United States: Colombia To Award Long Term Power Purchase Agreements

The Colombian Government is expected to award long-term renewable power purchase agreements (PPAs) by October 22, 2019. The Mining and Energy Planning Unit (UPME) announced that a total of 26 traders and 27 generators with 56 generation projects submitted their interest to participate in the auction and on October 2, 2019 UPME shortlisted 23 traders.

This auction is part of the Government’s strategy to tackle current uncertainties about a potential power deficit in 2021 and 2022 in a sustainable manner and follows an earlier auction carried out in early 2019 that concluded without making any award as a result of the limited number of participants (14 offers by potential off-takers and nine offers by potential project developers). In July 2019, the Colombian Ministry of Mining and Energy ordered that a second auction be launched for long-term PPAs, which only allows for participation of agents of wholesale power market, as power purchasers, and owners of power generation projects from non-conventional renewable sources, as sellers. The Ministry of Mining and Energy expects that by January 2022 at least 10 percent of power distributed by companies in the wholesale market should come from renewable sources.

Among the main changes between the first auction and the new auction that is expected to be awarded on October 22, are the following:

  • Power Sources. The draft PPA for the first auction required the generation companies to generate certain median power from its own renewable power project. In contrast, the new PPA requires the generation companies to supply energy, which may be obtained from other sources. This change provides the developers with the flexibility to outsource the energy required under the PPAs from third parties in case of potential delays related to the construction of the new projects.
  • Contract Term. Under the new auction, the term of the PPAs will be 15 years from January 1, 2022. This is a longer period than the 12-year term set forth in the previous auction. All suppliers are required to start supplying power from this date, even if the new projects are expected to achieve commercial operation on a later date.
  • Scheduled Commercial Operation Date. Under the first auction, the projects were required to achieve commercial operation by a scheduled date no later than December 1, 2021. Under the new auction, the developers should achieve commercial operation by a scheduled date no later than December 31, 2023. According to the new auction, the bond provided to ensure completion of the projects would be gradually increased from 10 percent of the annual value of the energy awarded, if the project does not achieve commercial operation by the scheduled date, to (i) 20 percent, if the delay is less than six months, (ii) 30 percent, if the delay exceeds six months, (iii) 40 percent, if the delay exceeds 12 months, and (iv) 50 percent, if the delay exceeds 18 months.
  • Power Generation Projects’ Minimum Capacity. The first auction required projects with a minimum capacity of 10 MW, and in the new auction, the minimum capacity required from new projects is only 5 MW.
  • Power Blocks. Under the first auction, power was to be offered at a single price. In the new auction, power suppliers are allowed to submit offers in power blocks for periods ranging between 00:00 and 7:00, 7:00 and 17:00, and 17:00 and 24:00 and buyers shall present purchase offers in terms of maximum daily MW per hour. It is worth highlighting that the use of power block approach was one of the key features that helped Chile to launch a successful bidding process, which attracted many new developers and that ultimately culminated with the award of substantial power contracts to non-conventional renewable projects and a significant reduction to the price of energy in the Chilean market.

The improvements introduce in this second long-term power auction certainly helped to diversify the base of participant developers and allowed smaller projects to qualify for the auction (as a fact, the number of bidding developers tripled, from 9 to 27) and to maximize diversification even further, in this auction the Commission for Regulation of Energy and Gas (CREG) mandated that no seller should provide 50 percent or more of average daily power output.

The draft PPA for this second auction also preserves other key features from the first auction, such as the “take or pay” approach for the energy supply (which is a compelling feature that was not available in the successful auctions conducted in Chile), certain step-in-rights in favor of the lenders financing the construction of the new projects, the exchange of blank promissory notes (which is customary in the Colombian market), the delivery of a performance guaranty by seller (which under the new draft, will be equal to 20 percent of the annual price of the contracted energy)1and the delivery of a payment guaranty by the off taker (which for this second auction, will be equal to 30 percent of the annual price of the contracted energy)2.

However, this second long-term power auction also faces several challenges that will be tested after the award date.  Among the most notable hurdles that developers, off takers and financiers will need to overcome are the following:

  • Contract Price in Pesos. Despite criticism raised by foreign interested parties in the previous auction, the PPA still sets the energy price in Colombian pesos (a price that would be adjusted on a monthly basis by the producers’ price index determined by Colombia’s National Statistics Department (DANE)). As it may be recalled by other examples, such as the 4G Toll Road program in Colombia or Argentina’s renewable program “Renovar”, the use of local currency has been an important challenge to attract foreign developers and/or lenders.
  • Financial Strengths of the Off-Takers. The fact that this auction is limited to participants in wholesale power market does not necessarily mean that all of power purchasers will meet the credit worthiness that may be desired from the off takers, especially in the context of a project finance transaction where the certainty of expected cash flow is a paramount concern. In this regard, it should not be a surprise that the financial analysis of the off takers to whom the PPAs are awarded will be cautiously scrutinized by the lenders willing to provide the financing for the new projects.
  • Change of Control. In case of an indirect assignment or change of control, the seller may only object to any such assignment or change of control under very limited scenarios, and any potential concern regarding the credit worthiness of the new controlling entity is not an excuse to reject any such change of control.
  • Penalty in Case of a Termination Default. In the event of a default by a party that may cause the early termination of the PPA, the non-defaulting party is entitled to request a penalty equal to 20 percent of the PPA’s contract value (that is, a value equal to the contracted energy multiplied by the energy price and the supply period). This penalty may be accumulated with other damage claims, including loss of profit claims. In the context of a project finance transaction, the expected amount of the penalty to be collected should be a natural ceiling to the loan amount that may be assigned to such PPA.
  • No Direct Agreements. As noted above, the PPAs do provide for some basic step-in rights in favor of lenders, but the off-takers are not required to negotiate direct agreements with lenders that may wish to clarify (or improve) certain provisions of the PPAs.
  • Dispute Resolution. The PPA provides that any dispute would be resolved by arbitration according to the rules of the Arbitration and Conciliation Center of the Bogota Chamber of Commerce. In light of the recent Landmark Decision in the Ruta del Sol II Arbitration, the use of domestic arbitration may be a concern to potential international lenders.

According to a recent S&P’s report, Latin American countries may see major investments in renewable energy, particularly in Chile, Colombia and Brazil3.  In this regard, during the 2019 United Nations General Assembly, President Iván Duque announced that Colombia, along with Chile, Peru, Ecuador, Costa Rica, Honduras, Guatemala, Dominican Republic and Haiti, is taking on a lead role towards accomplishing the collective target of 70 percent renewable energy use by 2030. According to President Duque, this is part of the region’s compromise to tackle climate change. The lower costs and abundance of natural resources is key for the region in implementing wind and solar projects and is attractive for key power players and international lenders.

There is no doubt that Colombia needs to continue improving its energy matrix and is trying to take a leading role in a region that shows a strong appetite for more renewable power sources. However, despite Colombia’s noble intention, the road to success on this endeavor will be challenging and a significant dose of ingenuity, pragmatism and careful consideration of the risks and mitigations will be required during the implementation phase of this undertaking by the relevant market participants, including the Government, developers, off takers, lenders, suppliers and contractors.


1.The performance guaranty in the first auction was equal to 33 percent of the price of the median annual energy. Under the current PPA, it would be for 30 percent of the annual price until the effective date of supply, when it will decrease to 20 percent.

2. The payment guaranty in the first auction was for 33 percent of the price of the median annual energy.

3.  Project Finance International, August 2, 2019, Americas: LatAm – S&P bullish on renewables.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions