Colombia Gencos’ renewable energy projects will benefit cash flow
The low marginal cost of non-conventional renewable energy (NCRE) technologies and the long-term structure of contracts awarded by the Colombian government will benefit the cash flow of electric generation (Genco) companies, Fitch Ratings says. The government’s effort to diversify and improve the resilience of the country’s electricity matrix will also accelerate growth in the number of these projects. The investment should not pressure Genco’s credit profiles, given their sound capital structures.
The government announced the third long-term contracts renewable auction to promote the expansion of NCREs in July. According to energy ministry planning unit UPME (Unidad de Planeacion Minero Energetica), NCRE projects totalling 4.71GW of capacity are eligible for the auction.
The auction process will also allow NCRE projects meeting certain criteria to secure 15-year power purchase agreements (PPAs) beginning January 1, 2023. Project criteria include a capacity equal to or higher than 5MW, being registered with the UPME, being at least in phase two, and having the concept of connection to the national or regional transmission grid approved. There were approximately 155 wind and solar projects registered in phases two and three with an aggregate installed capacity of 10.1GW as of June 2021, per UPME.
The projects to be assigned in the third auction, those from previous renewable auctions, and current projects under construction will allow Colombia to reach a non-conventional renewable energy generation capacity of 2.25GW by 2022–2023. However, NCRE will still make up less than 10% of Colombia’s generation matrix. This reflects the country’s concentration in hydro assets, which makes the system vulnerable to dry weather conditions and leads to spot-price volatility.
Colombia’s NCRE capacity and penetration are lower than other Latin America countries, with just 0.1GW of installed capacity, distributed between wind and solar power plants. NCRE capacity in Brazil, Mexico and Chile is 17.1GW, 13.8GW and 5.4GW, respectively, while Argentina and Uruguay are at 3.4GW and 1.8GW, respectively.
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The country’s historical reliance on cost-effective hydropower generation is a key factor behind NCRE’s low penetration rate in Colombia. The lack of an adequate transmission infrastructure to connect potential renewable projects to the country’s main power grids has slowed the pace of NCRE’s growth.
We anticipate that Emgesa S.A. E.S.P. (BBB/Negative), Isagen S.A. E.S.P. (BBB-/Stable), and Celsia Colombia [AAA(col)/Stable] will participate in the auction. Capex is expected to average USD600.000 per installed MW for solar projects and USD1.2 million for wind projects.
Emgesa is expected to add 1,288MW of renewable capacity in Colombia through its pending merger with Enel Green Power Colombia. Expansion capex is expected to total USD1.2 billion from 2022 to 2024 and to be funded by an equity injection from shareholders. NCRE assets are expected to make up 25% of Emgesa’s consolidated installed capacity by 2024.
Isagen recently acquired 139.8MW of solar projects and is building a 20MW wind project to expand its NCRE generation and enhance its competitive position. NCRE’s capex is expected to total USD200 million from 2021 to 2023, to be funded with a mix of debt and internal cash generation.
Celsia Colombia is structuring NCRE projects with around 620MW of installed capacity, of which 340MW are wind and 280MW are solar. Capex for the projects is expected to total USD589 million from 2021 to 2024. NCRE assets will make up approximately 32% of Celsia Colombia’s combined installed capacity. Solar projects are expected to be funded through C2 Energia, an investment platform jointly owned with Cubico Sustainable Investment, a global investor in renewable energies.