New Energy market report from Business Monitor International: "Colombia Power Report Q2 2016"



[ClickPress, Wed Apr 06 2016] Venezuela's suspension of natural gas exports to Colombia will increase pressure on the Colombian power system in 2016 as the country ramps up thermal generation to weather the drought brought on by El Nino. This development has prompted us to downgrade our forecast for gas-fired power generation in Colombia in 2016 and it could lead to the government hiking electricity tariffs for all end users to ensure oil-fired generators remain financially viable amid higher fuel costs.

Latest Updates And Structural Trends

The impacts of the drought created by the El Nino weather phenomenon will be the main driver of developments in the Colombian power market in 2016. We expect a sharp fall in hydropower generation in 2015-2016, which has forced additional diesel and natural gas-fired power plants to be dispatched. The availability of excess thermal capacity to be used during periods of poor hydrology and plans to import natural gas should both allow Colombia to avoid experiencing power cuts, albeit narrowly.

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Due to a lack of domestic feedstock to satisfy the growing demand from power generators, Colombia had started importing natural gas from Venezuela from January 2016. However, in January 2016 Venezuela halted the exports, citing climate factors, as well as the need to generate electricity. In February 2016 Minister of Mines and Energy Tomas Gonzalez Estrada, announced the country will import natural gas from Ecuador instead.

The government is reportedly considering introducing an extraordinary hike on electricity tariffs paid by all consumers in the country. This would allow it to compensate the thermal generation plants that make their capacity available during the drought. Some of these have struggled to operate in the current crisis, as the price they are paid is lower than the costs they incur when running on diesel - more expensive than the lacking natural gas.

The Government finally sold its majority stake in Isagen in January to Canada's Brookfield Asset Management for COP6.49 tr (Brookfield valued the sale at USD2.2 bn) after years of delays. However, the sale received widespread criticismand in February 2016 and Colombia's attorney general's office opened a preliminary investigation into Finance Minister Mauricio Cardenas for supposed irregularities in privatisation of the company.

In November 2015, the government published a decree introducing tax incentives for new renewables projects, as for the 2014 renewable energy Law 1715. The decree is due to become effective in February 2016. Projects using renewable energy sources will benefit from four tax breaks, a 50% tax deduction on investment over five years, accelerated depreciation of assets, exemption of VAT on goods associated to the projects and exemption from import tariffs.

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You may also be interested in these related reports:

- Colombia Oil & Gas Report Q2 2016
- Venezuela Power Report Q2 2016
- Canada Power Report Q2 2016
- Brazil Power Report Q2 2016
- Egypt Power Report Q2 2016

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