEN is doing well after some extremely positive years, and for the next couple of years ISAGEN is expected to generate revenues worth Ps1.7 billion, with an estimated operating margin of 40%. We anticipate the company and prices will grow in an organic way according to the development of the sector.

What will the Sogamoso hydroelectric project mean for ISAGEN, and for Colombia?

It is a key project for the company, because it will multiply the company's size and activity 1.6 fold. Currently, ISAGEN has 2,000 MW of installed capacity, and with the Sogamoso project this figure will increase up to 3,000 MW. The size of the Sogamoso project is 820 MW, and it will require Ps4.1 billion in investment. It will enable us to increase production figures by 60%. We believe that the project will be fully operational by 2014. To put the project into context at the national level, Sogamoso will meet 10% of the country's current energy consumption requirements, or some 5,050 GW/h per year. In other words, it would be like providing energy to half of Bogotá. We also believe that the Sogamoso project will be a leading infrastructure project for the development of the Santander region. It is a project that involves international contractors; Italian contractors manage the civil works and engineering, while German, Japanese, and Brazilian companies are also involved in the project from the equipment and provision point of view.

© The Business Year - November 2012