Colombia eyes CfDs amid moving timeline for South America's first offshore wind auction
ANALYSIS | Nation pushes back schedule as two-way contract for difference emerges as best option for support mechanism
Colombian authorities have pushed back the scheduling of what would be South America’s first ever offshore wind tender as they attempt to put the final touches to the revenue support mechanism that will underpin the process.
Under the latest timeline, Colombia has postponed the key qualification date to 27 September, from 21 June previously, with a corresponding shift in all the other milestones for the inaugural round.
The list of qualified bidders will now be known on 5 November and the date set for submitting bids is 24 April, 2025.
In recent decades, Colombia has developed a reputation for engaging closely with international investors and taking a responsive stance toward their concerns, especially in oil and gas.
The country has been rewarded with some of the highest rates of direct investment in South America.
Now, under President Gustavo Petro – whose left-leaning administration was elected in 2022 after pledging to invest in the energy transition and replace oil jobs with clean energy posts – Colombia has been stepping up efforts to engage with green investors and developers.
Two-way CfD in the works
In the case of offshore wind, a proposed revenue support mechanism has emerged as the key factor in need of definition.
The mechanism is being designed by a technical and legal team, with the support of Afry, a management consultancy, and funding from the ESMAP-IFC Offshore Wind development programme.
Juan Carlos Bedoya, head of regulatory and business affairs at the Ministry of Mines and Energy (MME) , has said the regulatory details will be in place before the end of the year and offered a glimpse of what is in store.
A two-way CfD offers generators the certainty of an agreed 'strike price' for the power they produce, with governments pledging to make up the difference if wholesale prices fall below the agreed rate. On the other side, power producers have to pay back the difference if electricity prices exceed the strike price. The mechanism has been hailed by many in the industry following its adoption in markets such as the UK.
Afry is also analysing outcomes for a bilateral contract to facilitate the first Colombian offshore wind tender round, similar to the final investment decision enabling (FID-enabling) contracts in the UK that allowed first projects to advance there before the full-blown CfD was in place.
Colombia blazing a trail
Colombia became the first country in Latin America to launch a competitive tender offering seabed acreage for offshore wind in December 2022.
The tender was launched by President Petro and his energy minister Andres Camacho during the COP28 climate summit in Glasgow. The pre-qualification process was set in motion later in December 2023.
The planned auction format points to a temporary occupancy concession, enabling winners to carry out surveys and apply for permission to build at a later stage.
The seabed areas included in the first call cover approximately 12,000 square kilometres on the country's Atlantic coast, with the expectation of reaching between 1GW and 3GW of total installed capacity in a first phase.
Analysis and consultation with regard to the more complete regulatory framework have been carried out by the MME, the National Hydrocarbons Agency (ANH), and the Directorate General of Maritime Affairs (DIMAR), working with the support of the World Bank Group (WBG).
According to officials, developers have been focusing their interest on 11 projects that could account for over 5GW.
Analysis has included technical and financial requirements as well as bidding criteria to obtain a concession, plus procedures for nominating areas and the performance bonds required for concession-holders, but definition of the revenue support mechanism has been the key missing element for many interested parties.
Carolina de Mas, World Bank’s LAC lead advisor for offshore wind commented on the emergence of a two-way CfD format: “This is the first announcement of a revenue support mechanism in Latin America and the Caribbean region to support offshore wind projects. We are looking forward to seeing it materialise very soon in a framework that will enable bankable offtake agreements in Colombia”.
Risk and response
The delay announced to the pre-qualification and other timelines may reflect the workings of administrative law in Colombia where, as in several other Latin American countries, the exposure of civil servants to a risk of individual liability for regulatory decisions can result in a slower-moving and more bureaucratic decision-making process than other regions of the world.
Prior to the latest initiative, the perception of slow progress in defining the revenue support mechanism had resulted in some fairly conservative medium term forecasts for Colombia.
The core forecast of a recent quarterly outlook by TGS-4C Offshore predicted that the country will not have any offshore wind capacity in place by 2030, and will only reach 1.6GW by 2040.
While acknowledging Colombia’s potential, especially off the Guajira peninsula on its eastern side of the country’s Caribbean coast, the market intelligence firm noted that the country needs to provide more clarity and that “permitting is several years off”.
But Colombian authorities are determined to maintain the momentum of their tender by providing investors with as strong a signal as possible of what will emerge, and they have stepped up their market engagement by organising a series of webinars this month.
Two of these events were geared to explaining the regulatory updates and changes in tender documents made after consultations with industry as well as offering . The webinars also provided the latest updates on an evolving framework for permitting.
Another webinar, held last Thursday, addressed the latest analysis and conclusions on the proposed revenue support mechanism now emerging for offshore wind in Colombia.
As part of the regulators' effort to regain the initiative and foster investor interest ahead of the new timeline, Colombia’s next event will be a series of bilateral sessions between senior government officials and potential bidders to be held in London on 3 July.
During the events, the MME has has pledged to support investors throughout the development process and helping them navigate the permitting requirements as well as approaching communities in areas of influence.
TGS-4C Offshore’s own forecasts include a more robust scenario where Colombia installs 1GW by 2030, 3GW by 2040 and 9GW by 2050.
Colombia has offshore wind technical potential of 109GW, according to the World Bank Offshore Wind Development Program, comprising 31GW of fixed and 78GW of floating wind potential.
MME and DIMAR have pledged to guarantee the transport capacity and the necessary infrastructure so that offshore wind energy projects can connect to Colombia's national grid system (SIN).
MME statements offer assurances that work is in progress on the planning for expanding grid infrastructure and adapting it to offshore wind projects through "a clear procedure that will provide security to investors regarding the connection to future projects”.
Colombia's promotional documentation also recognises that the development of an offshore wind industry also requires investment in specialised port infrastructure to support procurement, installation and maintenance of the future projects.
One peculiarity of the Colombian format is the need for a state-controlled local partner.
While developers can go through the qualification and area nomination processes alone, and deposit their own offers, they will be required to enter into a joint venture with a state-owned or mixed private-public company from the Colombian energy sector before signing the occupancy permit.