The long-term renewable energy auction promoted by the Colombian government is entering a decisive stage with 43 interested parties and supply contracts scheduled to begin in 2030 and 2035. However , behind the initial interest, a concern persists in the market: the low number of generators willing to offer energy and a contractual structure that, according to analysts, could reduce its competitiveness compared to the bilateral PPA market.
The process, which includes 15-year power purchase agreements for solar and wind projects, seeks to incentivize new generation capacity in a system facing the need to incorporate firm supply during the next decade.
The call sparked interest from marketers, distributors and large consumers, but the participation of generating companies has been more limited , a scenario that the sector attributes both to the demands of the mechanism and to the alternatives that the private market offers today.
In that context, Álvaro Pérez Ramírez, Manager of AFRY, argues that the main challenge of the auction is not the need for new generation, but competing with a bilateral market that is already showing signs of maturity.
"Today in Colombia there is a fairly dynamic PPA market," the executive stated, explaining that many developers find better conditions by negotiating directly with marketers and large consumers.
According to Pérez Ramírez, these private contracts are currently being negotiated at a price between 280 and 320 Colombian pesos per kWh (approximately between 83 and 95 USD/MWh), a benchmark that, in his opinion, establishes a price floor for the auction. He also believes the mechanism should incorporate an additional premium to compensate for risks associated with the contractual structure, such as counterparty allocation and energy delivery obligations.
Among those interested in the auction are companies such as Enel Colombia, Celsia, Empresas Públicas de Medellín (EPM), Terpel Energía, AES Colombia, GECELCA, Air-e and Urrá , among other agents authorized by the Colombian Mercantile Exchange, although the market continues to closely observe how many of them will ultimately submit generation bids.
Despite doubts on the supply side, Pérez Ramírez clarifies that the need for new capacity in Colombia remains high. "There is a generation shortage. Demand is growing quite strongly, and energy retailers are eager to sign contracts," he stated. This need explains the interest shown by buyers, although it doesn't necessarily translate into a greater number of offers from developers.
Why is the auction losing appeal compared to private PPAs?
Although the call sparked the interest of 43 agents, AFRY believes that the composition of the participants reflects a market where demand seems to show more enthusiasm than supply.
According to the consulting firm, many developers already have contracting alternatives in the bilateral market and do not necessarily find sufficient incentives to allocate capacity to the auction.
"The good thing or the positive lesson that came from the failure of the previous auction decree is that a private framework for PPA contracts was developed that has worked well and has enabled projects," the executive said.
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Beyond price levels, AFRY identifies structural differences between auctions and bilateral contracts that could influence developers' decisions. The main difference lies in the management of commercial risk: while a private PPA allows for direct negotiation with the buyer, the bidding process distributes contracts without the parties knowing in advance who their counterparty will be.
"The auction structure makes both parties anonymous," explains Álvaro Pérez Ramírez, Manager at AFRY. "When you negotiate a bilateral PPA, you know perfectly well who you're signing with, what the credit risk is, and what the contract terms are," he added, noting that this difference forces developers to assess the risk associated with each contract differently.
The executive also warns that a single project could end up allocating its energy to several buyers, rather than securing a single, large-volume contract. This fragmentation increases the commercial and financial complexity of projects and can impact their bankability, especially when investors assess the risk profile of future revenues.
"If they offer 100 and no one wants 100, but four people want 25, he's going to sign with four people who will buy those 25. This increases counterparty risk," Pérez Ramírez explained. "It takes away the generator's power to negotiate with an off-taker he considers reliable," he added.
In that context, Pérez Ramírez believes that the award prices will hardly be below the values currently offered by the bilateral market (83-95 USD/MWh) .
"The expectation is that auction prices will be above bilateral PPAs because they incorporate a premium for counterparty risk and the product structure," he said.
In addition to commercial risk, AFRY believes that the design of the auctioned product will also influence the competitiveness of the bids. Unlike many bilateral contracts, where energy is remunerated based on the plant's actual production ("pay as produced"), the auction requires delivery commitments under a specific profile, shifting greater responsibility to the generator.
It's worth noting that the call for tenders includes four products differentiated by technology and supply horizon. The first two correspond to contracts for conventional renewable generation—mainly solar and wind—while products three and four incorporate battery energy storage systems (BESS), expanding the technological scope of the mechanism for the first time.
"It's not a 'pay as produced' model, but a 'pay as contracted' model. A solar power curve is contracted, and the generator carries the risk of not delivering that energy at certain times due to the inherent nature of the generation profile," he explains. Consequently, he maintains that developers will need to incorporate this risk into their pricing strategy when submitting bids.
The consultancy also warns that this feature could favor projects with more diversified portfolios or with tools to manage generation deviations, while developers with a single renewable asset would have less flexibility to meet the committed profile without incurring additional costs.
Despite this, Pérez Ramírez believes the initiative represents a positive sign for the Colombian market, offering a new long-term contracting alternative for incorporating renewable capacity. However, he emphasizes that the true level of competition will depend on whether the economic conditions offset the risks that generators perceive against the opportunities currently offered by the bilateral market.
"The auction is a good initiative, but it will have to compete with a private market that is already operating," the executive concluded.
According to the schedule established by the Colombian Mercantile Exchange and the Ministry of Mines and Energy, the final stages of participant qualification, training on the technological platform, publication of final lists, submission of financial bids, and contract awarding will take place during July . The timeline anticipates completing the process between July 23 and 24, before the change of government scheduled for August 7, when Abelardo de la Espriella will assume the Presidency.