INTENT ON INCENTIVES

Colombia 2018 | GREEN ECONOMY | FOCUS: FINANCING GREEN INVESTMENTS

From global investment funds to national legislation, Colombia looks to green energy with high hopes.

Brazil, Mexico, and Peru invest the most in the renewable energy in the region according to the International Renewable Energy Agency (IRENA), but new initiatives and investment funds active in Colombia are slowly changing the landscape.

At the broadest level, Climate Investment Funds (CIFs), which are some the most active climate funds in LatAm, have two active funds in Colombia. One, the Clean Technology Fund (CTF), focuses on clean transport and energy efficiency initiatives and is active in projects such as a pilot program for clean buses in Bogotá and other transportation upgrades in several cities.
In 2017, CTF updated its USD150-million Colombian Investment Plan, reallocating more funds to its Sustainable Urban Transport System and Non-Conventional Renewable Energy Program divisions. The added funds for transportation will go to the International Bank for Reconstruction and Development (IBRD) projects; meanwhile, the Inter-American Development Bank (IDB) will receive the reallocated money for non-conventional renewables.
One of IDB's projects through CTF funding leverages the multilateral development bank's technical expertise to support the development of a financing strategy for private investment in electricity generating systems in non-interconnected zones. These zones total over half the land in Colombia but only include a small proportion of the population. Renewables have potential in these areas because of the geographic difficulties in connecting them to distant, non-renewable power sources. Locally generated renewable energy is an opportunity to both increase renewables' contribution to the energy matrix and boost development. Securing financing for electricity generation in such zones would bring Colombia one step closer to its envisioned goals.
Another CTF project focuses on addressing financial bottlenecks and developing innovative instruments for SMEs specifically in Colombia's renewable energy sphere. Past experience has shown that less mature renewable energy markets do not only need technical assistance and capacity building; they need adequate financing models too. Indeed, an objective common to many CTF projects is to provide examples in how the private financial institutions in Colombia and other maturing energy markets can get more involved in this sector.
Multilateral, supranational development funds also operate in Colombia through the Geothermal Development Facility for Latin America, the first facility dedicated to geothermal energy in the region.
National regulations are also making their way to the forefront of discussions on developing Colombia's green energy industries and diversifying its energy matrix. In 2014, Colombia passed Law 1715 regulating the integration of non-conventional renewable energies, and it was later amended in 2015.
This law was meant to incentivize private investment in green energies. Fiscal incentives include: income tax deduction of 50% of investment value for up to five years, VAT exemption for renewable energy equipment and services, import duty exemption for renewable energy equipment, and accelerated depreciation of up to 20% per year for renewable energy investments. It also includes the extension of a fund for non-conventional renewable energies and ascertains the Unit of Energy Mining Planning (UPME) as a regulator of small-scale energy generators, which are those generating less than 1MW.
Though approved in 2014, many are still waiting for effective implementation of the regulations. The solar industry is looking especially promising, if only the government follows through on Law 1715. CEO of Refeel, Mauricio Sarria Duran, told TBY that Colombia is among the last of LatAm's major markets to develop its solar potential. To that end, he noted, “The next administration needs to follow the new regulations that were announced in end-2014 and working on speeding up processes for obtaining tariff exemptions for all imported materials required for all imported materials required for solar panels.” To the credit of financial institutions, Duran added that Colombian banks are quickly gaining an understanding of the young sector—likely thanks to the numerous funds guiding the way.